Local
Forget about rate rises: Aon
The head of Australia’s largest insurance brokerage has refuted reports that premiums are hardening, instead depicting the coming two years as a buyers’ – not sellers’ – market.
Aon Australia CEO Steve Nevett – whose company controls about 20% of the Australian broking market – says while insurers are attempting to push through price rises, talk of a hardening market is wishful thinking because there is surplus capital and plentiful capacity.
“I think the run over the next 12 to 24 months is going to be pretty good for clients,” he told insuranceNEWS.com.au.
“At the moment, in this country, with interest rates recovering and insurers’ investment income more reliable, overall (weather incidents) have been pretty benign. I don’t see anything that is going to send premiums up.”
Mr Nevett’s comments follow the recent release of the annual JP Morgan Deloitte survey, which stated premiums rose in commercial classes by an average of 4% in 2009 and tipped further rises for this year.
He says some insurers resort to strong-arm tactics when “informing” brokers of across-the-board rises, but they usually have little success.
“I liken that to Bob Hawke saying no child shall live in poverty and the guy from IBM saying the world would only need 24 computers.”
Mr Nevett also says while the insurance cycle will remain, the longevity of its phases is changing.
“It’s always been about a seven-year cycle,” he told insuranceNEWS.com.au. “What I think has changed is that the ‘hard’ part of the cycle has got a lot shorter and the ‘soft’ part has got much longer.
“Once you would get a year of hardening, two years hard, a year of coming off a bit and then two or three years of soft. Now you get two years of firm and five years of soft.”
Insurers busy after major storms hit Melbourne
Melbourne insurance offices have been overloaded with calls from householders and businesses reporting damage to buildings and vehicles after a “supercell thunderstorm” hit Victoria on Saturday and heavy rain fell yesterday.
Major city buildings, including Southern Cross Station, Etihad Stadium and the Arts Centre, have reported extensive damage from Saturday’s storm, which caused flash flooding and dumped large hailstones on the city. Two people are in intensive care and thousands of others reportedly suffered bruising from hailstones.
Up to 40mm of rain was dumped on Melbourne in 30 minutes again yesterday, causing more damage, and the Bureau of Meteorology says heavy winds are expected later today. Electricity to up to 100,000 homes was cut, and 15 families had to be evacuated from their damaged homes.
CGU spokesman Iwona Polski says few customers have so far contacted the company, although the insurer is bracing for a busy Tuesday.
“Most will call their broker first, and today being a public holiday in Victoria means we’ll be getting most claims coming through tomorrow as people return home and businesses return to work,” she told insuranceNEWS.com.au. “So far the few hundred calls we’ve had have been split between motor and home damage.”
Zurich Insurance Claims Manager Southern Region Darren Trott says his Melbourne office has a full complement of claims staff on duty despite the holiday, and he expects tomorrow to be even busier.
“One of the major loss adjusters told us they’re experiencing a record number of calls, and the others say they’re already very busy,” he told insuranceNEWS.com.au. “We’re getting a lot of reports of damage across all classes.”
Mr Trott says some strata apartments have suffered extensive water damage, “with water cascading from the top floor right through the whole complex”.
Suncorp settles over ACT disaster
Suncorp has dropped a class action against the ACT Government over the 2003 Black Saturday bushfires after settling for an undisclosed amount.
More than 400 clients represented by Suncorp will receive some measure of compensation, while more than 100 others continue to fight on in a separate suit in the ACT Supreme Court.
Suncorp spokesman Jamin Smith told insuranceNEWS.com.au Suncorp has reached a “confidential” agreement with the ACT Government.
From a high of nearly 4000 plaintiffs, only 127 now remain as part of a class action seeking compensation for the damage caused by the 2003 Canberra bushfires.
The case in the ACT Supreme Court began formal hearings last week. Some of the 127 plaintiffs are represented by QBE. More than 100 were uninsured at the time of the bushfires.
The plaintiffs are claiming the ACT Government failed to curtail the risk of a fire reaching Canberra from the Brindabella Ranges by reducing fuel loads and lowering maintenance of fire trails.
NRMA Insurance withdrew from its action in December, saying no settlement had been reached with the ACT or NSW governments to cover its 2000 claimants.
The hearing will take 12 weeks to complete.
Online revolution provides challenges
Technology, commoditised insurance products and threats to one-on-one business relationships provided a thread of concern at a Melbourne breakfast seminar examining the state of the insurance market.
The breakfast, hosted by the Australian and New Zealand Institute of Insurance and Finance, also heard that the commercial market, while still soft, has bottomed.
But forecasts varied on where it is headed this year.
Geoffrey Ferguson, GM Placement Services Southern Region at major broker Marsh, says competition, fuelled by growth initiatives, should keep premium revenues flat.
He says that apart from moves by insurers into different market segments and new ventures, the quest for growth may see a rise in merger and acquisition activity.
Darren Maher, GM Corporate at CGU Insurance, says “current news” suggests the commercial cycle has bottomed, although it’s still soft.
“There is an expectation in the industry that prices will start to increase in 2010,” he said.
Both speakers expressed personal concern over rapidly changing relationship models with clients and the way the insurance industry does business.
Mr Ferguson says “beer coaster business transactions” have been consigned to history, but he is personally concerned about the commoditising – and dehumanising – potential of trading platforms and other technologically driven changes to business processes.
“For me, the insurance industry has always been a personal business,” he said. “The best things are always done person-to-person, broker to client, or broker to client or insurer.”
Mr Maher says the industry is starting to see a merger between e-commerce solutions for personal lines and SME portfolios and more traditional hands-on portfolios such as industrial special risks, professional indemnity and liability.
“As more premiums are transacted by e-commerce the SME segment will become increasingly commoditised as switching costs become much lower,” he said.
“The challenge for both brokers and insurers is how we differentiate our products and service offering so we can deliver real, tangible benefits to our customers.”
Floods threaten threaten towns
Insurers are counting the cost of extensive flooding in southwest and southeast regions of Queensland through last week, and Premier Anna Bligh has called on them to “show some compassion”.
Floodwaters deluged towns including St George, Charleville and Roma, inundating homes and causing losses to property and stock. In St George 40 of the town’s 2800 residents were forced to evacuate in the worst flood in 120 years.
Some 500 people gathered at an evacuation centre in Charleville at the height of the flooding, while a further 200 people escaped rising floodwaters in Roma.
The Insurance Council of Australia has established a taskforce to co-ordinate recovery issues. A spokesman told insuranceNEWS.com.au it’s too early to estimate potential insured losses.
The floods are now moving south of St George, with townships of Thallon and Dirranbandi near the NSW border now threatened.
Ms Bligh reportedly called for insurers which don’t cover flood to “show some compassion” for affected residents.
“Right now these communities need a helping hand and I hope that insurance companies don’t quibble over the fine print,” she told reporters.
Former AAMI boss takes seat on FOS board
Former AAMI CEO Robert Belleville has been appointed as a director of the Financial Ombudsman Service (FOS), replacing former Insurance Council of Australia CEO Kerrie Kelly.
Mr Belleville brings more than 40 years of insurance industry experience to the nine-strong FOS board, whose members represent both consumers and the financial services industry.
He was CEO of AAMI from 2002-06, Promina Direct Division CEO from 2004-07, and Suncorp Group Executive Personal Insurance from 2007-08.
Ironically, the person who replaced Ms Kelly as CEO of ICA, Robert Whelan, formerly answered to Mr Belleville within Suncorp. It has been the practice in the past for the ICA CEO to represent the industry on the FOS board and its predecessors.
Mr Belleville says the appointment is “a natural extension from my previous roles”.
“In running AAMI we were oriented around customers but also paid regard to the need to perform. I hope to achieve a good balance between the needs of an organisation and equally the need to deliver for the customer.”
Corporate
Rate rises, investments boost Allianz Australia profit
Allianz Australia grew pre-tax net profit to $484 million last year, up 60% on 2008.
MD Terry Towell says the local arm of the giant German insurer grew gross written premium by 10% to more than $2.8 billion.
He says it’s a pleasing result, considering the uncertainties and economic impacts of the global financial crisis.
“I am particularly encouraged by the fact that the overall result was made up of solid rate increases and risk count growth, with all key divisions recording good growth,” he said.
A post-crisis turnaround in investment returns also boosted the result.
The underlying combined operating ratio (excluding discount rate adjustment) was an improved 95.5% against 98.6% in 2008.
Mr Towell says the figure reflects improved profitability, driven by cycle management (improved risk selection) and rate rises, resulting in a loss ratio last year of 70.3% against 73.2% in 2008.
“Allianz’s stringent expense management also made a contribution, with our expense ratio (excluding fire services levy) falling from to 22.4% to 21.9%,” he said.
Broker lifts local profit, changes Aussie roles
Trading profit for broker Jardine Lloyd Thompson (JLT)’s Australasian operation rose 9% to £20.9 million ($34.9 million) in the year to December 31 on the back of £87.5 million ($146.1 million) revenue, up 12% compared with 2008.
Net profit across the London-based group was up 11% to £70.9 million ($118.4 million). Revenue rose 14% to £612.9 million ($1 billion) with 5% of that due to organic growth.
The company also announced its Australia and New Zealand Executive Chairman Brian Carpenter will retire from the global board at the AGM on April 29 after serving as a director for four years. He will retain his local role.
The move follows the appointment in January of JLT Australia and NZ CEO Leo Demer to the Group Executive Committee, along with Asia CEO Warren Merritt and Group COO Mike Methley.
“The committee is the body that runs the global company… all of the different parts of the business are now represented,” Mr Demer told insuranceNEWS.com.au.
He says the Group Executive Committee meets about 10 times a year but he expects video-conferences will supplement the six or seven trips he already makes to London each year.
JLT says its risk and insurance businesses continue to trade strongly with encouraging rates of organic growth against a background of a soft rating environment and a generally benign claims experience.
WorkSafe Victoria recovers financial footing
Worksafe Victoria is on track to bypass the horrendous losses of 2008/09, lodging a $686 million net result after tax for the first six months of fiscal 2010.
After an investment blow-out led to a loss of $1.25 billion in the previous financial year, the workers’ compensation authority has recovered its financial footing with a sound first-half result, strengthened by recovering investment returns, falling compensation claims and an additional $50 million in actuarial releases.
An improved funding ratio of 109% has also helped strengthen its balance sheet.
The first-half results stand in stark contrast with those of 12 months ago, when it posted a first-half loss of $1.42 billion and performance from insurance operations of $168 million.
WorkSafe Chair Elana Rubin says a reduction in worked hours during the economic downturn has also helped its position.
“While injury rates dropped there has also been a significant increase in work-related deaths, with 14 work-related fatalities reported between June and the end of December and five more since then,” she said.
“This is a shockingly high number and requires broad community involvement if it is to be reduced.”
While other state workcover authorities have yet to announce their half-year results, most are expected to have experienced a tough 2009 amid turmoil in investment markets and rising compensation costs.
The NSW WorkCover authority lodged a deficit of $51 million in 2008/09, while the Queensland Government will consider raising premiums following consecutive annual deficits totalling more than $800,000.
Regulatory & Government
Underwriting profitability returns
The insurance industry has returned to underwriting profitability with annual underwriting profit of $3.8 billion, reversing a previous loss of $1.1 billion.
The latest quarterly general insurance figures from the Australian Prudential Regulation Authority reveal net premium revenue of $25.3 billion for the year ended December 31, up 8% from $23.3 billion the previous year.
Net incurred claims reflected a relatively benign year, falling 19% to $14.8 billion, while industry net profit climbed 74% to $4 billion.
Insurers achieved a return on net assets of 14%, against 8% previously.
For the December quarter, insurers lifted net premium 9% to $6.17 billion, while underwriting profit improved to $1.08 billion from a loss of $1.15 billion a year earlier.
Net profit for the quarter increased to $1.24 billion from $492 million previously.
Despite the good results elsewhere, industry assets fell $700 million during the year to $94.2 billion.
Hockey sticks it to insurance taxes
Shadow Treasurer Joe Hockey has promised to put insurance tax reform on the Liberal Party’s political agenda should the Henry tax review fail to address the issue.
Speaking at the Investment and Financial Services Association’s inaugural Life Insurance Conference in Sydney last week, he said he would be “dumbfounded” if the review did not recommend a rationalisation of insurance taxes.
“It’s such an obvious area of reform,” he said. “If Henry doesn’t [rationalise taxes], we will find a way to.”
The Federal Government is currently reviewing a final report by the review panel of Australia’s Future Tax System, chaired by Treasury Secretary Ken Henry.
Insurance representative cops 10-year ban
Victorian insurance representative Terrence McDonald has copped a 10-year ban from the financial regulator for failing to comply with financial services laws.
An investigation by the Australian Securities and Investments Commission (ASIC) found he engaged in conduct likely to deceive clients and his affiliated insurance broker.
ASIC found that between December 3 2008 and June 4 2009, Mr McDonald – who was employed as a sub-authorised representative of Jacarlen, a corporate authorised representative of MGA Insurance Brokers – delayed the deposit of $24,605.80 in premiums paid by 46 clients into the insurance broker’s trust account.
He allegedly informed clients they were insured and that the premiums were paid.
The regulator subsequently banned Mr McDonald from providing financial services for 10 years, stating “he had not complied with financial services laws and there was reason to believe he would not comply with financial services law in the future”.
An ASIC spokesman told insuranceNEWS.com.au that MGA Insurance Brokers “reported the matter to ASIC and have assisted ASIC throughout the investigation”.
Westpoint investors group to get 70% back
A new $13.5 million settlement for a group of 525 investors in the failed Westpoint group will see them recover an estimated 71 cents in the dollar.
The Australian Securities and Investments Commission (ASIC) initiated the class action in 2008 on their behalf in the Federal Court against Victorian Government-owned State Trustees.
ASIC successfully argued that State Trustees breached its duty to the holders of “mezzanine notes” issued by Market Street Mezzanine Ltd, a Westpoint company, and failed to comply with its obligations under the Corporations Act.
The settlement, ASIC’s fourth approved by the Federal Court, was reached without any admission of liability by State Trustees, which has until March 15 to pay.
The commission expects to distribute the settlement sum, plus interest earned, in the last week of August after claims are received.
Since November 2007 ASIC has launched 19 civil actions seeking to recover funds for investors in most Westpoint companies.
Financial Services
IFSA counts cost of life cover shortfall
Underinsurance is rife in the life insurance sector and will cost the Federal Government an estimated $1.3 billion over the next decade, according to research by the Investment and Financial Services Association (IFSA).
It says one in five families will suffer the incapacity or death of a breadwinner, with the resulting underinsurance gap a massive strain on a family’s ability to make ends meet.
Most families who do carry life insurance are still under-funded, according to research by the National Centre for Social and Economic Modelling.
It says a family with a household income of about $110,000 a year with two children will see its weekly income cut by $600 if the breadwinner dies or becomes permanently ill or disabled.
IFSA CEO John Brogden says a “she’ll be right” attitude to life insurance is common.
“This ground-breaking research shows that the likelihood people will be unable to provide for their family due to accident, illness or death is much more common that people think,” he said.
“This is an important issue with significant social implications.”
APRA finalises changes to life prudential framework
The prudential regulator has finalised changes that allow it to supervise groups containing life insurers in the same way as it oversees general insurers.
The final prudential standards follow new legislation introduced last year that allows the Australian Prudential Regulation Authority (APRA) to regulate non-operating holding companies of life insurance companies.
APRA intends to apply the same governance standards that currently apply to non-operating holding companies of general insurers and authorised deposit-taking institutions.
APRA Executive Member John Trowbridge says the enhancements to the prudential framework provide important protection to policyholders.
“The revised prudential standards aim to ensure registered non-operating holding companies of life companies have sound governance procedures which include that [people] in responsible positions are fit and proper,” he said.
The revised prudential standards take effect from July 1.
AIG sells life unit for $40 billion
Crippled insurer AIG has sold its Asian life insurance portfolio as the repayment of US Government debt continues.
AIG announced last week a deal had been struck with Prudential for the prized Asian life insurance unit, AIA, in a $US35.5 billion ($39.2 billion) cash and scrip deal.
AIA claims to sell 10% of the life insurance policies sold in Australia.
Prudential is understood to have no assets in Australia, having sold its local financial services business to the Colonial group in 1998. Two years later Colonial became part of the Commonwealth Bank group.
The deal includes $US25 billion ($27.6 billion) in cash, $US8.5 billion ($9.4 billion) in equity and $US2 billion ($2.2 billion) in Prudential stock.
AIG says the money will be used to repay the Federal Reserve Bank of New York, which at October last year was owed more than $US90 billion ($99.5 billion) by the insurer.
AIG CEO Robert Benmosche says the sale of AIA was the fastest option to repay its debts.
“This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with AIG’s restructuring and focus on enhancing the value of our key industry businesses,” he said.
The deal follows the sale of AIG’s asset management business for $US500 million ($553.2 million) to Pacific Century Group in September.
Swiss Re urges more action on life insurance
A Swiss Re expert has urged Australian life insurers to seize on the lessons of the global financial crisis to improve the promotion of life insurance.
Speaking at the Investment and Financial Services Association Life Insurance Conference in Sydney last week, Swiss Re Life & Health MD David Gott cited research from his parent company which found 42% of Australians sought more financial information after the onset of the downturn but many failed to act.
Hong Kong-based Mr Gott says simplification of products, together with improved distribution and customer education, would help reduce complacency and resulting underinsurance.
“There is an opportunity for the industry when customers are open to listening to our messages,” he said. “The global financial crisis was a trigger event, and we need to drive the message home.
“It is a long road, but it seems to me there is a lot more that we can do.”
The Professional
Skilled staff shortfall looms as major challenge
A lack of training and under-staffing could give the insurance industry a big headache, according to a senior broker.
Speaking at an Australian and New Zealand Institute of Insurance and Finance breakfast seminar in Melbourne last week, Marsh GM Placement Services Southern Region Geoffrey Ferguson said there’s a “dearth of available talent” in the industry at present.
“If you look at the number of senior underwriting jobs around in the market at the moment, there are a lot of jobs available and a lot of companies are finding them pretty hard to fill,” he said.
This suggests there aren’t enough people adequately trained to take a step up into these roles, “and that’s probably because companies have locked them into positions where they’re [already] doing a good job”.
Mr Ferguson says it is getting increasingly hard to balance training against resources.
“It’s a very fine line and it’s getting harder and harder to have that balance,” he said. “But at the end of the day we need to realise that if we don’t train people, if we don’t bring them through, then the industry is going to face a real flux where we don’t have enough people.
“That is going to be more dire for the industry, in my opinion, than things like the withdrawal of capital supply.”
Industry must work together: Aon chief
Brokers, insurers and loss adjusters – and the bodies that represent them – must work together to portray the benefits of a career in insurance, says Aon Australia CEO Steven Nevett.
“I would love to see the Insurance Council of Australia, National Insurance Brokers Association and the Australian and New Zealand Institute of Insurance and Finance collaborate more,” he told insuranceNEWS.com.au.
“Unfortunately, they all seem to have their own agendas, which sometimes inhibits that collaboration.
“I think because we are segregated into our little groups, the industry as a whole comes off as being unsexy.”
Mr Nevett says insurance still suffers from a lack of diversity among its ranks, with middle-aged Caucasian males still dominating.
“That’s a generational thing and won’t change overnight. But you have to create the environment where people can be the best they can be.
“We can’t sustain ourselves on only using half the population. I would love to see more senior women in the industry.”
Mr Nevett says insurance is often an attractive career choice for former legal or other financial services professionals.
“We tend to pick them up as their second job,” he said.
Bowers joins Allianz global committee
A second Australian has been appointed to the International Executive Committee of the worldwide Allianz Group.
Singapore-based Bruce Bowers, the CEO of Allianz Asia, will join Australia MD Terry Towell on the 30-strong committee that assesses the group’s main strategic issues.
Mr Towell has been a member since 2000.
The Allianz board member responsible for growth markets, Werner Zedelius, says the inclusion of Mr Bowers on the committee reflects the growing importance of Asia for the company.
International
Chile quake to rival LA for damages
Insurance losses from the February 27 Chilean earthquake, which has killed nearly 1000 people and devastated the southern city of Concepcion, is poised to become the second most costly earthquake-related disaster.
Estimates of the repair bill from the 8.8 magnitude event are between $US2 billion ($2.2 billion) to $US8 billion ($8.8 billion). This would place it second behind the 1994 Los Angeles quake, which incurred insured losses of $US22.2 billion ($24.5 billion).
Risk management consultant Eqecat estimates insured losses between $US3 billion ($3.34 billion) and $US8 billion ($8.8 billion), while rival company AIR Worldwide places the figure “above $US2 billion” ($2.2 billion).
More than 65% of the damage is to residential properties, with the remainder split evenly between commercial and industrial, Eqecat says.
Two factors inhibiting the final cost of insurance payouts are Chile’s strict building codes and the prevalence of non-insurance, particularly in residential properties.
Chile lies at the crossroads of two tectonic plates, and therefore experiences an earthquake of 7.0 magnitude or more every seven years.
“Chile’s building codes are among the most stringent in the world,” Insurance Information Institute President Robert Hartwig said from New York.
“Had Chile not heeded the lessons of another devastating earthquake in 1960 and invested in earthquake-resistant building designs, the country’s situation would resemble that of Haiti.”
While total general insurance premiums in Chile are measured by Swiss Re at $US5.8 billion ($6.4 billion) in 2008 – far ahead of Haiti’s $US19 million ($21 million) – only 60% of commercial and 10% of residential properties are covered, AIR Worldwide says.
About 10% of insured properties have no provision for earthquake damage.
Axco Insurance Information Services says the bulk of insurance costs will be picked up by reinsurers due to high levels of ceding by Chilean insurers.
ING tries to buy time as QBE prowls
QBE Group is said to be casting an acquisitive eye on the commercial insurance operations of Dutch company ING, but the sense of urgency for a sale may be softened by a reported elasticity in the 2013 deadline.
According to a report in UK trade publication Insurance Times, ING can potentially buy more time and fetch a better price for its worldwide insurance business if it lists at least 30% on the share market.
Bowing to European Commission requirements on viability and fair competition, the Amsterdam-based company will sell its insurance and investment management operations to focus on banking following the €10 billion ($15.2 billion) Dutch Government bail-out in 2008.
Fairfax newspapers have meanwhile reported that QBE Group CEO Frank O’Halloran has confirmed ING’s non-life insurance operations are in his sights after he told investors the insurer has $2.5 billion set aside for acquisitions.
Credit insurers must review practices: Coface
The global financial crisis will force players in trade credit insurance to review their business models if they are to survive, according to leading trade credit insurer Coface.
Paris-based Coface, the third-largest global trade credit and protection agency, says it will concentrate on its rating experience after posting losses of €163 million ($248.8 million) in 2009.
The former French Government-owned company improved revenues by 3.8% to €1.563 billion ($2.35 billion), but €320 million ($482 million) in credit insurance losses stripped any potential profit growth.
Coface says it plans to post profits of €250 million ($376.9 million) by 2012.
Trade credit insurance witnessed a significant withdrawal of capacity over the past 18 months as the strain of the financial collapse took its toll.
In February, fellow French trade insurer Euler Hermes posted a 77% drop in 2009 net earnings to €19.0 million ($28.65 million).
Dutch insurer Atradius has yet to post its 2009 results.
Modest quarterly rise for Liberty Mutual
American insurer Liberty Mutual has reported a 2% lift in net profit to $US456 million ($506.5 million) for the three months to December 31.
Revenue for the quarter slipped 2.6% to $US7.94 billion ($8.82 billion).
Full-year net profit was down 8% on 2008 at $US1.02 billion ($1.13 billion) on revenue of $US31.09 billion ($34.5 billion), a 7.8% increase on the previous year.
The company’s combined ratio for the year came down 0.2% to 99.9%.
CEO Edmund Kelly says the fourth quarter and full-year results reflect the continued strength of core businesses in challenging economic and competitive environments.
“We will uphold our commitment to disciplined underwriting and reserving in order to maintain balance sheet strength,” he said.
Berkshire underwriting profit falls
US investment group Berkshire Hathaway has recorded a significant rise in total earned premiums from its insurance and reinsurance operations during 2009, but saw its underwriting profit plunge.
The giant investment company, which owns major motor insurer Geico, reinsurer General Re and life reinsurer NRG, recorded total earned premiums of $US27.9 billion ($30.69 billion), up from $US25.5 billion ($28.05) in 2008. But underwriting profit slipped from $US2.8 billion ($3.08 billion) in 2008 to $US1.6 billion ($1.76 billion).
Chairman Warren Buffett says in a letter to shareholders that he takes the blame for a $US6.3 million ($6.93 million) loss at Geico, where a plan to break into the credit card market failed.
“Geico’s managers, it should be emphasised, were never enthusiastic about my idea,” he said. “They warned me that instead of getting the cream of Gico’s customers we would get the… well, let’s just call it the non-cream.”
The group posted a net profit of $US8.08 billion ($8.89 billion), up from $US4.9 billion ($5.3 billion) in 2008, mainly thanks to rising returns from investments and derivatives. Revenue rose 4% to $US112.49 billion ($123.78 billion).
Savage windstorm batters Europe
Damage from winter storm Xynthia, which devastated parts of France, Belgium, Germany and the Netherlands last week, will cost insurers up to €3 billion ($4.5 billion), according to risk modeller AIR Worldwide.
Wind gusts of up to 140kmh killed 62 people and caused many thousands of property damage claims, which media reports suggest will in most cases be for relatively small amounts.
France was the hardest hit by the storm, with wind-generated high tides damaging sea walls on the Atlantic coast.
Fitch Ratings says flood and coastal storm surge losses will be substantial.
Analysis
Simplicity the key to life insurance growth
Make it relevant. That’s the message to life insurers in the wake of the Investment and Financial Services Association (IFSA) inaugural Life Insurance Conference held in Sydney last week.
Speakers at the conference generally agreed that life insurers must work harder to simplify insurance choices and make products relevant to the majority of people whose needs are straightforward.
Shadow Treasurer Joe Hockey was unequivocal in his keynote opening address.
“The life insurance industry needs to make itself relevant again,” he told delegates. “It has a big education role going forward.”
Fortunately, the industry appears to agree.
Tower Australia MD Jim Minto took a moment to underline the value of appropriate life insurance, saying covers such as death and disability provide “dignity and choice in times of illness and bereavement”.
He says life insurance is not yet a consumer commodity and buying is not consumer-driven, with superannuation funds accounting for much of the business. However, underinsurance remains prevalent and the industry must do what it can.
“Life insurance has often been poorly understood, and complex,” Mr Minto said. “Now we are trying to make it real and understandable.
“We must not repeat the errors of the past with mind-boggling solutions that are incomprehensible to people. The core products have not changed, and we need to make them more relevant.”
REST Superannuation CEO Damian Hill oversees a fund that caters to 1.8 million retail employees. He told delegates there is “no concept” among many of his members of the coverage required in the event of death or disability.
Retail workers are hardly alone on that score. An insuranceNEWS.com.au report in the wake of the Victorian bushfires revealed just 30 life insurance claims from the disaster, in which 173 people died.
To its credit, the life industry is attempting to walk the talk through initiatives such as Lifewise, a comprehensive public awareness campaign that carries the tagline “Get wise on life insurance”.
Resources such as a comprehensive and informative website are just one way the life insurance sector is attempting to lift public awareness.
It’s straightforward and sensible stuff, and has won the respect of many, including Hong Kong-based Swiss Re Life & Health MD David Gott.
“In many senses Australia is leading the game on this,” he told delegates. “I would encourage the industry to carry on the fantastic steps it is taking and show others the way forward.”
Colonial First State GM Distribution Marianna Perkovic put things in perspective by indicating how far the industry has had to travel, at least in the intermediary space.
“It has been a great frustration to advisers that while there is often a great menu choice for investments, for insurance it has often appeared ‘last century’,” she said.
That’s not to say the life industry isn’t making ground in the new millennium, with the life market’s premium income growing from $4.5 billion to $7.7 billion in the space of five years.
Direct products are a rising force, with Allianz just one example of a company trying to improve the middle market offering through Allianz Life, which it established in 2006.
The company saw a gap between two extremes in the market, with complex, comprehensive cover for affluent individuals contrasting with basic, minimalist cover carrying blanket exclusions for pre-existing medical conditions.
Allianz Chief GM Broker & Agency Jonathan Poole says the company “identified what we saw as a gap in the life insurance market between the products offered by investment advisers and the products available direct to market”.
Targeting an offering at the vast middle ground appears to be a sound strategy, but the bulk of the forecast growth in life is expected to continue to accrue through super funds.
Super fund trustees can therefore play their part by publicising the availability of top-up cover to their members, with technology, in-house advisers and call centres available to add to that message.
Industry leaders have thus staked out a viable path forward.
To meet ambitious projections of a $20 billion life insurance market by 2020, the rest of the sector would be wise to fall into line.
This week's most popular
- Forget about rate rises: Aon »
- Insurers busy after major storms hit Melbourne »
- Insurance representative cops 10-year ban »
- Suncorp settles over ACT disaster »
- Online revolution provides challenges »
- Hockey sticks it to insurance taxes »
- Skilled staff shortfall looms as major challenge »
- Broker lifts local profit, changes Aussie roles »
- ING tries to buy time as QBE prowls »
- Industry must work together: Aon chief »