Local
NRMA Insurance rolls out flood cover
NRMA Insurance has introduced flood cover on domestic policies in NSW, the ACT and Tasmania, promising to cover 98% of those regions at minimal extra cost.
Cover from the IAG personal lines direct insurer includes riverine flooding and storm surge from the sea if it causes damage at the same time as a flood.
NRMA Insurance introduced the cover this month. Some 98% of its customers have been granted automatic flood cover at “minimal cost”, while 2% of customers living in high-risk areas have the option to pay extra for an immediate upgrade of cover or wait until renewal.
An NRMA Insurance spokesman denied suggestions the company may abandon high-risk customers by charging unaffordable premiums. He says customers can choose to exclude the flood option.
Flood cover on personal lines is now much more widely available to Australian householders following Suncorp’s launch of automatic flood cover last year.
“This debate has been going on for a long time and the best thing about this is the certainty for customers,” the spokesman told insuranceNEWS.com.au. “[Flood cover] is now on the table and it is good news.”
The change of tack by the dominant NSW direct insurer has been made possible by the completion of an Insurance Council of Australia (ICA) flood information database on NSW, with further data from state government terrain data and hydrologist reports.
IAG subsidiaries already offer flood cover in SA and WA through the SGIC and SGIO brands. NRMA plans to introduce flood cover in Queensland “later, when information there is complete,” the spokesman said.
ICA continues to develop its National Flood Information Database after its initial release in November last year.
In a statement, the council said its program for ongoing development of the database will incorporate newly released government flood mapping and is “anticipated to be completed in November 2011”.
See also ANALYSIS.
Losses forcing rates to harden: JLT
Big losses in some insurance lines are forcing insurers to impose sharp increases in premiums, according to a report by major broker Jardine Lloyd Thompson (JLT).
In its latest Inform report, JLT notes significant increases in some property risks over the past six months, with some users of expanded polystyrene materials denied cover at renewal.
And it warns the credit insurance market has also hardened considerably. “Cover in industry sectors such as the automotive, construction, finance and mining sectors may not be available during 2009,” the report says.
It also outlines increasing rates in the marine insurance market and upward pressure on workers’ compensation premiums. Discounts among professional indemnity and directors’ and officers’ lines have slowed considerably.
While JLT says rates remain competitive in most public and product liability and construction lines, it warns discounting has slowed in both areas.
“Clouds in the form of the global economic crisis have been forming over the international insurance markets and Australia is not able to shelter fully from the impending storm.”
Kiwi fruit growers caught short by hailstorm
NZ kiwifruit growers whose crops were wiped out in hailstorms just before harvest last month are looking to their peers for support because hardly any of them have insurance.
They normally rely on a hail compensation fund, which provides $NZ2 million ($1.6 million) for green kiwifruit and $NZ2 million for gold, but the losses from last month’s downpour far surpass that amount.
Last week growers agreed to support an opt-in component to the hail fund that will provide additional funds to those that were affected to make up for the lost profits.
NZ Kiwifruit Growers Incorporated President Peter Ombler told insuranceNEWS.com.au only about 40 of the country’s 3500 growers have insurance.
“It’s relatively expensive when you consider the risk involved,” he said. “We’ve always had heaps of money in the hail fund but this year because of the number of trays affected it has far surpassed that. Both the timing and the extent of the event were very unusual.”
Nikki Berney, the NZ manager of specialist insurance broker Agririsk, told insuranceNEWS.com.au kiwifruit insurance product has been on the market for three seasons but no one has taken it up.
“It’s because they have the fund which they can get recovery from,” she said. “But it’s obvious from the last lot of hailstorms that the fund isn’t big enough.”
Mr Ombler says the industry is now contemplating a scheme where the first couple of million dollars are covered within the industry, with additional insurance on top of that.
Two insurers recognised in business awards
IAG has won an award for innovation in the annual Australian Business Awards, while Budget Direct has received a gong in the “best value” category for its comprehensive car insurance policy.
The IAG “continuous improvement idea management process” was developed after an analysis of direct insurance revealed there was no systematic way of managing change and improvement ideas.
Budget GM John Dujmovic says the judges recognised the insurer’s “real cost savings and significant point of difference from its competitors”.
“The award acknowledges Budget Direct as an industry leader for the creation and development of an outstanding service and exceptional value for money,” he said.
Australia keeps lid on terror: broker report
With a regular review of the need for the Australian Reinsurance Pool Corporation (ARPC) due to be released tomorrow, the country’s drive to control terrorism threats have been noted in a new report by global reinsurance broker Guy Carpenter.
In its 2009 Global Terror Update, Guy Carpenter says Australia retains a high level of vigilance on the mainland and its territories.
“The harmony existing between Australia and its neighbours has resulted in the early identification and break-up of several planned activities by terrorist cells,” the report says.
“Arrests have been made and charges pressed against the individuals caught by authorities [through] increased powers available to them under Australian legislation.”
The report shows governments are becoming increasingly involved in the development of insurance programs focusing on terror coverage and terror pools, although some countries’ governments continue to offer no support.
Australia’s reinsurance pool was established by the Federal Government in 2003 after a dramatic contraction in terrorism reinsurance capacity which followed the September 11 2001 terror attacks in the US.
The Government announced in February that the ARPC has substantially reduced the Commonwealth’s level of risk by arranging $2.3 billion in retrocession cover placed with reinsurers from the Australian, European, Lloyd’s and Bermudan markets.
It will continue the scheme only while terrorism insurance cover is unavailable commercially on reasonable terms. But while global capacity is returning for national pooled arrangements, “there is still little capacity at reasonable prices for individual insurance portfolios”.
Black Saturday compared to wartime bombings
A bushfire expert has told the Victorian Bushfires Royal Commission the intensity of the February 7 blazes was comparable to World War II bombings.
Monash University bushfire researcher David Packham says the conditions of the Marysville fire were comparable to the wartime bombings of Dresden and Tokyo.
He also told the royal commission the mass evacuation being promoted as a viable alternative to the contentious “stay or go” bushfire response strategy “could increase the life loss in a bushfire”.
But St Andrews resident Carol Matthews said her family’s decision to follow Country Fire Authority (CFA) guidelines to the letter failed to protect her 22-year-old son Sam, who died in the family home.
The royal commission continued to hear how the events of Black Saturday overwhelmed co-ordination of the emergency services. Telstra national triple-zero manager Jane Elkington said more than 70% of calls on February 7 were abandoned because emergency services were unable to take calls from operators.
CFA duty officer Greg Patterson told the royal commission he believed the Melbourne-based control centre was inferior to the facility it replaced. He admitted he didn’t see predictions of where fires might spread, despite having access to those resources.
No specific insurance focus in big climate study
Researchers setting up a major three-year climate change study in south-east Queensland don’t expect to use much data from insurance companies to reach their conclusions.
The new $14 million study will focus on ways the region can respond to the impacts of climate change.
Funded with federal and state government money, it will bring together researchers from the CSIRO Climate Adaptation Flagship, Griffith University, the University of the Sunshine Coast and the University of Queensland.
Project manager Ryan McAllister of CSIRO says insurance industry representatives could participate in finance sector workshops in which information is shared with researchers.
“Part of the reason why we don’t have insurance in there explicitly is merely that we want to work pretty closely with stakeholders, and obviously a lot of the insurance agencies are quite guarded about their data and so forth,” he told insuranceNEWS.com.au.
“It’s hard to do research explicitly on it, but we’re certainly interested.”
The study is being hailed as Australia’s first comprehensive regional study of climate change adaptation.
It will develop new, local-scale climate change projections and vulnerability assessments to help prepare for the impact of altered rainfall patterns, increased temperatures and extreme weather on its property infrastructure, unique ecosystems and primary industries.
Dr McAllister says case studies are being considered for a canal estate, probably on the Sunshine Coast, and a new suburb west of Brisbane.
The study will look at retrofitting for vulnerable areas and integrated planning changes to support it. Findings are to be reported progressively, with results being made available through workshops.
Corporate
QBE cashed-up and hungry in Europe
The ever-acquisitive QBE is reported to be prowling Europe for new deals to fuel its growth on the heels of its $2.7 billion spree last year, mostly in the US.
CEO Frank O’Halloran has been quoted in London’s Financial Times as targeting Europe to grow the group’s gross annual premium (GWP) by up to $750 million through acquisition in the next 12 months.
Ibisworld analyst Richard Jeremiah told insuranceNEWS.com.au this is something well within QBE’s reach, given its capital reserves and discounted asset prices this year.
“Their cash position is a fair bit stronger than it was last year – $2.7 billion versus just under $1 billion last year,” he said.
“It sits in line with their ‘growth through acquisition’ strategy, and considering asset prices have been devalued so much it would seem a good time to buy some insurers at pretty cheap prices.”
Mr Jeremiah says the European focus could be due to excessive competition for assets in the US.
Six depart in OAMPS head office shakedown
OAMPS Insurance Brokers has retrenched its entire marketing team as the company seeks to “better align” head office functions with its 28 Australian branches.
National Manager Marketing Nick Hill is among six staff to depart the OAMPS Shared Services division.
Wesfarmers Insurance Communications Manager Robert Swinton this morning confirmed the departure of three marketing staff among the six redundancies, which he says is part of a restructuring in the OAMPS headquarters in east Melbourne.
OAMPS said in a statement the changes are designed to “improve the range and quality of support services provided to the branch network” under a new structure called OAMPS Central.
The company has established new roles including Head of Partnerships & Marketing, Head of Claims and Head of Commercial. Insurer and Partnerships Manager Brian O’Sullivan continues in his existing role.
“This project will involve some retrenchments and there will be some new roles among the changes,” Mr Swinton told insuranceNEWS.com.au. He said the company will recruit 11 new staff “in the coming weeks”.
OAMPS incoming CEO Keith McIvor says the changes will strengthen the leadership team. He takes over the top job from Peter Blackmore on Wednesday
Indemnitycorp launches legal practice
Risk specialist Indemnity Corporation has added a specialist legal division, forecasting strong demand from its insurance broker clients.
“Indemnitylegal” provides specialist legal services including insurance law and litigation, occupational health and safety, local government environment litigation and contract review services.
Lawyers Kevin Gibbons and Natalie Taylor have been recruited by Indemnitycorp MD Jonathan Upton to run the practice.
Mr Gibbons told insuranceNEWS.com.au the company has identified a need for a combined risk management and legal advice service.
“Like accountants, insurance brokers are probably the advisers most frequently contacted by their clients.” he said. “This allows us to handle the insurance implications rather than refer clients to a list of 10 to 15 external insurance lawyers.”
Mr Gibbons cited demand for legal management of public liability, professional liability and product liability claims.
James Hardie relocation bid riles asbestos victims
James Hardie Industries has won no friends among asbestos victims with the proposed relocation of its headquarters from the Netherlands to Ireland at an estimated cost of up to $US71 million ($88 million).
Critics have accused the company of spending money that could go into the Asbestos Injuries Compensation Fund (AICF) established for sufferers of asbestos-related diseases.
But James Hardie says the proposal will not change its “overall commitment” to the fund.
“However, if a contribution is due to the AICF in the company’s 2011 financial year, which is not yet known, the costs associated with the proposal and with the transfer of the intellectual property will most likely reduce the amount of the company’s contribution in that year,” CEO Louis Gries said in a statement.
The company says the move to Ireland has been prompted by such factors as potential pressure from the US Internal Revenue Service, which did not recognise tax benefits in 2006 and 2007 under the relevant US/Netherlands treaty.
Voting on the first of two stages for the proposal will be held at extraordinary general meetings of shareholders in Sydney on August 18 and Amsterdam on August 21. Full implementation is targeted for early next year.
In April the NSW Supreme Court found that former directors of James Hardie breached their duties by making misleading statements about the company’s ability to pay asbestos compensation.
Youi ads judged discriminatory
Two TV advertisements by car insurer Youi have been found to discriminate against people with mental health issues.
After receiving complaints about the ads, the Advertising Standards Board ruled they are discriminatory on the basis of a disability and breach the Australian Association of National Advertisers Code of Ethics.
The ads have been criticised of making fun of people with obsessive compulsive disorders (OCD), with consumers complaining the ads are “insulting”, “disrespectful”, “unnecessary”, “insensitive” and “hurtful”.
One of the ads depicts a man sitting in his car obsessively cleaning his glasses and the other a woman repeatedly folding her newspaper as she sits on a train. The Youi spokesman sitting next to each of them says while the insurer can save them money on their car insurance, saving them from their “compulsive behaviour” is “beyond us”.
Standards board CEO Fiona Jolly says the board quickly agreed both ads treat people with obsessive compulsive disorder with disrespect.
“The intention of the advertisements to depict, or at least make the audience think of people suffering from [the disorder], and the growing amusement of the presenter in the advertisement with the people’s actions, was likely to be seen as condescending, cause offence and demean,” she said.
Youi says the reference to compulsive behaviour provides a common link between three ads and the Youi brand. The third ad depicts a housewife folding her washing at home.
“The behaviour depicted by the actors in the ads was specific to the relevant target market and was in no way discriminating against a serious mental illness such as OCD,” the insurer said.
Youi agreed to modify its ads by last Friday.
Regulatory & Government
Liberals’ insurance man Pearce to step down
Liberal Shadow Minister for Financial Services, Superannuation and Corporate Law Chris Pearce has announced he will quit Federal Parliament at the next election.
The experienced Liberal insurance go-to man will conclude his association with the industry when he steps down in 2011.
As a senior Treasury minister in the Howard Government, Mr Pearce had responsibility for the general insurance industry and is recognised as the person who pushed through a range of changes that made the Financial Services Reform Act more palatable.
He has served as the Federal Member for the Melbourne seat of Aston since 2001.
“I have now decided that it is time for me to look to the future and explore new opportunities,” he said. “I hope that in some way through my time in Parliament I have helped to make both my local community and my country a better place.”
NSW Opposition attacks SES levy
NSW Shadow Small Business and Regulatory Reform Minister Don Page has attacked the state’s newest insurance tax as “diabolical” – but he won’t confirm whether his party would repeal the levy if it elected.
On Wednesday the NSW Government will introduce the State Emergency Services (SES) levy on insurance premiums, which is expected to raise an additional $39 million annually.
Mr Page, the National Party Member for Ballina, has advised business owners and residents of NSW to prepare “for increases to their insurance premiums from early July thanks to the NSW Labor Government”.
But when contacted by insuranceNEWS.com.au, Mr Page would not confirm if the Opposition would repeal the tax should it win the next election. He says a recommendation would first have to go before the shadow cabinet.
“I think the fact we voted against the SES levy tells you what we think of it,” he said on Friday. “It’s clear these taxes are too high and there’s also an equity problem. Why should people who insure pay for these services on behalf of those that don’t?”
ASIC bans insurance broker
The Australian Securities and Investments Commission (ASIC) has permanently banned a Victorian broker from providing financial services.
Burwood man Mark William Clough has been banned following an ASIC investigation into his dealings when he operated insurance consultancy business Muir Sturrock.
The regulator found Mr Clough engaged in dishonest conduct between August 2000 and July 2005, using $43,500 meant for a client’s income protection policies for his own personal use.
He also breached the law after carrying on a financial services business while not holding an Australian financial services licence.
Mr Clough has the right to appeal the decision.
Wife killed, house torched in insurance scam
A Victorian man who murdered his wife and torched his house as part of a $180,000 insurance scam will spend at least 17 years behind bars.
Richard James Watson, 62, was sentenced last week by the Victorian Supreme Court to a 22-year jail term after being convicted on one murder charge and three arson charges.
His wife Anne, 48, was found dead in their Pyramid Hill home in July 2003 following a fire that destroyed the house and damaged a car and bus. Mr Watson later claimed more than $180,000 in insurance.
A police investigation found Ms Watson was strangled and stabbed prior to the fire while accelerants including petrol had been spread throughout the house and vehicles.
Ms Watson’s murder was not connected to the insurance claims.
The couple were in financial difficulty prior to the incident and it was alleged Mr Watson removed valuable items from the home prior to the fire.
Financial Services
Big hopes for Suncorp Life
New disclosure, new value and new market position – that’s what Suncorp wants with its wealth management business under the new name Suncorp Life.
Suncorp Group Executive Geoff Summerhayes says reporting on embedded value will be included in future life financial reporting to give all stakeholders a better picture of long-term value.
Embedded value measures the present value of future profits plus the adjusted net asset value.
The group says Suncorp Life’s embedded value on a traditional valuation basis has been independently assessed at $2.175 billion at December 31 last year.
The new name makes clear the company’s strategic focus on life risk.
Its ambitious plans call for Suncorp Life to push it way into Australia’s top five life insurance companies and become number two in New Zealand. It is currently number seven in Australia and number three across the Tasman.
JP Morgan analyst Siddharth Parameswaran says all bets are off for market positions until the effects of the Cooper Review into superannuation – which is expected to spill over into life – become clear.
“If the world were to stay as it is, I think it’s a bit of a stretch because [Suncorp Life] is not strong in group sales, where a lot of the big growth has been coming from,” he told insuranceNEWS.com.au.
He says past disclosures on Suncorp’s financial services business have been “terrible”, which is why it has been undervalued.
“[The rebranding] has clearly been done because they feel their share price has been undervalued.”
Mr Parameswaran says there should be some recognition of $1.4 billion capital in the embedded value.
“The number isn’t a big stretch, but we’re valuing it at closer to $1.3 billion,” he said.
Aussie Home Loans joins direct life field
“Aussie John” Symond, the man who made a fortune swearing to keep mortgage lenders honest before selling a third of his company to a bank, has moved into the direct life insurance market.
Aussie Home Loans is marketing the phone-accessed life, funeral and accident products as an agent for the South African-based Hollard Group.
Mr Symond, the Chairman of Aussie, has pledged to help put Australians in a “better place” for their financial needs, quoting “alarming” research that shows only 40% of the population carries life or disability cover.
Competitors in the burgeoning direct life market include Hollard’s own Real Insurance brand, Allianz, Tower Australia’s Insurance Line and Once Life, which is backed by the Singapore-based Yanlord property group and underwritten by Commonwealth Bank-owned St Andrew’s Life Insurance.
A report released in April by Rice Warner Actuaries says Australia’s direct life insurance market represents about 8.2% of annual risk premiums and is relatively underdeveloped by international standards.
It sees direct products and direct distribution as a key growth area for life companies in the next few years.
“While marketing and distribution costs are high, direct products do not have to compete as aggressively in terms of price and features, and the financial services reform requirements are far less onerous,” the Rice Warner report says.
Aussie, which sold a one-third “strategic stake” to the Commonwealth Bank in August last year, has foreshadowed a move into the general insurance market later this year.
UK financial regulator to ban commissions
The plan by the Financial Planning Association (FPA) to move members away from commissions to fees is appearing more logical week by week. Now the UK Financial Services Authority has announced it will ban commissions for financial advisers.
The FPA has been trying to gain support for its proposal to move towards a fee-based pay system by 2012.
CEO Jo-Anne Bloch told insuranceNEWS.com.au the association has been aware of the UK regulator’s proposals since it released a consultation paper last November.
“Australia’s most aligned financial advice and regulatory system is in the UK, and they too have confirmed plans to move away from commissions,” she said. “The FPA’s proposals are becoming very familiar, even globally.”
The FSA last week issued a consultation paper detailing proposals to ban payments to advisers from fund managers and life insurers. The changes will take effect from the end of 2012.
UK industry media reports say thousands of independent financial advisers are expected to leave the industry as a result of the planned commission ban.
Commonwealth Bank insurance part of mooted Fiji sale
The Commonwealth Bank is considering a non-binding offer by Papua New Guinea’s Bank South Pacific (BSP) to buy its Fijian banking and insurance businesses.
A number of measures by the Fijian military-backed government are making life difficult for the banking industry.
These include a 20% currency devaluation, forced interest rate cuts and a direction to increase lending to small business.
The Commonwealth bought the Fijian Government’s 49% holding in Colonial National Bank in January 2006 for $F28 million ($22 million then and $17 million now) to give it outright ownership.
BSP is the largest retail bank in Papua New Guinea, with more than 2 billion kina ($943 million) in assets.
International
Financial crisis tops risk list
The financial market crisis tops the list of the 10 biggest risks for the insurance industry in a new report by Ernst & Young.
The international consultants’ annual business risk report identifies risks ranked by more than 100 analysts.
The top 10 risks are:
1. the financial market crisis (likely to shape the industry for the next decade);
2. model risk (failure to recognise risk model shortcomings);
3. regulatory intervention (an evolving global landscape including changes around Solvency II);
4. managing the non-life underwriting cycle;
5. geopolitical shocks;
6. demographic shifts in core markets;
7. emerging markets;
8. channel management;
9. legal risk;
10. climate change and catastrophic events.
The report says risks in managing the underwriting cycle are recognised because they are arguably the leading cause of insolvency for general insurers.
While profitable hard markets tend to last three to four years, soft markets generally last eight to 10 years, placing insurers under severe pressure.
The risk of geopolitical shock is heightened by the economic slowdown, as falling incomes generate political pressures and collapsing tax revenues threaten governments’ capacity to respond.
Emerging markets are seen as an area for expansion but can be complicated by cultural issues in joint venture with local partners. They are also susceptible to rapid and sudden downturn.
At number eight, multi-distribution channels are acknowledged due to the significant opportunities they offer for future growth. However, mismanaged strategies in this complex area can lead to disappointing sales, persistency, profitability and growth.
Legal risk and unexpected changes in both the forms and sources of liability driven by the economic downturn is creating challenges for general insurers in how they price and underwrite new business and how they reserve for claims from asbestos, environmental and other related exposures already on the books.
Changes galore as AIG brand fades
AIG continues to evolve into something less indebted to the US Government.
In Australia, the AIG Life name has been changed to AIA Australia Limited, in line with group rebranding across Asia, in preparation for a sell-off.
AIA also figures in a debt-for-equity swap deal with the US Federal Reserve that will see the Fed get $US16 billion ($19.8 billion) in preferred equity in AIA and $US9 billion ($11.1 billion) of preferred shares in American Life Assurance Company.
Robert Schimek will take on the role as the company’s first global CFO for the property/casualty division AIU Holdings, in preparation for the sale of a 20% stake.
Alain Karaoglan has been appointed to head the AIG Divestiture Office team, as Senior Vice President, Divestiture. He will be responsible for bringing to market assets for sale and managing the resulting complex transactions around the world.
In Mexico, firms related to Afirme Grupo Financiero and Consorcio Villacero have bought consumer finance company AIG Universal and Markcenter Services for an undisclosed sum.
Wealth management company Chinatrust Financial Holding Co is reported to be considering a bid for the life insurance division Nan Shan Life in Taiwan.
Allianz study reveals growing piracy threat
Global insurer Allianz has encouraged marine clients to improve the protection of ships and crew as the threat of piracy off the Horn of Africa continues to grow.
A study by Allianz Global Corporate & Specialty last week reported 102 pirate attacks in the region during the first quarter of this year, compared to 58 incidents in the same period last year.
The coast of Somalia and the Gulf of Aden remain hot spots for piracy, with 61 incidents during the quarter.
“The region is ideal for piracy because the Gulf of Aden is the gateway to the Suez Canal, and some 20,000 tankers, freighters and merchant ships pass through it every year,” the report said.
While the threat of piracy is declining in south-east Asia, increasing activity off the coasts of Yemen and Nigeria “still poses a real threat to shipping and trade”.
Allianz says boat crews must be properly trained in using long-range acoustic devices, securing the ship’s perimeter and maintaining speed in exposed areas. But it has “strongly cautioned” clients not to use weapons to deter pirates.
The insurer says piracy cover included in standard hull and machinery policies may not be suitable in exposed areas. Instead it recommends the use of special war insurance policies, which are more flexible.
Insurers off the hook in AIG case
A US court has dismissed a lawsuit that alleged several insurance companies helped AIG defraud investors.
Reinsurer Gen Re, broker Marsh & McLennan and insurer Ace were implicated in charges that alleged they helped AIG overstate its finances and engaged in price-fixing and bid-rigging.
Delaware Chancery Court Judge Leo Strine last week dismissed the claims, concluding that AIG’s role in the allegedly fraudulent deals prevented its investors from recovering compensation from the other insurance companies.
Former New York Attorney-General Eliot Spitzer uncovered the alleged bid-rigging in 2004. AIG and Gen Re executives have since been sentenced to jail terms over other transactions in 2000 and 2001 that were designed to help AIG boost its loss reserves.
AIG struggling to prove case against Greenberg
The judge presiding over AIG’s $US4.3 billion ($5.3 billion) lawsuit involving former CEO Maurice “Hank” Greenberg has suggested the company’s case will fail unless lawyers produce better evidence.
US District Court Judge Jed Rakoff last week told lawyers that evidence tendered to the court was unlikely to support allegations Mr Greenberg raised $US4.3 billion from a company retirement fund.
There is little written evidence of an alleged executive compensation plan, with AIG lawyers relying on oral testimony including video evidence.
AIG has sued Starr International alleging it had a fiduciary duty to use acquired AIG stock to fund a deferred employee compensation plan established around 1970.
Instead Starr retained the shares, selling a large proportion. Starr International was set up as an investment vehicle for senior AIG executives, but was taken over by Mr Greenberg and six other former executives following his departure from AIG amid an accounting scandal in 2005.
Mr Greenberg earlier testified that the companies mutually agreed to suspend the compensation plan in 2005 and appoint a charitable trust as beneficiary.
Buyers set to re-emerge as US insurers cash up
Strategic buyers and foreign government wealth funds may revive merger and acquisition activity in the US insurance market late this year, according to a new report by Deloitte.
The international accounting and consulting firm says the sharp drop-off in mergers and acquisitions since January last year could end as insurers and financial institutions unload non-core assets to raise capital.
Deloitte says buying momentum is increasingly shifting from private equity firms to strategic buyers whose core business is insurance.
“Typically, such buyers often seek to achieve synergies in growth, distribution and expenses,” it said.
“They may want to enter new markets and lines of business in order to expand their customer and revenue bases and geographical reach.”
Deloitte says given the prevailing tight credit market conditions, Chinese and Japanese companies with strong foreign currency positions, and those Bermuda and European insurers that avoided major investment losses, may be the strongest candidates to make acquisitions.
Sovereign wealth funds may also seek to invest in insurance companies as Middle Eastern and Asian governments strive to increase the sophistication of their financial sectors by gaining access to resources and skills.
British insurance body tackles non-insurance
The Association of British Insurers (ABI) has stepped up the fight against non-insurance by joining with brokers and insurers to develop and promote low-cost contents insurance schemes.
The ABI has joined general insurer Aviva and broker Aon to work with local authorities and housing associations in London to develop tenants’ insurance schemes.
The initiative is intended to assist 750,000 residents of the British capital living in local authority or social housing, where insurance penetration is low despite a higher risk of burglary and arson.
“Overall, London residents are least likely to have contents cover than anywhere else in the UK, with four in 10 people uninsured and unprotected,” the ABI said in a statement. It says the campaign will help landlords provide cover to “vulnerable” residents.
An ABI survey earlier this month found 22% of UK residents have not renewed their contents insurance cover this year due to the economic downturn, while 17% have cancelled building cover.
Analysis
IAG’s ‘happy middle ground’ on flood
News that NRMA Insurance is supplying flood insurance to its NSW, ACT and Tasmanian customers is likely to shake things up in the industry as the controversial topic of flood cover is raised once again.
Since Zurich CEO David Smith’s criticisms last year that flood coverage in Australia is “arbitrary”, IAG’s NRMA Insurance is joining Suncorp’s GIO and Zurich in providing automatic flood cover to its policyholders – the third flood-inclusive product to be launched in the past year. Vero home insurance has also been providing automatic flood cover since February last year.
Unlike the other insurers, however, NRMA Insurance is giving those in high flood-risk areas the choice of opting out of flood cover, which they may well do if the anticipated $1000 jump in their premium is too much of a shock.
NRMA Insurance spokesman Andrew Tubb told insuranceNEWS.com.au the launch of the flood cover comes after the Insurance Council of Australia (ICA) finished its database of flood mapping for NSW, which has been combined with other hydrological studies and local council information.
The company now automatically provides flood cover to the 98% of its customers that live in low flood-risk areas at a “minimal” extra cost. The remaining 2% will either pay an increased premium for the cover – some reports have suggested a tripling of the price for cover in very high risk areas – or choose not to be covered for flood.
“We thought the best thing for these customers was to give them some choice and some options around their cover,” Mr Tubb said. “This way, if they would prefer not to pay for that higher risk, they can still be covered for other events and perils, which is not the case with some of the other products in the market.”
The new flood insurance cover must be a welcome relief for NRMA Insurance, which has continually been under pressure from many quarters to pay out on flood claims or classify flooding events as storm.
“If we have ever covered flood historically it’s been on an ex gratia basis, and obviously that’s unsustainable for a business going forward to cover claims in which it doesn’t collect premiums,” Mr Tubb said.
For those in some flood-prone areas, such as around Newcastle and the Hunter Valley in NSW, the cover – no matter how expensive – will be welcome news.
A Newcastle City Council report puts six suburbs at a high risk of flooding and significant parts of another 15 as under threat.
A resident in the Hunter area told insuranceNEWS.com.au that up until a couple of years ago a major flood occurred in the area once a year at most, “but now it floods every two to three months, with two to three major floods a year”.
He says in the past year the main highway has been closed three times and surrounding towns cut off due to flooding. Levees at nearby Raymond Terrace, on the Hunter River, have also been threatened. He says the farming properties in the area continually have to move their livestock as the waters breach the Williams and Hunter rivers.
For the areas of NSW that experience a major flood every 20 years, it will be a question of whether the premium outweighs the cost of repairing the damage themselves.
A flood – as opposed to a storm which is automatically covered in all insurance policies – is usually slow moving, so people generally have time to move valuables off the ground.
Mr Tubb says the product has initially been launched under the NRMA Insurance brand in NSW, the ACT and Tasmania, because that’s where the flood information is available at the moment. IAG hopes to launch next into the Queensland market – the other big flood state. It’s waiting for flood-mapping information from ICA.
In SA and WA, flood is already an optional component on policies sold by IAG subsidiaries SGIO and SGIC.
Now all that remains is for other insurers to follow IAG’s lead and introduce their own “pay for flood risk or opt out” policies based on reliable flood data. How long it takes for universal coverage to become available will be interesting.
IAG and its subsidiaries can now escape media and political criticism when their competitor insurers fail to pay out on flood claims.
The new approach is a no-brainer for the country’s largest personal lines insurer. It allows NRMA Insurance to provide cover to people prepared to pay a suitable premium – all they have to do is measure up the cost against their own perception of the risk.
If householders get it wrong they’ll only have themselves to blame, and IAG will be able to say the “victim” declined cover.
“Everyone in the insurance industry is aware flood has been an ongoing issue that everyone has struggled with,” Mr Tubb said. “We hope this product has reached a happy middle ground.”
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