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ICA forum tackles tough issues

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Industry conferences sometimes fail to tackle the real issues, but the Insurance Council of Australia (ICA) annual forum in Sydney on Friday packed serious punch.

CEO Rob Whelan got things off to a flying start by holding the Federal Government to account for its failure to act on strong recommendations to increase disaster mitigation spending.

Australian Prudential Regulation Authority Executive Member Geoff Summerhayes was almost trailblazing in encouraging financial businesses to acknowledge and manage climate-related risks.

And Australian Securities and Investments Commission Chairman Greg Medcraft didn’t hold back when warning the industry to get its act together on add-on insurance.

ICA also established a fresh review of the industry Code of Practice and research findings on effective disclosure.

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NSW reels as hailstorm, bushfires strike (updated)

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NSW has been pummelled by two natural catastrophes over the past week, with bushfires devastating several regional areas and Sydney and Wollongong being battered by a hailstorm on Saturday.

The combined insured losses from the two catastrophes are now more than $70 million.

Insured losses from the bushfires have climbed to about $28.5 million from 1200 claims, according to the latest figures from the Insurance Council of Australia (ICA).

The hailstorms that pummelled parts of Sydney and Wollongong on Saturday have so far reached $42 million from about 17,500 claims lodged to date.

Most claims are from the hills district and the northern beaches, where tennis ball-sized hailstones damaged cars and house roofs.

The bushfires affected Warrumbungle Shire in the state’s central-west and communities close to Port Macquarie, Kempsey and Narrabri. More than 45 houses were destroyed.

The most recent blaze was at Carwoola, east of Queanbeyan, where 11 houses were destroyed and 12 others damaged in a grassfire late last week. 

ICA has declared the hailstorm and bushfires as catastrophes, with the insured loss total expected to rise as more claims are filed.

Industry profit surges on underwriting, investment gains

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Australia’s insurers and reinsurers earned a combined after-tax net profit of $2.9 billion last year, up 22.7% compared with 2015, latest statistics from the Australian Prudential Regulation Authority show.

The results, drawn from data provided by 99 insurers and 10 reinsurers, were largely lifted by strong underwriting and investment results.

Underwriting profit surged 34.8% to $3 billion, and investment income gained 24.8% to $2.8 billion.

The industry’s return on net assets grew to 10.5% from 8.7%, gross incurred claims fell 2.6% to $31.1 billion, net incurred claims declined 5.1% to $19.8 billion, and net loss ratio improved to 64% from 67%.

Gross written premium (GWP) increased to $44.6 billion from $43.3 billion.

The 99 insurers recorded GWP of nearly $42 billion, up from $40.7 billion, and underwriting profit surged to $3.04 billion from $2.18 billion.

Personal lines insurers’ net profit increased to $324 million from $194 million, net earned premium grew to $4.4 billion from $4.1 billion, and underwriting profit improved to $669 million from $444 million.

Commercial lines insurers’ net profit nearly doubled to $194 million, net earned premium dropped to $3.01 billion from $3.09 billion, and underwriting profit more than doubled to $328 million.

Household insurance GWP grew to $7.9 billion from $7.7 billion, gross incurred claims fell to $4.5 billion from $5.6 billion, the net loss ratio improved to 63% from 71%, and the combined operating ratio strengthened to 91% from 99%.

In fire and industrial special risk GWP grew to $3.85 billion from $3.75 billion, gross incurred claims fell to $2.68 billion from $4 billion, the net loss ratio strengthened to 65% from 89%, and the combined operating ratio improved to 107% from 134%.

Domestic motor vehicle GWP grew to $8.7 billion from $8.2 billion, gross incurred claims blew out to $7.9 billion from $7.2 billion, the net loss ratio deteriorated to 78% from 74%, and the combined operating ratio worsened to 100% from 96%.

Compulsory third party motor GWP climbed to $4.2 billion from $3.6 billion, gross incurred claims increased to $2.8 billion from $2.6 billion, the net loss ratio worsened to 63% from 61%, and the combined operating ratio deteriorated by one percentage point to 74%.

The 10 reinsurers’ GWP increased to $2.61 billion from $2.57 billion and their gross incurred claims grew to $1.96 billion from $1.23 billion. The net loss ratio worsened to 75% from 64% and the combined operating ratio blew out to 103% from 97%.

The reinsurers made an underwriting loss of $47 million compared with a $40 million profit in 2015.

ICA opens latest code review

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The Insurance Council of Australia (ICA) is reviewing the General Insurance Code of Practice under a broader push to improve the industry’s reach to consumers and keep pace with recent developments.

It will be the fifth review. The last assessment in 2012 led to the current code’s introduction in 2014.

The review will examine seven of the code’s 15 sections, including standards for employees and authorised representatives, standards for service suppliers, financial hardship, complaints and disputes, and monitoring, enforcement and sanctions.

It will also consider whether to introduce new areas of insurer behaviour.

“Though ICA believes the 2014 code is fit for purpose and remains the benchmark for industry self-regulation in Australia, recent external developments affecting the general insurance industry have led ICA to carry out a targeted review,” the council says.

The review will be conducted in consultation with key stakeholders including the Code Governance Committee, the ICA Consumer Liaison Forum, the Australian Securities and Investments Commission and the Financial Ombudsman Service.

An interim report will be released within six months.

The public can make submissions here. The closing date is March 31.

Climate change ‘doubled’ chance of NSW heatwave

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The record-breaking heatwave that hit parts of eastern Australia earlier this month was made twice as likely by climate change, according to researchers.

At its peak on February 11, temperatures soared to 47 degrees in Richmond, 50km northwest of Sydney.

NSW was the hottest place on Earth, and almost 100 bushfires raged across the state.

In an article for The Conversation, researchers Sarah Perkins-Kirkpatrick, Matthew Hale (both University of NSW) and Andrew King (University of Melbourne) argue climate change has made such extremes much more likely.

“Let’s be clear, this is not natural,” the article says. “What’s more, in just a few decades’ time, summer conditions like these will be felt across the whole country regularly.”

The heatwave was “all the more noteworthy” because the El Nino of 2015/16 is long gone and conditions are “firmly in neutral”.

“This means we should expect average, not sweltering, temperatures.”

The researchers say detailed analysis shows heatwaves “at least as hot as this one” are now twice as likely to occur.

“In the current climate, a heatwave of this severity and extent occurs, on average, once every 120 years, so is still quite rare. However, without human-induced climate change, this heatwave would occur only once every 240 years.

“In other words, the waiting time for the recent east Australian heatwave has halved.

“As climate change worsens in the coming decades, the waiting time will reduce even further.”

NZ insurers score high in code assessment

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New Zealand insurers have achieved “high standards” in handling claims and serving customers, according to the Fair Insurance Code’s first annual report.

There were 3858 complaints made to insurers’ internal dispute resolution services last year, arising from 1.12 million claims received by insurers.

Complaints handled by internal resolution services produced a 95% settlement outcome.

“Fourteen upheld complaints out of more than 1.12 million claims certainly puts in perspective that insurers are meeting high standards of service and resolving almost all claims,” Insurance Council of New Zealand CEO Tim Grafton said.

“By reporting the facts, we can hopefully change misconceptions in the community so people can have confidence that insurance is there for you when you need it.”

The code took effect in January last year, incorporating key changes such as requiring insurers to offer enhanced, effective communication, act reasonably when faced with the non-disclosure of relevant information, and prioritise vulnerable customers in a catastrophe.

Cyber takes top spot in NZ risk poll

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Cyber attacks are perceived as the biggest external risk for New Zealand businesses this year, according to an annual Marsh survey.

The threat ranks ahead of disruption from natural catastrophes in the poll, which was conducted before the Kaikoura earthquake in November.

“Cyber attack did not even rank in the top five risks in our 2013 survey, showing the speed at which this dynamic emerging risk is changing, at least in the minds of directors,” Marsh New Zealand Country Head Marcus Pearson said.

“It comes as no surprise there is frustration at the perceived slow progress of affordable, practical insurance protection for cyber-related risks as insurance companies struggle adapt to the pace of change.”

About 79% of respondents rate cyber attack as a medium or high risk, amid increased publicity around the threat.

Data from New Zealand’s National Cyber Security Centre shows a 25% increase in the number of data-loss incidents from July 2015 to June last year, and a 47% increase in the value of losses, according to the Marsh report.

The survey also shows 75% of directors consider an IT disruption to be of high or medium internal risk.

Nearly two-thirds of directors think this year will be riskier than last year.

Most respondents indicate a moderate or significant increase in board involvement in risk management, with health and safety legislation cited as the main reason. Mr Pearson says the trend is positive, particularly amid challenges from technological change.

EQC tallies quake claims as Kaikoura deadline passes

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New Zealand’s Earthquake Commission received 26,875 Kaikoura quake claims in the three months following the event.

The final number will rise, as the EQC is yet to receive some claims lodged with insurers before the February 14 deadline.

“The EQC received claims from across New Zealand and the majority were from customers in the main urban areas,” Acting GM Customer and Claims John Johnston said.

Latest figures show Christchurch customers lodged 5597 claims, while Wellington accounted for 3972. There were 3646 Marlborough claims, 2189 from Hurunui, north of Christchurch, 2006 from Lower Hutt, a major dormitory of Wellington, and 1715 lodged in the Kaikoura area.

Mr Johnston says the quake had unique characteristics and affected a large geographical area, including rural and urban customers.

Buildings accounted for 70% of claims lodged with the EQC, while 11% were for buildings and contents, 9% for contents, and the remaining 10% involved land damage.

Insurance companies are taking the lead on claims for damage to houses and contents following an agreement with the EQC aimed at simplifying and speeding the process.

Once a claim is settled, insurers will deduct the EQC excess from payments to customers and the commission will reimburse insurers for their assessments and any settlement payments made on the government-owned insurer’s behalf.

“The EQC’s agreement with the insurance companies is a tailored approach to respond to this event and streamlines how customers’ claims are managed,” Mr Johnston said.

Christchurch counts cost after deadly fire

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More than 1000 people were evacuated and 11 homes destroyed as a bushfire burned more than 1800 hectares of land close to Christchurch last week.

The blaze began in the Port Hills district on Monday, sparked by two separate fires.

It was eventually brought under control on Friday by more than 200 firefighters, 15 helicopters and fixed-wing aircraft. A helicopter pilot died in a crash on Tuesday while tackling the fire.

A state of emergency was declared in the area. The Insurance Council of New Zealand told insuranceNEWS.com.au it is too early to gauge losses.

In Insurance News (the magazine) this issue:

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Where is the Australian insurance market headed in the next 12 months? That’s the big question tackled by the latest edition of Insurance News (the magazine), which will be arriving in subscribers’ mailboxes over the next week.

Our annual look at where the industry is at and how premiums are tracking provides some alternative views, while our global report focuses on the emergence of new risks, with climate change risks becoming a permanent feature of the big picture.

Brokers in the rural areas report on how things are going beyond the city limits, we meet a company director who finds inspiration for his novels in the boardroom, a visiting expert provides new insights on innovation, and a bunch of industry veterans have pooled their intellectual and financial capital to invest in the industry.

All that and a whole lot more in insurance News (the magazine). It’s free to subscribers and its unique articles aren’t available online.

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Corporate

Zurich names commercial chief in regional shake-up

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Zurich’s Asia-Pacific commercial insurance business will be led by Chris Waterman as part of the company’s shift to a simplified structure.

Mr Waterman, who joined Zurich as commercial chief underwriting officer for the region last year, reports to Asia-Pacific CEO Jack Howell and global Commercial Insurance CEO Jim Shea.

The restructure does not affect the group’s Australian operation for now.

“At this stage we are still working through the proposed organisation design for Australia and we will provide an update at the appropriate time,” a spokesman told insuranceNEWS.com.au.

Zurich announced last September it will merge its commercial and global corporate operations worldwide. Integration is taking place on a country-by-country basis.

Mr Waterman also becomes Head of Property for the region.

Penny Search becomes Head of Casualty Asia-Pacific after joining the company on February 6 from AIG, where she was head of casualty and crisis management.

Alex Morgan, currently Chief Underwriting Officer Commercial Japan, will relocate to Singapore to become Head of Specialty, effective April 3.

“This simpler structure provides our customers with a streamlined, tailored offering and brings the clarity of focus needed to target Zurich’s global resources at the most important opportunities in Asia-Pacific,” Mr Howell said.

Reg Peacock, currently Head of Commercial Japan, will lead the Singapore business, subject to regulatory approval.

NTI adds 60 staff for marine launch

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About 60 staff will join Brisbane-based heavy motor specialist National Transport Insurance (NTI) as it undertakes a major expansion into the marine insurance market.

As reported in a Breaking News bulletin last week, CGU and Vero, which jointly own and underwrite NTI, will transfer their marine insurance portfolios to the joint venture to create Australia’s leading marine industry specialist, to be known as Marine Protect.

From April marine insurance specialists from CGU and Vero will move across to NTI.

CEO Tony Clark told insuranceNEWS.com.au Marine Protect will write marine cargo and hull.

“It is quite different to what we are used to, which is why we will be relying on the experts who are coming across,” he said. “What we bring into this is our claims record, incident management, service provision and innovative tech solutions.

“We will be looking to bring a great service model to the market, and things like Accident Assist will apply.”

Mr Clark says NTI has no plans to move into other niche areas “at this stage”.

Last year the company announced the formation of Yellow Cover, a mobile plant and equipment specialist which took over the portfolio of Lumley Insurance following its purchase by CGU parent IAG.

Ben Bessell, IAG’s CEO Australian Business Division, says NTI provides an opportunity to create “superior value to customers and partners in niche areas”.

And Anthony Day, Suncorp’s CEO Insurance, says NTI’s “DNA” makes it the natural home for Suncorp’s marine business.

“NTI is already a leader in delivering insurance solutions for the heavy motor and logistics industries and it will now become the truly definitive holistic freight logistics insurer in Australia,” he said.

Vero EM Corporate and Risk Managed Underwriting Andrew Kidd will lead Marine Protect, assisted by CGU National Underwriting Manager Marine Chris Kelsey and National Manager Marine Claims Mike Sullivan.

Zurich puts commercial motor on comparator site

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Zurich commercial motor policies will be made available on iSelect’s comparison website, with the Swiss insurer looking to add more general insurance offerings later.

“Through iSelect, we will bring a compelling insurance proposition, initially in commercial motor, to the small business world,” Australia and New Zealand General Insurance CEO Rajbir Nanra said.

“We are looking forward to working with iSelect to explore other areas we can work [in together]… in the commercial insurance space.”

Zurich declined to give further details on the areas it is considering.

iSelect Group Executive for Life and General Insurance Michael Keyte says having Zurich on the general insurance panel, in addition to offering its life products, will “enable us to better meet the needs of our rapidly growing customer base”.

“Not only will Zurich help us provide existing customers with a broader range of product options, but it will also help us to attract new customers,” he said.

IAG sets up Singapore insurtech hub

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IAG is to open an insurtech innovation hub in Singapore under plans to partner with start-ups and emerging businesses on new products and services.

It says the hub, called Firemark Labs, will be supported by the insurer’s $75 million venture fund, set up in December.

“Singapore is recognised as having one of the most developed fintech landscapes with a growing insurtech scene,” IAG COO Julie Batch said.

“We are the first Australian insurer to launch a space dedicated to insurtech in Singapore and will join a network of global innovators with hubs set up in the technology hotspot.”

Firemark Labs’ opening is supported by the Monetary Authority of Singapore as part of broader efforts to promote a culture of innovation in the financial sector.

IAG EGM Innovation James Orchard says the group can’t innovate alone, “so we are looking forward to working with entrepreneurs, technologists, researchers and problem-solvers based in Singapore who will bring a global perspective and new ways of working to our business”.

IAG says changing lifestyles are affecting how products are purchased amid “faster, simpler and more digital” trends.

Firemark Labs will operate from a space within IAG’s Singapore office.

Willis Towers Watson buys actuarial business

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Willis Towers Watson is to buy Russell Investments’ Australian actuarial practice for an undisclosed sum.

The deal involves 22 staff and more than 50 clients spanning the corporate, government, master trust and industry fund sectors in Australia and New Zealand.

Russell Actuarial specialises in defined benefit superannuation and new retirement and analytic solutions for accumulation super funds. The acquisition is expected to be finalised next month.

IAG plays down India expansion talk

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IAG has denied it is close to raising its stake in a major Indian general insurance operation.

Indian media reports claim the State Bank of India (SBI) has “started the process” to increase the Australian insurer's stake to 49% and will appoint a valuer to decide on the share price.

But an IAG spokesman told insuranceNEWS.com.au that while the option remains on the table, there have been no developments.

IAG owns 26% of SBI General. A rule change approved by India’s Parliament in 2015 allows foreign companies to increase stakes in insurers to 49%.

SBI General has a presence in 77 cities across India and employs about 2250 staff.

Tower rating under review as Fairfax takeover looms

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AM Best has placed Tower Insurance’s A- financial strength rating under review after parent company Tower Ltd agreed to Fairfax Financial Holdings’ $NZ197 million ($184.4 million) acquisition bid.

The ratings agency says the review will stand until the transaction closes and it completes its discussions with Canada-based Fairfax’s management.

“Any potential ratings impact from actual or anticipated changes to [the Tower businesses’] credit profiles also will be assessed,” AM Best said.

“Additionally, AM Best will factor its view of the extent of Fairfax’s financial support into the final rating determination.”

Tower Chairman Michael Stiassny says the rating action was expected. “An out-of-cycle rating review is standard business practice in the event a company is in play.”

Tower Ltd has appointed Northington Partners to prepare an independent adviser’s report on Fairfax’s offer of $NZ1.17 ($1.09) per share.

Shareholders will soon receive scheme documentation that will include the board’s recommendation and a summary of the adviser’s report.

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Custodian still working after sale falls through

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Custodian Underwriting Agency director Peter Hand says the business intends to continue operating after interest from potential buyers did not lead to a deal.

The business has deregistered two company names that are not required, but this has no impact on its continuing operations, he says.

“The company still exists and it still has a financial services number and there is still business on the books,” he told insuranceNEWS.com.au.

Mr Hand says AUB-owned Austagencies considered buying the business last year, although no acquisition resulted, while Pen Underwriting, a unit of Arthur J Gallagher, has also checked it out.

Sura, part of Austagencies, said in a letter this month that Sura Hospitality and Sura Commercial have entered an arrangement with Custodian to assist with renewal and new business requirements, effective from December 1 last year, with the arrangement ceasing on February 28.

Sura will continue to manage any claims from policies placed with it during the period.

Mr Hand says Custodian is looking at sourcing other security.

Chubb expands GPA offering

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Chubb New Zealand has updated its group personal accident cover, which lets employers in all industries offer staff protection against death or injury losses.

It says the product now features a visitors’ benefit, return-to-work assistance, cover for tuition or advice expenses and unexpired memberships, funeral expenses and a superannuation scheme contribution benefit. It also offers an optional extension to cover genitourinary losses.

Chubb has also removed the age exclusion.

Country President for New Zealand Andrew Brooks says the improvements are a response to broker and client feedback.  

General insurance buoys iSelect earnings

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iSelect’s general and life insurance business generated $14.4 million in operating revenue for the half-year to December 31, up 8% on the corresponding period of 2015.

The comparator does not give an earnings breakdown for the two product areas, but says its growing general insurance business made up for the under-pressure life segment.

General and life insurance earnings before interest, tax, depreciation and amortisation fell 26% to $2.5 million, partly dragged down by pressure on life margins.

The comparator’s overall operating revenue grew 18% to $78 million, gross profit increased 52% to $25.2 million, and net profit was $2.6 million, following a $4.2 million loss in the corresponding period of 2015.

CEO and MD Scott Wilson says he is confident of continued strong growth for the financial year and beyond.

He says the comparator is on course to meet its $21-$24 million earnings before interest and tax guidance.

iSelect offers consumers price and product comparisons on car, home, life and health insurance, home loans, electricity and gas, and broadband.

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Regulatory & Government

APRA sharpens climate focus as financial risks widen

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The Australian Prudential Regulation Authority (APRA) will take a more active role monitoring for climate change risks to the financial system, Executive Member Geoff Summerhayes says.

The Paris Agreement, Financial Stability Board work on business disclosures and new legal opinion on directors’ responsibilities related to climate risks are raising the stakes, he told the Insurance Council of Australia annual forum in Sydney on Friday.

“The days of viewing climate change within a purely ethical, environmental or long-term frame have passed,” he said. “More and more, the conversations we are having are about the practical realities and consequences of a changing climate.”

The former Suncorp executive says the focus on potential climate risks has extended beyond natural disasters to include transition risks from changes in policy, law, markets, technology and prices.

“Inevitably, even under a sanguine view of how smoothly this transition happens, there will be systemic impacts and implications that have to be carefully monitored,” he said.

That monitoring may include more sophisticated scenario-based analysis of climate risks at the company level, while APRA may examine risks as part of its system-wide stress testing.

A legal opinion released in November by the Centre for Policy Development and the Future Business Council found company directors who fail to properly consider and disclose foreseeable climate-related risks to their business could be held personally liable for breaching statutory duties.

“The possibility of legal liability heightens risks for companies that aren’t responding – one of the many ways, including damage to valuation and reputation, that failure to be on top of this issue might manifest,” Mr Summerhayes said.

He expects regulated entities to rise to the challenge alongside APRA.

“These are shared responsibilities. When things go wrong, it reflects badly on all of us – regulators, entities, governments and the entire financial ecosystem.”

Sharanjit Paddam, convenor of the Actuaries Institute’s climate change working group, says Mr Summerhayes’ comments are a timely reminder that businesses, politicians and the community should not ignore climate risks.

“We are pleased to see APRA is approaching this issue proactively and in sync with other regulators around the world,” he said.

ASIC chief fires warning shot over add-on cover

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Australian Securities and Investments Commission (ASIC) Chairman Greg Medcraft has warned insurers to raise their game on poor-value add-on insurance sold to people buying vehicles from dealers.

He told the Insurance Council of Australia (ICA) annual forum in Sydney on Friday the industry’s response to concerns raised last year has so far “fallen short”. ASIC found the products had an overall claims ratio of just 9%, with car dealers receiving four times more in commission payments than consumers receive in claims. Commissions are as high as 79%.

“These findings are, to put it bluntly, shocking,” Mr Medcraft said. “Insurers have designed complex and extremely poor-value products, and put their reputations at risk. And some of the most vulnerable consumers in society are paying the price.

“We are pleased to see industry engaging on these issues, but overall the proposals fall short of addressing the underlying issues in this space.

“So you shouldn’t be surprised to hear me say that our work on add-on insurance continues, and we will look to use our full range of powers to seek better consumer outcomes.”

Mr Medcraft says potential solutions include introducing a deferred sales model; raising training standards; holding insurers to account; enforcement action against insurers that breach the law; and public reporting on individual insurer outcomes.

Insurers had proposed a 20% cap on insurance commissions paid to car dealers, but the Australian Competition and Consumer Commission (ACCC) intends to reject this, according to a preliminary ruling.

The ACCC says consumers are focused on buying vehicles, not insurance, and the sales environment involves high-pressure selling tactics, a lack of adequate information, very high commissions and conflicts of interest.

“A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor-value products,” Chairman Rod Sims said.

He says a cap may delay development of more effective solutions.

Insurers lodging the application to the ACCC included Suncorp-owned AAI, Japanese-owned Aioi Nissay Dowa, Allianz, CGU, motor-focused Eric Insurance, Hallmark and QBE.

The ACCC expects to reveal its final decision next month. 

ICA says it takes the problems identified by Mr Medcraft seriously, and insurers are “committed to delivering better value”.

“Insurers maintain that a cap is necessary to improve consumer outcomes from the sale of add-on insurance,” CEO Rob Whelan said. “ICA and its members will seek discussions with the ACCC to see how insurers may be able to allay its concerns about the impact of a cap on customers and industry competition.

“ICA and its members remain engaged in discussions with ASIC and consumer advocates to refine a range of other initiatives proposed by insurers to increase the protection and value consumers receive from add-on products.”

Government not listening, ICA says

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Insurance Council of Australia (ICA) CEO Rob Whelan has called on governments to listen more closely to the industry’s concerns.

He told the ICA annual forum in Sydney on Friday that government co-operation “is not always evident”.

As an example, he cites the Federal Government’s response to the Productivity Commission report on natural disaster funding.

As insuranceNEWS.com.au has reported, the Government declined to act on the commission’s recommendation to increase mitigation spending to $200 million per year.

This “short term view” will have implications for insurance affordability in some areas, Mr Whelan warns.

He says governments can make real changes to reduce premiums, through increased mitigation spending, better land use planning and removing insurance taxes.

Without this, “relentless pressure” on prices in high-risk areas will continue.

In a video address to the forum Minister for Revenue and Financial Services Kelly O’Dwyer also stressed the importance of mitigation.

But she implied it is the responsibility of homeowners, not governments.

“Industry must encourage homeowners to mitigate risks, and reward them with lower premiums,” she said.

Industry wary over FOS merger plan

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Insurers support plans for a single ombudsman to handle financial and credit and investment disputes, provided a clear general insurance focus is maintained.

However, they have raised concerns over a proposed claims cap increase.

IAG says in a submission to the Government’s Ramsay review of external dispute resolution that  “years of work” will be undone if current processes are jeopardised.

The review’s interim report recommends replacing the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO) with a single scheme, and raising the $500,000 claims limit and $309,000 compensation cap.

FOS supports creation of the proposed new body, while the smaller CIO is against it.

IAG says FOS effectively handles insurance issues via a specialist stream.

“This has facilitated processes that complement the unique nature of general insurance products, including the implementation of a fast-track process to expedite small and low-value disputes – which include the majority of general insurance disputes,” it says.

The Insurance Council of Australia (ICA) says sharing of resources and back-office functions could improve efficiencies, but it cautions against higher claims and compensation limits.

“The procedures developed for dealing with small and relatively simple claims will not be appropriate for complex and high-value claims,” ICA says.

It warns a drastic increase in limits to at least $1 million would have implications for professional indemnity cover, and says more consultation is needed.

FOS has proposed ending the difference between claims limits and compensation caps, and supports raising the monetary ceiling to “future-proof the system”.

Chief Ombudsman Shane Tregillis says analysis undertaken with KPMG recommends a consumer claims limit of between $634,000 and $955,000.

“Ultimately, the Ramsay review panel will need to make final recommendations, but we support limits at the upper end of the recommended range,” he told insuranceNEWS.com.au.

“Given the nature and quantum of insurance claims, the changes to limits are not anticipated to have a major impact in insurance.”

Mr Tregillis says expertise across the range of disputes is important to FOS’ operations.

“In any future arrangements, we would aim to keep specialist expertise in insurance as part of an integrated whole,” he said.

The final report will be provided to Revenue and Financial Services Minister Kelly O’Dwyer by the end of next month.

New reporting rule forces data breaches into open

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Businesses will be required to report data breaches under Privacy Act amendments passed by Federal Parliament last week, raising the stakes for cyber risk management.

Federal agencies, companies and non-profits with annual turnover of $3 million or more will have to notify the Office of the Australian Information Commissioner of breaches, and alert affected individuals.

At present organisations are encouraged to notify the office, but there is no legal obligation. Under the rules passed last week, penalties will include fines of up to $360,000 for individuals and up to $1.8 million for organisations. 

Aon National Practice Leader Cyber Risk Fergus Brooks says the amendments are a “game-changer”.

“These financial implications will require a systematic change of attitude for many organisations, and conversations around cyber risks and data security need to be elevated to boardroom level,” he said.

“The new law will come into effect within a year. However, we recommend that organisations start preparing now.”

Costs arising from breaches can include business interruption, incident response, third party claims, legal costs and damage to data.

Barry.Nilsson Lawyers says the Privacy Act amendments signal a new era of transparency and corporate responsibility, and bring into focus the regulatory, reputational and other potential costs associated with breaches.

“Mandatory notification will bring our laws into line with those of other first-world countries and drag serious Aussie breach events out of the shadows and into the light of public scrutiny for the very first time,” Insurance and Health Group Special Counsel Megan O’Rourke said.

She says insurers and brokers should educate themselves on the requirements and the consequences from an underwriting and claims management perspective.

ICA research aims to aid PDS reform

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About 80% of consumers buy insurance without reading product disclosure statements (PDSs), and 88% are confident they understand policy details despite having a poor understanding of exclusions and limits.

That’s some of the conclusions of new Insurance Council of Australia (ICA) research into consumer attitudes that was released last week.

It follows a 2015 recommendation by ICA’s Effective Disclosure Taskforce to study how consumers buy insurance and to identify the best ways to overhaul product disclosure documents.

The research confirms price rather than a policy’s details is the primary focus when buying insurance.

It says many consumers fail to consider specific risks they need to cover, and policy renewal letters are the most trusted and commonly used document.

In a panel discussion at the ICA Forum in Sydney on Friday, lawyer Michael Gill, who chairs the taskforce, said the PDS system “was set up for failure from day one”.

He raised the possibility of standard policies for major classes, which he says could reduce the strain on consumers.

But Hollard CEO Richard Enthoven, whose companies produce a range of personal lines products, is not convinced.

“I question whether the cost/benefit would stack up,” he said. “This is a low margin industry and anything we do that increases the amount of claims we pay will result in higher premiums.

“I am open to discussion about standard wordings, but it needs to be very carefully thought out.”

ICA CEO Rob Whelan says the research will enable insurers to better help customers find the right policies.

“Insurers want to make the policy information they provide clear, simple and easy to navigate. The PDS is the key means of doing this.

“Unfortunately, many customers find these legal documents too long and complex.”

Now insurers understand how customers use insurance documents and other information, they can develop practical tools, introduce innovative technologies and design new strategies to improve customer engagement, he says.

“No single method works for everyone, and insurers may try various approaches with a range of products to engage different types of consumers,” Mr Whelan said.

See ANALYSIS

Employer penalised for workers’ comp blunder

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The owner of a NSW hospitality business must pay a three-year “avoided premium penalty” of $18,000 for failing to cover her workers’ compensation liabilities, the State Insurance Regulatory Authority (SIRA) says.

The Hunter businesswoman, whose name is withheld, could have faced stiffer punishment, including double premiums for up to five years, a fine of up to $55,000 and/or up to six months in prison.

SIRA investigators took account of mitigating factors when determining the enforcement action. These included the employer’s self-disclosure, co-operation and remorse.

The employer contacted the authority after realising her public liability insurance, which she says she purchased on the advice of her broker, did not cover workers’ compensation.

WA injury scheme seeks panel members

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The Insurance Commission of WA is seeking expressions of interest from medical experts and health professionals to join its Catastrophic Injuries Support Scheme.

The scheme provides care for people with spinal chord injuries, traumatic brain injuries, amputations, burns or permanent blindness from motor vehicle crashes in the state.

Medical experts are needed to form a review panel that resolves disputes about medical eligibility and the treatment, care and support needs of participants.

An information pack and expression-of-interest form can be obtained by emailing mvcisupport@icwa.wa.gov.au. The deadline for expressions is March 10.

FMA sets out strategic priorities

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New Zealand’s Financial Markets Authority (FMA) has listed seven priority oversight areas for the next three years.

They are investor decision-making, governance and culture, conflicted conduct, capital market growth and integrity, sales and advice, front-line regulators, and FMA effectiveness and efficiency.

The regulator says this year’s Strategic Risk Outlook “describes what we believe are the current and main drivers of risk to fair, efficient and transparent financial markets”.

“Our goal is to raise trust and confidence in our financial markets, which we believe will deliver better outcomes for investors, businesses and our economy as a whole,” it says.

The report also flags issues on the FMA “risk radar”, including rapid technological innovation, which is expected to transform the financial sector in coming years.

While it recognises the benefits technological advances have brought, the FMA warns associated risks must be properly managed.

These include retail investors’ exposure to complex products, data security vulnerabilities, and a time lag between release and effective regulation to manage risk.

“On balance, we believe the benefits are worth pursuing, provided the risks are managed well,” the FMA says.

“Balancing the reduction of risk with innovation and improved efficiency in the sector is the challenge that we and other international regulators currently face.”

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Life Insurance

Customer satisfaction drops amid bad publicity

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Policyholders’ satisfaction with life insurance fell to 67.4% last year from 68.8% in 2015, according to a new Roy Morgan single source survey.

This is the lowest satisfaction level among all other major insurance types. The study questioned more than 9000 life insurance policyholders last year.

Consumers who bought in person from a life insurer have a much higher level of satisfaction (76.4%) than those purchasing direct online (74.9%) or by phone (71.9%).

Those who bought from a bank record a satisfaction level of 67.8%, followed by those buying from a financial adviser (64.6%) and group life policyholders (64.1%).

By insurer, Allianz leads on 75.7%, followed by Insuranceline (75.2%) and Asteron (74.4%).

OnePath is bottom among the 13 largest life insurers with 64.2%, behind TAL (64.4%) and AMP (66.6%).

Only four of the top 13 life insurers showed an improvement compared with 2015: Asteron (up 5.6%), AIA Australia (2.6%), Westpac (2.4%) and MLC (0.1%).

Roy Morgan Research Industry Communications Director Norman Morris says recent negative publicity is having an impact.

“It is not surprising that satisfaction with life insurance has decreased during the past year and remains lower than the other major types of insurance,” he said.

“In addition to the problem of low overall satisfaction for life insurance, it is important to note that fewer than one in four (23.9%) customers are ‘very satisfied’.

“Not only does this compare unfavourably with the much-maligned big four banks (32.4%), but it is this measure that has the greatest impact on renewing policies and improving advocacy.”

Industry profits dive as disability cover expenses soar

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The life insurance industry recorded an after-tax profit of $2.3 billion last year, falling dramatically from $3.1 billion in 2015, according to the latest Australian Prudential Regulation Authority data.

The slump is due to disability income insurance, where expenses increased to $3.2 billion from $2.4 billion.

Gross policy income was $22.6 billion last year, up from $20.8 billion in 2015.

Claims totalled $8.6 billion, up from $7.6 billion.

Policies maturing totalled $421 million, down from $459 million. Lapses were almost static at $466 million.

Upfront commissions increased to $1.6 billion from $1.4 billion, and trails totalled $2.7 billion, compared with $2.4 billion in 2015.

Individual lump sum remains the largest and most profitable segment, with gross policy revenue up to $9.2 billion from $8.4 billion.

Lump sum total expenses were up to $6.4 billion from $5.6 billion, and after-tax profit dropped to $917 million from $1.1 billion.

In income protection, after-tax losses blew out to $517 million from $54 million, despite a slight rise in gross policy revenue to $3.3 billion from $3 billion.

Group life lump sum gross policy revenue was flat at $6.4 billion, while total expenses increased slightly to $4.3 billion from $4.1 billion. Profits in the segment were flat at $330 million.

Group income protection made a $43 million after-tax loss last year, compared with a $1 million profit in 2015.

Gross policy revenue declined slightly to $2 billion from $2.1 billion, and total expenses were flat at $1.3 billion.

Consumers ‘will pay more’ under commission reforms

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Life insurance industry reforms will cost consumers as trails increase due to policy longevity, comparator Rate Detective CEO Damon Rasheed warns.

In a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ life insurance inquiry, he says increased trails – up from 11% to 22% – will result in advisers receiving more in overall commission payments.

But the increase in commission payments is not enough to cover the cost of winning the business, the submission says.

“This is perhaps the one point the industry agrees on. The effect of this is that advisers are establishing fee-for-service models to supplement the loss of upfront revenue, where previously the service was free to consumers.”

Mr Rasheed says his company is also considering this. Rate Detective is a low-touch, high-volume personal insurance business specialising in “no advice” or “general advice”.

“Compared with a traditional financial adviser, who provides an advice model, Rate Detective’s cost of acquisition is relatively low,” the submission says.

“Although the company runs a low-cost model, the existing upfront commission is not sufficient to generate profits after subtracting the upfront cost of acquisition. Rate Detective’s business model is, therefore, to break even on upfront commissions against costs of bringing that business on board while building a trail book as an asset.”

Mr Rasheed says while increased trails are attractive, under the reforms an adviser will need a significant cash reserve to continue working as upfront losses accumulate.

“We submit that the proposed changes would lead to a reduction in the [number] of advisers in the industry or advisers would have to charge a fee for service, which would increase the cost of insurance to consumers,” the submission says.

Mr Rasheed says Rate Detective is reducing the number of advisers it has on staff, preferring to focus on other areas of business.

On top of advisers charging for life advice, premiums will rise to cover the cost of higher trails, its submission says.

“We cannot find a single insurance company that will go on the record that prices will decrease as a result of these proposed changes.”

Mr Rasheed says at least five price rises have been announced since the reforms were unveiled. “We believe the timing of these price rises is no coincidence and is the first sign of things to come,” he said.

Commission framework ‘makes life sales unviable’

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A life insurance adviser could receive $1200 less for delivering a typical service under proposed new commission rules, according to financial planning practice LifeNet (WA) director Brendan Lynch.

He says arranging $500,000 of cover for a 40-year-old couple, with $300,000 income protection, currently results in an upfront commission of $2600-$3000, depending on the insurer chosen.

“We receive 100% of this premium as arranged with the insurance company,” he says in a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ life insurance inquiry. “The $3000 premium is the result of about 20-23 hours of time on implementing insurance for one couple.

“Under the proposed legislation we would receive 60%, or $1800, while undertaking the same administration time, effort and care.”

He says doing the same amount of work for less payment is not viable.

“There is no room for growth with this model,” the submission says. “Our only option is to invoice clients for the difference, an additional $1200 in the example, just to be able to continue to provide our services and sustain our staff.

“We are, in effect, introducing an out-of-pocket fee to clients who understand and have no issues with the current structure.”

Mr Lynch says consumers will not pay for advice, and therefore will not take out insurance, meaning the Federal Government will be required to pay more in health costs and other benefits.

Premium flat but CommInsure returns to profit

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CommInsure says life insurance inforce premium for the six-months to December 31 was flat at $1.7 billion.

New business sales in the period totalled $126 million, offset by lapses of $147 million.

Income for the business fell 33% to $220 million in the half-year, driven down by a $90 million loss recognition arising from an increase in income protection claims reserves.

CommInsure says group life insurance income fell slightly, but it gives no figures. It says this was offset by winning new mandates.

Despite losses in the income protection business, CommInsure has turned itself around, making a pre-tax profit of $120 million for the six months, compared with a $105 million loss in the corresponding period of 2015.

After-tax profit for the half was $106 million, up from a $74 million loss.

APRA renews call for investment on legacy issues

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Life insurers can address the complexity of legacy products by investing in better systems and data management, according to the Australian Prudential Regulation Authority (APRA).

“Historically, life insurers have underinvested in their systems and are unable to efficiently manage the ever-increasing number of legacy products,” the regulator says in a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ industry inquiry.

“Data on legacy claims and policies is not readily available in a reliable way to inform decision-makers.”

APRA says it has been concerned about underinvestment in systems for some time, but it notes some insurers have started work on long-term upgrades.

“Better data processes and systems benefit the consumer and the insurer by delivering better customer service in the event of a claim, and by improving the efficiency and decision-making of the insurer,” the submission says.

“A lack of robust, reliable data, together with old systems and software, imposes significant constraints on the ability of an insurer to manage its business efficiently.”

APRA accepts changes in legislation would make rationalisation of legacy products easier.

The industry and Federal Government worked to develop a legal instrument enabling legacy policyholders to be moved simply to new products without a detrimental impact.

But these discussions petered out, and despite the Financial System Inquiry also recommending action, there has been no progress.

“APRA continues to strongly support the need to comprehensively address this issue. From the perspective of the product provider, it would help mitigate the increasing operational risk that such products create, as well as improve the industry’s operational efficiency.

“From the consumer perspective, it has the potential to improve consumer outcomes by updating definitions, improving efficiency and administration, and lowering costs.”

Challenger’s annuities records tumble

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Challenger’s annuity sales continue to rise, gaining 34% to $2.2 billion in the six months to December 31.

Fixed-term annuity sales account for most of the business, with inflows of $1.6 billion, compared with $1.4 billion in the corresponding period of 2015.

Lifetime annuity sales doubled to $554 million.

However, maturities and repayments also increased, to $1.7 billion from $1.3 billion.

Challenger CEO Brian Benari says the results show strong momentum in the life business, with all performance metrics growing.

“During the first half we achieved record annuity sales and a record low cost-to-income ratio,” he said.

“Importantly, we also paved the way for future growth by expanding our distribution relationships and our product offering.

“This is enabling us to make the most of opportunities arising from the rapid growth in the retirement income market.”

Challenger has expanded its distribution deal with BT Financial Group, offering term annuities, lifetime annuities and CarePlus through the new Panorama platform from the first quarter of 2017/18 – the same date from which AMP will offer Challenger annuity products.

“Once both of these distribution relationships have come on line, Challenger annuities will be represented on investment and administration platforms used by two-thirds of financial advisers in Australia,” Mr Benari said.

“Access to annuities on platforms makes it easier and more efficient for advisers to recommend the use of annuities to their clients and is a key driver of sales.”

Poor mental health environments drive out staff

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A new study shows almost half of respondents have left a job due to an employer’s poor mental health environment.

SuperFriend, a non-profit mental health foundation backed by insurers, interviewed more than 1000 workers, managers and business owners about mental health issues in the workplace.

Responses were measured against 38 characteristics of a mentally healthy workplace, including flexible working hours, access to external support services, accessible managers and internal counselling services.

Between 2015 and the latest study, positive responses on the flexible working hours characteristic fell from 39% to 34%. There was a 5-10 percentage point decline in positive responses across all characteristics.

The biggest drop was in “managers giving clear guidance on priorities and what is expected of employees”.

SuperFriend CEO Margo Lydon says employers can reap productivity, talent-retention and long-term cost benefits from improving conditions in their workplaces.

“Three in four employees surveyed believe their company is more likely to recruit and retain the best talent by adopting mental health practices and initiatives,” she said.

“When you compound this with the increased productivity of mentally healthy workers, the reduced numbers of workers’ compensation claims and fewer absences, it is obvious that mental health is a worthwhile investment.”

Ms Lydon says improving mental health awareness and care in the workplace is a “work in progress”.

“Employers are more likely to invest in intervention rather than prevention.

“There needs to be a shift in this mentality if companies are going succeed in creating healthier environments for their employees.”

Only 12% of employers conduct mental health audits, down by five points from 2015, the survey shows. About 12% offer mental health wellbeing programs.

Only 14% of respondents say their employers have return-to-work policies for mental illness, down six points. About 18% have return-to-work policies for physical illness.

Choice calls for life policy key fact sheets

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Choice wants key fact sheets introduced for life insurance products to help consumers understand them better.

Fact sheets for some general insurance products and home loans help people compare products, the consumer advocate says in a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ life insurance inquiry.

“The goal of a properly functioning market should be to assist product comparison, to drive competition and ultimately deliver products that are better aligned to consumer need.”

Choice says there is currently no consistent way of presenting information in life insurance product disclosure statements.

It concedes that because key fact sheets are still relatively new, there has been little opportunity to check their effectiveness.

“However, the preliminary research indicates consumers who use them benefit, although there are still problems with awareness of their existence.

“A study into the use of key fact sheets for home loan products found they effectively enhanced a consumer’s ability to identify the cheapest loan package from among several alternatives. Although the study demonstrated low levels of awareness among consumers of the existence of the sheets, it showed this was likely due to poor levels of information provision and staff training.”

Choice says shadow-shopping exercises show consumers are unlikely to be given fact sheets unless they ask for them.

“This indicates mandatory requirements for businesses to provide useful information at key points in consumer decision-making are necessary for effective disclosure measures.

“The document should be ‘pushed’ to consumers, rather than requiring consumers to search and ‘pull’ the information themselves.”

Zurich grows sales team

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Zurich Financial Services Australia has expanded its national sales team through a key promotion and 11 appointments.

NSW Business Development Manager (BDM) Nathan Taggart has become Head of Strategic Development, reporting to Zurich Life & Investments Head of Distribution Kristine Brooks.

In NSW Zurich has appointed Annqua Murray and James O’Dwyer as BDMs and Liz Versace as a Business Support Officer. Ms Murray joins from TAL, where she worked as a sales development specialist, while Mr O’Dwyer comes from an advice background. Ms Versace was previously new business team leader at OnePath.

Tanya Woolnough joins as a Queensland-based BDM. She was previously in the same role at AMP.

In Victoria Zurich has appointed Emily Cossignani and Andrew Roberts as BDMs, while Sarah Nichols has been promoted to the same role. Tim Atley joins as Strategic Accounts Manager and Heena Mulchandani has been appointed a Business Development Associate.

Ms Cossignani has joined from AIA Australia, where she worked in business development support roles. Ms Nichols joined Zurich’s general insurance division five years ago before becoming a business development associate with the insurer’s life business in early 2014.

Mr Roberts was formerly national insurance manager at NAB Financial Planning, while Mr Atley was head of sales and operations at comparison website Lifebroker. Ms Mulchandani joins Zurich from a paraplanning role at Salt Financial Group.

In WA the insurer has appointed Richard Burton and Steve Coyle as BDMs. Mr Burton was previously part of Westpac’s mortgage broking team, while Mr Coyle ran his own financial planning business.

Ms Brooks says the appointments follow Zurich’s recent acquisition of Macquarie Life and the formation of several important distribution relationships.

“This investment in the size of our team allows us to fully support our growing network of independent financial advisers and bank-aligned partners,” she said.

“The appointments come prior to Zurich revamping and refreshing its products this year and more fully integrating the products acquired through the Macquarie Life acquisition.”

Advisers’ deadline for tax registration looms

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The Tax Practitioners Board (TPB) says financial advisers are running out of time to register as tax advisers under reform transition arrangements.

They have until June 30, with authorised representatives and dealer groups working to the same deadline.

TPB Chairman Ian Taylor says advisers can register under the transition arrangements or apply for a standard registration, having met the board’s requirements.

“An adviser may decide the transitional registration is the best option because it gives them extra time to satisfy the registration requirements under the standard registration option.

“This includes individuals meeting qualifications and experience requirements, and companies and partnerships meeting the sufficient number requirement.”

The transition option requires an adviser to have sufficient experience – 18 months or more – to provide tax advice services to a competent standard.

If advisers miss the June 30 deadline, they must meet the standard education and experience requirements.

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The Professional

UAC calls for Sydney expo exhibitors

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Underwriting Agencies Council (UAC) members are invited to exhibit at the group’s 18th annual Sydney expo on March 10.

GM William Legge says it is the highlight of the annual event calendar and attracts hundreds of brokers.

“This year’s expo promises to be a blockbuster, with huge interest already being shown from UAC members keen to exhibit and brokers who want to get registered to attend,” he said.

Members can show brokers their products, and will have a chance to win $5000 in travel vouchers.

A breakfast meeting will feature Lloyd’s Performance Management Director Jon Hancock as guest speaker. He is responsible for performance, capital setting and risk management at the market. Before joining Lloyd’s late last year he was with London-based RSA for more than 25 years, including as CEO for Asia and the Middle East.

Renowned mountaineer Andrew Lock will be guest speaker at the lunch event.

Exhibitors and brokers can register for the expo here.

NIBA reveals new president, board changes

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Austbrokers AEI Group MD Tim Wedlock has replaced Edgewise Insurance Brokers director Graham Stevens as President of the National Insurance Brokers Association (NIBA).

Mr Wedlock says his appointment is “a great honour and responsibility”.

“I’m really looking forward to working with the greater insurance community, as well as CEO Dallas Booth and the rest of the board and our divisional committees, on ways of promoting our NIBA message for the future, being the voice for our broking partners around Australia,” he said.

Aon Risk Services director Eric Harris has replaced Mr Wedlock as VP.

Mr Stevens will remain on the board as a director. Dianne Phelan, Group Operations Manager for BJS Insurance Group, was appointed to the board in December, joining Willis Towers Watson’s Marigold Magnaye as the only other woman on the 12-person board.

Mr Booth says Ms Phelan’s appointment “goes some way” to redressing the gender imbalance.

“It would be great to have more women represented on our board to reflect the changing broker demographic, and this is the first step in the right direction,” he said.

DeConno & Blanco Insurance Brokers director Peter Blanco and Vero State Manager Queensland Peter Roberts have both retired from the board. Before being appointed by Vero in December, Mr Roberts had worked as a broker for 33 years.

Marsh COO David Duffield will soon retire from the board to join the industry’s Code Compliance Committee following the retirement of Catlin Singapore director and Aon Charitable Foundation Chairman Stephen Lardner.

Ex-QBE manager takes CGU workers’ comp role

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Former QBE head of marketing Colin Ahern has joined CGU as its EM Workers’ Compensation Victoria.

He reports to IAG EGM Long Tail Claims Stephen Marshall.

Mr Ahern was with QBE from 2001, holding a variety of senior management roles including national underwriting manager for statutory classes, national manager of marketing and business development, and GM corporate partners.

Vero appoints Queensland underwriting manager

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After a brief hiatus from the insurance industry, industry veteran Bryce Hatton has returned as EM Commercial and Consumer Underwriting Queensland for Vero.

His most recent role in insurance was as national operations manager for third-party claims administrator Gallagher Bassett.

Vero Head of Small Business and Consumer Underwriting Brad Dalton says Mr Hatton has “all the credentials” to support Queensland brokers.

“Bryce has more than 25 years’ industry experience across underwriting, claims, sales and broking,” Mr Dalton said.

“He also has very strong relationships in the Brisbane commercial broker market.”

Mr Hatton has previously held senior roles at Stream, National Transport Insurance, Maloney Brokers and Zurich.

Allied World strengthens construction team

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Allied World has appointed Karsten Buescher as Assistant VP Onshore Construction Australia.

He will be responsible for developing Allied’s onshore construction presence across Australia, New Zealand and the Pacific islands. He will report to VP and Head of Onshore Construction Asia-Pacific Clifford Scott.

Mr Buescher’s previous roles include principal at TCR Risk Management Services, underwriter and client manager at Munich Re, and account engineer and senior consultant engineer at FM Global.

Aon Benfield opens scholarship scheme

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The Aon Benfield Scholarship, which offers an educational trip to London, is open for submissions.

The program, from Aon Benfield and the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), recognises leadership potential in an insurance professional.

Applicants must write a 2500-word essay on the topic: “Lifetime insurance – a revolution or a step too far?”

The winner will attend the 52nd annual Aon Benfield Global Clients Reinsurance Seminar from June 26-July 6.

Applicants must live in Australia or New Zealand and have at least two years’ experience in insurance or reinsurance.

All full entries are awarded six ANZIIF Certified Insurance Professional points for this year.

Applications close at 5pm on April 11. For more information, click here.

Hanjin insolvency headlines MMIF meeting

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The collapse of South Korea’s Hanjin Shipping – one of the world’s top container carriers – will be discussed at the Melbourne Marine Insurance Forum (MMIF) tomorrow.

Frazer Hunt and Maurice Lynch from law firm Mills Oakley will lead the talk, titled Cargo Insurance and Insolvency – Welcome to the Hanjin California.

The one-hour presentation is at the office of Colin Biggers & Paisley, Level 23, 181 William Street at 11am. To register, click here.

For the first time, the talk will also be available as a webinar and live broadcast. To register, click here.

In other MMIF news, QBE Marine Specialty Risks Southern Regional Manager Ross Lawrenson won the MMIF Arthur Kinder Memorial Lawn Bowls Challenge earlier this month.

IIS changes date for global forum

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The International Insurance Society has changed the dates for this year’s Global Insurance Forum.

The event will now take place from July 17-20 at the Park Plaza Westminster Bridge hotel in London.

The conference will bring together more than 500 insurance executives, regulators, academics and policymakers.

For more information, click here.

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International

The things insurance chiefs worry about

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Insurance CEOs are embracing disruption but also worry more about the impact compared with business leaders in other sectors, according to a global survey by PricewaterhouseCoopers (PWC).

Over-regulation, the speed of technological change, evolving customer behaviour and competition from new entrants are highlighted as ever-increasing threats to growth.

But the 20th annual CEO Survey shows 67% of insurance industry leaders see creativity and innovation as “very important” to their organisations – more than any other financial services sector.

The survey team interviewed 1379 CEOs from a range of industries across 79 countries.

Insurance CEOs are also ahead of their counterparts in exploring the benefits of humans and machines working together, and considering the impact of artificial intelligence on future skills needs.

“Despite soft premium rates, low interest rates and subdued economic growth in many developed markets, insurance CEOs are optimistic about their own companies’ growth prospects,” PWC says.

About 35% are “very confident” they can achieve revenue growth over the next year and more than 80% are at least “somewhat confident”.

The cost and disruption of regulation continues to be the leading concern for insurance CEOs, while shifting customer behaviour moves into second place, with 45% of respondents “extremely concerned”, up from 24% a year earlier.

PWC Global Insurance Leader Stephen O’Hearn says customer intelligence and cutting-edge interaction have enabled insurtech businesses to set the pace in the marketplace, but their growing presence offers opportunities.

“Insurtech partnerships can help insurers improve their processes, strengthen efficiency and reduce costs,” he said.

“They also can help insurers improve their analysis of the huge amounts of data at their disposal, which can lead to better customer understanding, higher win-rates and more informed underwriting.”

Offshore insurers on alert over Trumponomics

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Bermuda and other offshore insurance centres are wary of President Donald Trump’s “America first” economic agenda, which includes reducing the corporate tax rate.

AM Best says a lower company tax will benefit US-based (re)insurers, but foreign counterparts may suffer.

“Regulatory risk, a common element of companies’ risk registers, has been transitioning from green to red as a potential concern,” the ratings agency says in a new report.

“With the new US administration in place, lowering the corporate tax rate and taxes on imports remain on the table because they were among [President Trump’s] campaign promises, intended to bring business back onshore to stimulate the US economy.

AM Best says “Bermuda and other offshore domiciles could be negatively impacted and they have cited the risks of less capacity and higher rates to US consumers in their opposition”.

AIG backs turnaround after notching bigger Q4 loss

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AIG insists its rejuvenation plans remain on track despite a massive fourth-quarter loss that dragged the insurance giant into the red last year.

Its net loss in the three months to December worsened to $US3.04 billion ($3.94 billion) from $US1.84 billion ($2.39 billion) in the corresponding period of 2015, hit by a $US5.6 billion ($7.26 billion) adverse development charge.

The insurer made a loss of $US849 million ($1.1 billion) last year, compared with a $US2.2 billion ($2.85 billion) net profit in 2015.

It announced last month that its fourth-quarter result would include a development charge arising from a reinsurance agreement with Berkshire Hathaway-owned National Indemnity Company. The agreement is backdated to January 1 last year, with National Indemnity covering 80% of AIG’s commercial long-tail exposures for 2015 and prior years.

President and CEO Peter Hancock said the agreement “significantly reduces the risk of further reserve additions in some of the most volatile lines, and we responded definitively to emerging severity trends that we believe are materially impacting the overall US casualty market”.

“Going forward we expect to see the results from our improved underwriting platform, reduced expense base, and the strong improvement in our business mix… We remain committed to continuing to execute our clearly defined transformation plan.”

Net written premium from the global group’s core commercial insurance business, comprising liability and financial lines and property and special risks, fell 20.2% to $US3.7 billion ($4.8 billion) in the fourth quarter.

The combined operating ratio for commercial insurance blew out to 241.6% from 163.3% in the corresponding quarter of 2015.

Allianz earnings rise despite P&C struggles

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Allianz says net profit increased 4% to €6.9 billion ($9.6 billion) last year as its life and health and asset management businesses offset weakness in the property and casualty (P&C) division.

P&C operating earnings decreased 4.2% to €5.4 billion ($7.5 billion) due to a lower investment result.

The division’s combined operating ratio improved 0.3 percentage points to 94.3%, partly due to fewer natural catastrophe claims, while gross written premium (GWP) held steady at  €51.5 billion ($71.3 billion).

CFO Dieter Wemmer says P&C growth improved in the fourth quarter, with both volume and price contributing to gains.

“Allianz Worldwide Partners and Turkey helped to drive growth, as did Germany,” he said. “We are moving steadily toward our goal of a 94% combined operating ratio by 2018.”

Fourth-quarter GWP grew 2.4% to €11.2 billion ($15.5 billion), and operating profit increased 16.4% to €1.4 billion ($1.9 billion) compared with the corresponding period of 2015.

Allianz has announced a share buyback program of up to €3 billion ($4.1 billion) over the next year and raised its operating forecast for this year to €10.8 billion ($14.9 billion), plus or minus €500 million ($692 million), despite uncertainties flowing from a tumultuous environment last year.

“The year was filled with surprises, not all of them welcome, that challenged many assumptions, fuelled geopolitical uncertainty and market volatility, and that make [this year] difficult to predict,” CEO Oliver Bate said.

Cat losses dent Fairfax underwriting performance

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Fairfax Financial Holdings, which is acquiring New Zealand insurer Tower, says higher catastrophe losses hit its underwriting income last year.

Underwriting profit fell to $US575.9 million ($751.1 million) from $US704.5 million ($918.8 million) in 2015, and the combined operating ratio for insurance and reinsurance operations deteriorated to 92.5% from 89.9%.

Operating income dropped to $US1.04 billion ($1.36 billion) from $US1.18 billion ($1.54 billion), while gross written premium increased to $US9.5 billion ($12.39 billion) from $US8.7 billion ($11.35 billion).

The Canadian holding company says its $NZ197 million ($184.4 million) acquisition of Tower is expected to be completed in the second quarter, pending regulatory approval and backing from the New Zealand insurer’s shareholders.

Fairfax made an overall net loss of $US512.5 million ($668.36 million) last year, compared with a $US567.7 million ($740.36 million) net profit in 2015, due to bigger investment losses and higher corporate overheads.

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Arch profit rises in fourth quarter

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Bermuda-based (re)insurer Arch Capital has posted a fourth-quarter profit of $US62.4 million ($81.39 million), up from $US53.1 million ($69.27 million) for the corresponding period in 2015.

Gross written premium (GWP) for the  quarter was $US1.15 billion ($1.5 billion), up 8.3%  on the corresponding period last year, while the combined ratio deteriorated slightly to 90.7%.

In the insurance segment growth in travel and construction lines led to a 4% increase in gross written premium for the fourth quarter to $US707.51 million ($916.93 million).

Catastrophes such as Hurricane Matthew led the company’s loss ratio to increase 5.5 percentage points to 67.7% in the quarter, compared with the corresponding period of 2015.

GWP for the reinsurance segment improved 5.4% to $US276.59 million ($358.37 million) for the quarter, while the combined operating ratio deteriorated to 78.6% from 74.3%.

Arch’s acquisition of the United Guaranty Corporation in the final quarter negatively affected the annualised return on average common equity, which was 3.9%.

Arch’s full-year net profit was $US664.66 million ($861.19 million), up 28% on 2015 and its combined ratio deteriorated slightly (0.4%) to 89.9%.

Weak Q4 hits Aspen full-year profit

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Aspen Insurance Holdings’ net profit fell 37% to $US203.4 million ($265.4 million) last year as a fourth-quarter loss dragged down the result.

CEO Chris O’Kane says the group took action on lines where returns were not expected to meet requirements, while pursuing opportunities for long-term profitable growth.

Gross written premium (GWP) grew 5% to $US3.15 billion ($4.1 billion) for the year, while the combined operating ratio blew out to 98.1% from 91.9%.

For the December quarter, the company fell to a loss of $US71.5 million ($93.3 million) after reporting a profit of $US117.9 million ($153.8 million) in the corresponding period of 2015. GWP fell 4.5% to $US606.1 million ($790.7 million).

Mr O’Kane says the reinsurance business performed strongly last year despite a much higher level of catastrophe losses.

Aspen was formed in Bermuda in 2002. It now has offices and subsidiaries in 10 countries, including Australia.

Swiss Re names new global claims head

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Jim George has been promoted to Global Head of Claims at Swiss Re Corporate Solutions.

He replaces Nicola Parton, who is now Head Primary Lead Strategy and Client Engagement.

Mr George will lead the global claims organisation and serve as a member of the management and business management committees.

Lloyd’s bans the liquid lunch

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Lloyd’s employees can no longer drink alcohol during work hours, under revised guidelines implemented by the market.

“We have updated our employee guidance to provide clarification on the rules around alcohol consumption during business hours,” a spokesman told insuranceNEWS.com.au.

“The guidance removes any ambiguity on the policy. Our employee guidance is normally updated [about every] 18 months to ensure it reflects common practices and standards across the industry and wider business, and… ensures we are in line with a number of businesses in the sector that also adopt similar policies.”

The booze ban has angered employees, with some describing it as “heavy-handed”, according to UK media reports. “Will we be asked to go to bed earlier soon?” one employee said in a BBC report.

The ban does not apply to brokers and underwriters doing business at Lloyd’s, who crowd the bars and restaurants at the adjoining Leadenhall Market every weekday.

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Analysis

Taking the mystery out of buying insurance

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At first glance the Insurance Council of Australia’s (ICA) new report into consumers’ insurance-buying habits and misuse of product disclosure statements is merely a restatement of the bleeding obvious.

It’s hardly news that consumers overwhelmingly buy on price, don’t study the details and all too often don’t know exactly what they should be insured against.

Many of these points were made to this writer in 2005 by the then parliamentary secretary to the treasurer, Chris Pearce. Twelve years ago he was concerned that the documents he had received with his personal insurance policies were acting as a doorstop in his office.

As insuranceNEWS.com.au has pointed out before, product disclosure statements (PDS) were originally envisaged as documents that would state the details of the policy simply and clearly, to ensure they were fit for the consumer’s purpose.

But they also had to protect the insurers’ interests, and the PDS emerged as a ponderous tome crammed with lengthy legalities, explanations and cautions. Clarity died, and with it the ability – or inclination – of customers to understand what they were buying.

So it’s satisfying to see the industry taking up the cudgels again to better understand and communicate the mindset of the average insurance-buyer. 

The main points uncovered by ICA are:

  • Consumers focus most on price rather than policy detail;
  • Most believe they have all of the details when buying, even though they don’t consider policy exclusions and limits;
  • Policy renewal letters are the most trusted and commonly used document;
  • While 88% are confident they understand the policy details, their understanding of policy exclusions and limits are poor;
  • Many don’t consider the specific risks they need to cover; and
  • A consumer who has previously made claims is typically better informed and more likely to read the PDS.

Of course, understanding the problem is one thing, doing something to solve it quite another. And it’s here that progress is obvious. The insurance industry of 2017 is far more focused on solutions than it was when the PDS was devised in the earliest years of the century.

The report acknowledges the insurers’ efforts to provide alternative information sources for consumers – tools the consumer might even use – and agrees that “maintaining a predominant focus on the PDS will continue to result in missed opportunities to engage consumers”.

And as every policy is subtly different, the report says the task of coming up with innovative new ways of being clear, concise and informative should be left up to the individual insurers. Previous generic programs not having succeeded, the marketing experts might just be able to come up with innovative new approaches.

And the effort might also give the industry something new to spruik with its advertising dollars, rather than making low prices their main virtue – a hopelessly negative strategy that does nothing to overcome consumer ignorance.

The twin consumer traits of over-confidence and a sometimes-stunning lack of comprehension also need some innovative consideration. Understanding the risks consumers need to cover is the first step; helping them to understand what’s available is another.

A particularly telling finding is the one that says consumers who have made a claim are more focused on the policy details than those who haven’t. One can only assume that’s because they suffered somewhat in the claim process.

ICA says the researchers interviewed frontline claims staff to obtain feedback on the most common sources of misunderstanding by product type.

“Anecdotal evidence suggests that it is generic policy exclusions, rather than exclusions that are policy-specific or less commonly known, that seem to be the cause of most misunderstanding at claim time.

“These generic exclusions, such as wear and tear, were used to develop product-specific scenarios to explore whether understanding can be applied to a particular set of defined circumstances.”

The report also contains many findings that interlink with other customer issues. For example, is consumer ignorance a factor that keeps customers loyal to the same insurer year after year? Are they too uncertain or disinclined to explore the alternatives?

Brokers should also be paying attention to this issue, even if it’s primarily about personal lines, which they long ago lost to the direct market.

In some countries – Canada is the most obvious example – insurance brokers play a major part in the selection and sale of personal lines policies for consumers. Much of the insurance advertising on Canadian TV is based around the role of the broker rather than marketing razzamatazz about being the cheapest.

In an industry that’s changing so rapidly and dramatically, everything should be up for consideration.

The ICA report is a new starting point that will hopefully lead to a reshaping of the insurance-buying process in personal lines. It has to be made less complex and more responsive. If it isn’t, the innovators will find ways to drive through the gap between consumers and insurers.

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