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22 May 2013
Local
New brands growing faster than major players: Roy Morgan
New general insurance brands are expanding their customer bases at the expense of traditional market leaders, according to researcher Roy Morgan.
Five of the fastest-growing new brands – Bingle, Budget Direct, Coles, Real and Youi – were tracked for a year.
Although they account for only 4% of the general insurance market, they are capturing 7% of new policies and 15% of switched policies, the study shows.
Suncorp, IAG, QBE and Allianz have traditionally dominated the market, but the online channel is now “stirring up competition” as brands look to cut costs, according to Roy Morgan Industry Communications Director Norman Morris.
“These challenger brands are growing at a faster rate than the rest of the general insurance sector,” he said.
“With the ease of online comparison between providers, major players concerned with retention need to focus on the additional value they provide to justify the price premium they charge.”
Environmental toll is rising, says Hartwig
A rising toll of natural catastrophes has hit the cost and availability of insurance coverage in parts of Australia, says Insurance Information Institute President Robert Hartwig.
In a speech to the A&I Member Services (AIMS) conference in Hawaii, Dr Hartwig analysed increasing and emerging global risks.
He says environmental risks include rising greenhouse gas emissions, failure of climate change adaptation, antibiotic-resistant bacteria, vulnerability to geomagnetic storms, mismanaged urbanisation, species overexploitation, persistent extreme weather and irremediable pollution.
New York-based Dr Hartwig says Australia has had more catastrophic events to deal with in recent years “than it would have liked”.
“This has made it perhaps more difficult in some cases to find the coverage that certain risks need in certain parts of the country.”
Between 1967 and 2011, storms were the most costly natural disaster in Australia, accounting for almost $22.5 billion in losses.
Hail accounted for just over $16 billion, bushfires $5.49 billion, floods $5.36 billion and earthquakes $3.45 billion.
There is no doubt that the global catastrophe toll is rising, says Dr Hartwig, with five new disasters added to the top 16 list in the last three years.
“My estimate in 2011 – which was the most expensive year in the history of catastrophe losses – is that those losses shaved about half a point off global GDP at a time when the world could scarcely afford it.”
Dr Hartwig says the 2013 hurricane season in the US is predicted to be 75% worse than normal, and that he is constantly quizzed over whether the industry is prepared and has enough money to pay all the claims.
But he insists the industry is “rock solid”, in stark contrast to the banks during the financial crisis.
Victorian clients give mixed response to FSL savings
The end of Victoria’s fire services levy (FSL) should prompt an increase in insurance coverage as premiums fall, but brokers report a mixed response so far from clients.
Insurers began reducing then removing the FSL on premiums earlier this year before its abolition on July 1, when property-owners will pay for fire services via council rates.
Some brokers say clients are using the drop in their insurance bills to top up cover, while others find struggling SME businesses are more worried about low turnover and the economy and are happy to see one cost fall.
Griffiths Goodall Insurance Brokers GM Ben Goodall believes it could take a year for clients to adjust to the new regime.
He says some will not consider increasing cover until they see the impact on their rates.
Mr Goodall is based in Shepparton, a region suffering from food processor SPC Ardmona’s decision to reduce fruit purchases.
Wilkinson Insurance Brokers director Michael Wilkinson says clients are happier to consider increasing cover when they know they are underinsured.
He gives the example of a business that previously said it could not afford cover for a known product liability.
“We have talked about it every year for the past five years and this year they have taken it out,” Mr Wilkinson told insuranceNEWS.com.au.
He says rural clients – who were paying FSL and taxes of $900 on a $1000 premium – baulked at covering exposures such as business interruption, even though they knew they were at risk.
“Now the cost is a lot more reasonable, they are increasing cover.”
Mr Wilkinson says the FSL’s removal gives brokers a chance to talk to clients about exposures, but it is up to them to take the lead.
“It has to come from the broker. It is not going to be client-driven.”
Brian Eaton, an account executive with Geelong-based Roderick Insurance Brokers, says it is too early to judge whether insureds will step up their cover, but he agrees there is an opportunity to open discussions.
He says clients will consider additional cover such as business interruption, although he notes the FSL removal has come amid rate increases following the past few years’ disaster claims.
Mr Goodall has seen insurers raise premiums citing risk re-rating, “although I hold a different view”, and says some rural clients expect large increases in their rates from the property levy.
Farmers with significant improved assets face big rate rises because the levy will apply to their capital improved value. This could be more than their previous insurance bill because it captures assets that are uninsurable, or which the farmers chose not to insure.
However, the FSL’s removal is generally good news for brokers to deliver.
Mr Goodall says clients often express disbelief when they see how much their premium has fallen, while Mr Eaton says customers find the new system much fairer.
Government postpones aged care bond insurance plan
The Federal Government has delayed a requirement for aged care homes to insure residents’ bond payments.
It follows concerns raised by aged care providers during consultation, according to the 2013/14 budget papers.
Negotiations will continue with care companies and the insurance industry while the Government continues to guarantee all bonds under current arrangements.
“If a provider becomes insolvent or bankrupt and is unable to repay outstanding bond balances to aged care residents, the Australian Government will repay the balance owing to each resident,” the papers say.
Extra insurance costs would be a drain on resources, while talks with general insurers indicate no suitable products exist, according to Anglican Retirement Villages’ submission to the Government.
The cost of insuring the bonds would hinge on whether they are treated as subordinated or senior debt, a KPMG report finds.
“In discussions with commercial insurers and banks, it seems a new credit risk-based insurance product will need to be developed,” it says.
“If providers are not able to absorb the additional funding cost, it will have to be passed on to residents.”
The Federal Government is pushing ahead with plans to improve complex aged care arrangements, including the ways residents make payments.
High Court reinforces ruling on medical negligence
The High Court has dismissed a medical negligence case against a surgeon, in a decision that provides certainty to the insurance industry.
The case concerned a patient who underwent surgery without being warned of two risks associated with the procedure.
Ian Wallace argued that if neurosurgeon Andrew Kam had told him about the risks he would not have had the surgery.
But although he suffered the effects of one risk, he would still have undergone the surgery if he had known about it, the court says.
Because the second risk did not eventuate, there could be no failure to warn of an injury that did not happen.
Insurers will take comfort from the ruling, which confirms a long-held position in the US that recovery in “failure to warn” cases is limited to undisclosed risks that lead to an injury, according to DLA Piper partner Mark Williams.
“Clear, unanimous decisions like this always provide certainty to the insurance industry,” he told insuranceNEWS.com.au.
“Medical indemnity premiums remain stable and affordable. Doctors remain prepared to practise in what might otherwise be viewed as high-legal-risk specialties.”
Mr Wallace sued Dr Kam after an unsuccessful operation for a lumbar spine condition.
There were two risks associated with the surgery: severe pain from temporary nerve damage and a 5% risk of permanent paralysis.
Mr Wallace suffered the severe pain for a time, but not paralysis.
He appealed to the High Court after the NSW Court of Appeal dismissed his claim, finding that although Dr Kam negligently failed to warn of the nerve damage, Mr Wallace would still have undergone the procedure had he known.
The five High Court judges have upheld that decision, ruling Mr Wallace’s right to choose whether to have the operation was not impaired.
Mr Wallace should not be compensated for the pain from nerve damage because that was a risk he was prepared to accept, the court says.
Insurance advocacy service to help NZ earthquake victims
The Insurance Council of New Zealand (ICNZ) has welcomed a new advocacy service for Christchurch earthquake victims who are locked in claims disputes.
The Canterbury Insurance Advocacy Service (CIAS) differs from the Canterbury Earthquake Recovery Authority’s Residential Advisory Service, because it will assist and represent consumers rather than simply offer advice.
The body is “urgently needed”, according to CIAS Acting Chairman Mike Coleman.
“That is why we… will look to be up and running in a month or so. There are several members of the CIAS team who have been working for many months with incredibly stressed and often unwell people, to actively help them progress their claims.
“They have, in many cases, achieved great success. We need to bring more people like this together with other suitably experienced and qualified individuals to help as many [people] as we can.”
Insurers have provided $325,000 to support the work of the CIAS, while Christchurch City Council has given an initial grant of $200,000.
The CIAS will “play a valuable role helping those residents who have difficulty finding their way through a range of issues that have arisen as a result of the earthquakes”, ICNZ CEO Tim Grafton says.
Corporate
Ironshore builds on strong foundation
Bermudian insurer Ironshore continues to grow, posting a 27% rise in gross written premium (GWP) for the first quarter.
The private equity-backed company does not release financial results, but Ironshore Australia MD David Rogers says it recorded a combined operating ratio of 90.3% in the three months to March 31.
GWP from Australia and New Zealand grew 75% on the first quarter last year, driven by “strong growth” in the mergers and acquisitions business and “continued traction” in political risk and structured trade credit lines.
The Australian business has implemented its first political risk consortium agreement and plans to announce “new offerings… to further deliver syndicated capacity to the market”, Mr Rogers told insuranceNEWS.com.au.
“We are currently in discussions with multiple companies that are interested in partnering with Ironshore.”
Total GWP grew 17% last year to $US1.67 billion ($1.71 billion), driven by 33% growth in the international division and improved pricing across most business, Mr Rogers says.
Growth in specialty liability and short-tail risks was particularly strong.
In Australia and New Zealand GWP was almost $US50 million ($51.22 million) last year, up 65% on 2011, Mr Rogers says.
The business is on course for GWP of $US100 million ($102.44 million) by the end of 2015.
iSelect prepares for $215 million share offer
Online insurance comparator iSelect plans to raise $215 million through a share offer before listing on the Australian Securities Exchange late next month.
iSelect’s financial adviser Credit Suisse (Australia) and Baillieu Holst are joint lead managers on the offer, which is being promoted to financial groups this month.
The offer price of $1.85 a share would raise $100 million from the issue of about 54 million new shares and $115 million from selling 62 million current shares. Major stakeholder Ninemsn would sell its holding.
iSelect would have an indicative market capitalisation of $479.3 million based on 259.1 million shares.
The business provides price and product comparisons for health, life and car insurance, plus home loans, broadband, gas, electricity and a range of financial products.
The bulk of its revenue comes from the health insurance unit, which launched in 2000.
Proceeds from the initial public offering will support growth plans, including acquisitions, and strengthen the balance sheet by paying down debt.
iSelect reported a net profit after tax of $12.9 million and operating revenue of $111.9 million last fiscal year.
It has forecast net profit of $14.5 million this fiscal year, with operating revenue of $121.6 million.
A prospectus is to be lodged with the Australian Securities and Investments Commission on May 31. An iSelect spokesman declined to comment until the prospectus is available.
Gibbscorp teams up with financial planner
Insurance Advisernet Australia’s (IAA) largest corporate authorised representative, Gibbscorp, has merged with financial planning group Total Capital Management (TCM).
Although Gibbscorp is based in Perth and TCM in Newcastle “there is a natural tie-up” between the companies, according to IAA MD Adrian Kitchin.
Former Willis WA GM Bryan Leibbrandt will join Gibbscorp as MD; his brother Craig runs TCM.
The merger will present Gibbscorp with expansion opportunities and allow TCM to offer more services to clients, Mr Kitchin told insuranceNEWS.com.au.
“This gives the combined entity a lot more scale and a really sound platform for the future.”
Gibbscorp will open a new general insurance operation in Newcastle, with plans to expand into Singapore.
“Some opportunities are arising in Singapore out of our existing client base,” Mr Kitchin said.
“There are active discussions as to how that might move forward.”
When Bryan Leibbrandt joins Gibbscorp, current MD Peter Gibbs will become Executive Chairman.
The appointment is part of a strategy to recruit almost exclusively from the “big four internationals”, according to IAA.
“It is certainly a coup from our perspective, but it is also an opportunity for Bryan to continue to build his career,” Mr Kitchin said.
IAA already has a financial planning division, and more mergers of this type are envisaged.
BJS looks outside in succession strategy
Melbourne-based broker BJS will continue to expand its national footprint over the next few years as it looks outside the group to build its future management.
The company, founded 15 years ago by industry veteran Ron Smith and his daughter Belinda Scott – her initials form the company’s name – has offices in Perth, Adelaide, Sydney, Brisbane, Melbourne and the Victorian centres of Wonthaggi and Frankston.
MD Bill de Vos says BJS will advise the market after June 30 about “available senior positions” within the company as it plans a succession program.
“We’ve decided we need to look outside the group to ensure we can build a really effective succession model,” he told insuranceNEWS.com.au.
“We’re an independent broker with plans to keep expanding as opportunities become available.”
BJS has more than 90 staff and annual premium of around $100 million.
Mr de Vos says the company’s stability means that some corporate accounts have been handled by the same people for the past 10 years.
“We grow our people and our staff retention levels are very high,” he said. “We work within clearly defined service models for larger corporate business, SME and retail business.”
He says BJS remains committed to being a member of the Steadfast broker group despite approaches from other broker groups. However, the company will not adopt Steadfast branding following the group’s public float.
“We already meet or exceed all the standards set by Steadfast, but we will remain an independently owned entity,” he said. “That’s where our future lies.”
Mr de Vos says the company does not have authorised representative (AR) arrangements, and doesn’t plan to adopt a suitable model to allow it to happen.
“I receive frequent calls from ARs at other brokers complaining of the lack of support or resources their principal gives them,” he said. “Most of these ARs seem unaware of the detail of the constraint provisions of their contracts.”
Government challenges reinsurers over Pan payout
Federal Government insurer Comcover is in dispute with its reinsurers over a $67.5 million compensation settlement from the Pan Pharmaceuticals class action.
The insurer has taken legal advice on the matter, according to last week’s budget papers.
The case dates back to 2003, when the Therapeutic Goods Administration suspended Pan’s licence to make medicine over quality and safety concerns, leading to the group’s collapse.
In 2008 162 parties, including customers and creditors, began a class action that ended in March 2011 with the $67.5 million award against the Federal Government.
“[The Department of] Finance is now in dispute with its reinsurers regarding the amount recoverable through reinsurance arrangements,” the budget papers say.
“Finance has sought legal advice and is pursuing the amount that is considered recoverable.”
Finance is also managing a “cohort of claims” following a High Court decision on superannuation benefits being mis-stated to a government employee.
The budget papers list Comcover’s insurance claims and reinsurance recoveries as contingent liabilities that are unquantifiable.
AMI claims to cost NZ Government $NZ300 million
Reinsurance and the sale of failed New Zealand insurer AMI’s investments and brand will cover $NZ1.9 billion ($1.58 billion) of the insurer’s $NZ2.2 billion ($1.82 billion) in earthquake claims – leaving the country’s Government with a $NZ300 million ($248.86 million) shortfall.
Christchurch-based AMI was forced to seek a government bailout in 2011 after it incurred huge liabilities from the Canterbury quakes.
The insurer was bought by IAG last year for $380 million, but the earthquake claims were split into a separate state-owned company, Southern Response.
In its first year, Southern Response has completed a third of its claims, Earthquake Recovery Minister Gerry Brownlee says.
The company is responsible for about a third of all major residential earthquake claims in Canterbury and aims to complete its final claim by December 2016.
Southern Response is handling 6786 claims for homes and 21,960 for properties with damage to driveways, paths, fences and pools.
All Class book offered for quick sale
All Class Insurance Brokers’ receiver has offered the Sydney company’s client book for sale, with offers closing last Wednesday, just days after the business was advertised.
The receiver was appointed by St George Bank earlier this month after All Class collapsed owing about $1.9 million to creditors, including more than 20 insurers.
A number of creditors have told insuranceNEWS.com.au they expect to have to write off the debts.
The receiver has not disclosed the level of interest in the client book.
Regulatory & Government
Ex-broker Horsell fined $75,000
Former broker Craig Horsell has been fined $75,000 after admitting dishonesty charges.
He was also sentenced by Adelaide District Court to three years’ jail, but released immediately on a three-year good behaviour bond.
Horsell pleaded guilty in November to three charges of using his position to authorise payments into his personal bank account.
He took a total of $414,299.87, transferring 89 insurance premium payments from clients into his account but not buying the products they ordered, an Australian Securities and Investments Commission (ASIC) investigation found.
The payments occurred between September 7 2007 and July 23 2010, when the former broker was an employee and director with Horsell International and PSC Horsell Insurance Brokers.
“The sentencing of Mr Horsell, and his previous banning from providing financial services, should serve as a deterrent to any financial adviser tempted to deceive their clients or otherwise act dishonestly,” ASIC Deputy Chairman Peter Kell said.
Horsell was permanently banned from providing financial services in January.
Horsell International and PSC Horsell have recovered all outstanding funds and no client has faced any financial loss, ASIC says.
Best-interests duty holds no fear for brokers, NIBA says
Brokers have little to fear when the best-interests duty is introduced on July 1, according to National Insurance Brokers Association CEO Dallas Booth.
“Only the first four conditions of the duty apply to brokers and these are no different to the broker’s current duty,” he told insuranceNEWS.com.au.
“A good broker will already be making sure the client is getting the best result, because they are acting professionally.”
Brokers will be required to warn clients if advice is based on incomplete or inaccurate information.
But they will not have to prioritise clients’ interests before giving the advice.
Failure to meet the best-interests duty will be a criminal offence, but the Australian Securities and Investments Commission (ASIC) says it will take an “educational approach” in the first year, rather than prosecuting breaches.
“The best-interests duty will be more onerous for those brokers handling life insurance as well,” Mr Booth said. “There will be no easy money to be made in life insurance broking.”
Most brokers already meet paperwork requirements for the duty, he says.
“We are not expecting any significant changes to how brokers create their paper trails to protect themselves.”
However, authorised representatives must be careful, because ASIC says it will monitor groups’ management of their staff, Mr Booth says.
“ASIC did a review of mortgage brokers and their authorised representatives, and that gave some indication of what the regulator expects from groups managing their sales teams.
“I have been telling our members to look at what the regulator is looking for in supervising representatives.”
Filling insurer’s new risk requirements will not be cheap
The Australian Prudential Regulation Authority’s (APRA) new risk management standards may prove to be expensive for insurers.
As reported in insuranceNEWS.com.au last week, APRA’s CPS 220 draft standard proposes that insurers’ risk management functions should be overseen by designated chief risk officers (CRO).
This position is intended to be a separate senior management function, as the regulator has ruled out the CEO, CFO, appointed actuary or head of internal audit taking on the job.
But appointing a specialist to this role will not be cheap.
According to Financial Recruitment Group MD Judith Beck, a CRO with such big responsibilities would command a salary of $250,000-$400,000, depending on the size of the organisation.
“Then there would be the long and short-term incentives to add to the base salary,” she told insuranceNEWS.com.au.
Ms Beck says there will also be other costs, and problems attracting people to fill this role at both general and life insurers.
Also see ANALYSIS
ICA backs bid to clarify LMI cover
Plans for borrowers to receive lenders’ mortgage insurance (LMI) information statements when home loans are approved have been “strongly” backed by the Insurance Council of Australia (ICA).
Such statements are a simple, effective way of helping people understand LMI, and are better than separate statements in loan contracts which can be overlooked, the council says in a submission.
A Federal Treasury discussion paper includes a sample LMI information statement among possible changes to disclosure under the National Consumer Protection Act.
ICA recommends some alterations to the proposed statement’s wording, to improve its clarity and accuracy.
Regulator cracks down on NZ breaches
The Reserve Bank of New Zealand (RBNZ) has warned insurers it is taking a tougher approach to compliance breaches.
The insurance regulator says the industry has had more than two years to adapt to the requirements of the Insurance (Prudential Supervision) Act.
Areas for improvement include late reporting, lack of approval for material changes to “fit and proper” and risk management programs, and solvency margin disclosure requirements not being published online.
NT expects insurance tax collection to grow
The NT Government expects to raise $36 million from insurance taxes in the year to June 30, rising to $38 million next financial year.
The 10% stamp duty on general insurance policies contributes most of the revenue, budget papers show.
“The territory is an average taxing jurisdiction for insurance,” the papers say. “By comparison, the total tax load on insurance in NSW, Tasmania and Victoria is significantly above the national average when fire services levies are taken into account.”
The NT’s compulsory third-party premiums are slightly higher than average, because of the territory’s small size and high number of road accident casualties.
Spending on Canterbury rebuild rises
The New Zealand Government estimates it will contribute $NZ15.2 billion ($12.62 billion) to the Canterbury earthquake recovery.
The sum includes $NZ7.6 billion ($6.31 billion) incurred by the Earthquake Commission (EQC) and other Crown entities, $NZ2.4 billion ($1.99 billion) for infrastructure and $NZ900 million ($747 million) on rebuilding central Christchurch.
The next financial year will see the most Government payments, with nearly $NZ3.5 billion ($2.9 billion) to be spent after last week’s budget allotted an extra $NZ2.1 billion ($1.74 billion) to the recovery.
Finance Minister Bill English says supporting the rebuild is one of the Government’s four priorities.
He says the EQC will have paid $NZ5.3 billion ($4.4 billion) in claims by the end of this month. By the end of next month the cordon around the CBD will be removed.
The total estimated cost of the rebuild is $NZ40 billion ($33.22 billion).
NZ to cut no-fault insurer levies
New Zealand’s Accident Compensation Corporation (ACC) will cut levies by about $NZ300 million ($249 million) in 2014/15, rising to $NZ1 billion ($830 million) from 2015/16.
Continued performance improvements have allowed further reductions after the $NZ630 million ($523.2 million) drop this financial year, according to ACC Minister Judith Collins.
The series of cuts will reduce levy rates by about 40%, she says.
The Government is working with the ACC board to review its funding policy and improve the governance and transparency of levy-setting, according to Ms Collins.
“Already there is general consensus that the improved performance of the ACC scheme makes substantial levy reductions appropriate and sustainable. Therefore, I am signalling a likely further reduction from 2015/16.”
ACC levies will be set later this year.
Financial Services
Super industry considers aged care cover
Super funds could become active in aged care insurance under retirement planning reforms proposed by an industry body.
Arrangements such as lump sums and annuities should ensure people can afford aged care, particularly residential facilities, the Association of Superannuation Funds of Australia says in a new discussion paper.
“Funds should also be able to offer insurance cover for aged care costs, along with more traditional death and disability insurance, should such products begin to be offered in the Australian market.”
The discussion paper marks the start of a five-month consultation on plans to help the retirement system cope with an ageing population.
“There are a number of ways the system can be improved and simplified,” the paper says.
“There also needs to be a discussion as to how a person’s super balance does, and should, interface with healthcare costs and aged care costs [and] access to social security benefits.”
A modest retirement lifestyle allows “fairly basic” activities, while a comfortable one should allow for private health insurance at the top rate and activities such as dining out and taking overseas holidays, the paper says.
TAL profits hold steady amid economic fears
Life insurer TAL has posted flat annual profits, and warns economic uncertainty is causing Australians to cut costs and reduce cover.
Net profit after tax fell 1% to $91 million in the year to March 31, while underlying earnings, which remove non-cash items such as changes in discount rates, gained 14% to $123 million.
“TAL has performed favourably in this current market but we need to keep innovating and adapting to the needs of our customers and to streamline our business and operating costs to stay ahead,” CEO Jim Minto said.
The industry’s challenge is to stop consumers dropping or reducing cover, especially as claims are trending higher, he says.
TAL’s inforce premiums grew 13.4% to $1.58 billion and total claims paid and provided for increased 25% to $1.1 billion.
“The life insurance industry continues to suffer strong headwinds and TAL certainly saw higher claims levels flowing through, in disability lines especially,” Mr Minto said.
AMP announces product makeover
AMP has enhanced its wealth protection range, including insurance, to offer more choice and flexibility.
Medical advances and new working practices are changing the way Australians live, according to Head of Product On-Sale for Retail Wealth Protection John Ashton.
AMP is improving its benefits to “help cover more people when it counts”.
Clients can now insure up to 15% of their salaries through a super contributions option, while AMP will help people get back to work after illness or injury with a return-to-employment bonus.
The telephone underwriting service has also been upgraded and opened to all AMP Life insurance offers.
The changes apply automatically for clients.
AFA adds to mentor scheme
The Association of Financial Advisers (AFA) has upgraded its mentoring program for young professionals, with face-to-face meetings, webinars and discussion papers.
The AFA’s GenXt program will be rolled out nationally on May 30. It aims to encourage more experienced advisers to offer guidance and to help younger advisers generate referrals and market to target segments.
Advisers currently provide services to just two in 10 people, according to AFA National GenXt Chairman Fraser Jack.
“If we want to see more Australians accessing advice, we have to work together to come up with really great strategies and highly relevant approaches,” he said.
Wholesale risk dents Commonwealth’s premium growth
Commonwealth Bank says insurance premium growth has been “subdued” in the first quarter.
Momentum in direct life and general insurance was offset by a weaker performance in wholesale risk and retail advice, according to a trading update.
The bank would not give further details. In the previous corresponding period, premiums grew 4.9%.
Its total cash earnings were $1.9 billion in the three months to March 31, up from $1.75 billion in the first quarter of last year.
The Commonwealth Bank offers life and general insurance through its CommInsure division.
AFA offers support to women in industry
The Association of Financial Advisers (AFA) is to launch an initiative supporting women in their professional and private lives.
Inspire – Connecting Women in Advice aims to help women network with each other and succeed in their careers, in any area of the industry.
Women also face challenges outside the workplace, according to AFA Inspire Chairman Deborah Kent.
“Women have different needs to men,” she said. “Creating a community where the needs of women are met is most important and the AFA has done this through the creation of the Inspire initiative.”
Ms Kent hopes the program will give women better tools and attitudes to overcome challenges, and provide strategies to “better cope with demanding workloads and personal commitments”.
Inspire launch events will be held in Brisbane on June 17, Melbourne on June 18 and Sydney on June 19. Bookings are now open.
The Professional
NIBA revamps convention
The National Insurance Brokers Association (NIBA) has announced changes to its forthcoming annual convention in a bid to increase attendance and make the event more accessible.
The convention in Melbourne will be a day shorter – lasting just over two days – and is in a capital city to allow for ease of travel, NIBA CEO Dallas Booth says.
In terms of content, NIBA has learned from last year, when “some elements were very well received, while there were some elements that weren’t as popular”, he says.
Much of the program will be split into three streams, targeting senior brokers and principals, experienced brokers and young professionals.
“It will be very much technical, business and learning-focused, directed specifically at brokers,” Mr Booth told insuranceNEWS.com.au.
In another innovation, entry to the exhibition hall will be free to non-registered convention participants, allowing much wider access to networking sessions.
Mr Booth says he will encourage exhibitors to have senior staff available on their stands.
“It is still the only place where brokers from right across the industry can liaise and compare notes,” he said.
The convention will still feature keynote speakers, social events and awards.
Early-bird registration for NIBA members costs $990, including the conference program, social events and exhibition entry. A flat rate of $690 applies for NIBA young professionals.
The convention will be held from October 13-15, with registration open on June 3 and early-bird rates applicable until July 16.
NIBA secures funding for diploma
The National Insurance Brokers Association (NIBA) will again offer cut-price courses to members after securing another round of Federal Government funding.
Up to 200 brokers will receive heavily subsidised rates for the Diploma of Insurance Broking, but brokerages must register their interest with NIBA College by Wednesday.
It is the second time funds have been secured under the Government scheme, NIBA CEO Dallas Booth says. He expects courses to be quickly oversubscribed.
“We are very grateful to the Federal Government – this is a great initiative,” Mr Booth told insuranceNEWS.com.au.
“There is clearly a desire among members to get their staff trained and we are delighted to be able to offer this funding. It is a win for the industry to have better-qualified brokers.”
The full cost of the diploma is $5020. The Government funding covers 67% for a small brokerage, 50% for a medium brokerage and 34% for a large brokerage.
Brokers with no diploma qualifications can complete both parts of the course, but those who have already completed Tier 1 Insurance Broking can complete the Diploma Block 2 workshop only.
Vero recruits Pietersz
Former Associated Marine stalwart Randy Pietersz has joined Vero as Senior Underwriter.
Vero says his appointment is “significant” and that Mr Pietersz will play a key role developing the marine portfolio.
Mr Pietersz began his career with Union Insurance in 1972, working there for 21 years before joining Associated Marine, where he stayed 20 years. He was among 27 Associated Marine staff laid off by Zurich Australia in March as it moved to fully absorb the business.
Mr Pietersz says he “still has a lot to offer” the industry and wants to help others progress.
“These days there are not many people around with my level of experience,” he told insuranceNEWS.com.au.
Vero National Manager Marine Mark Williams says Mr Pietersz’ services “were in high demand from a lot of other marine underwriters ” after he left Associated Marine.
“It’s an absolute coup for Vero to have him join our team.”
Ex-Associated Marine managers join Allianz
Allianz has recruited former Associated Marine development managers Steve Amey and Norman Hawken.
They will take marine manager positions at the Allianz Marine & Transit (AM&T) underwriting agency.
Mr Amey, who has previously worked for Allianz subsidiary Club Marine, will start in the North Sydney office on June 5.
“Steve is a widely recognised marine specialist among NSW brokers and brings extensive marine underwriting experience to the role,” Allianz said.
Mr Hawken will bring “particular experience and broker relationships in regional Victoria”. He starts his new job in Melbourne on June 24.
The appointments support AM&T’s expansion in Sydney and Melbourne – Australia’s two largest marine markets – the company says.
Associated Marine was absorbed into Zurich’s mainstream business earlier this year, resulting in 27 redundancies.
Clarke comes home to Zurich
Zurich Marine Senior Underwriter Lisa Clarke has returned to Australia after a year with the company’s Malaysian operation.
Victoria-based Ms Clarke says the overseas assignment showed her the different ways marine is managed in other Asia-Pacific countries, which is increasingly important for helping brokers here.
The next generation of marine leaders will need to operate in a cross-border environment, according to EGM Corporate Nigel Whyatt, who returned to Australia this year from Hong Kong.
NTI announces key WA appointment
Gary Woodhams will become State Underwriting Manager for NTI WA when Graham Bentley retires at the end of the financial year.
The former Zurich employee and motor specialist has 20 years’ underwriting experience and was most recently a principal at Marsh.
State Manager Bruce McAleese says Mr Bentley led the NTI WA underwriting team for 15 years and “his contribution has been immense”.
International
US insurance commissioners reject ComFrame
The proposed global common framework on insurance supervision (ComFrame) is too prescriptive and will not be accepted in the US, the National Association of Insurance Commissioners (NAIC) says.
It should be redeveloped according to its original intention – a best-practice manual that pulls together the best parts of supervision with issues around insurance core principles – NAIC International Insurance Relations Committee Chairman Thomas Leonardi says.
Instead, policymakers around the world are trying to “reinvent the wheel” when regulators are already collaborating to share information and improve practices.
Mr Leonardi, who is the Connecticut Insurance Commissioner, says insurance in the US is regulated by the states, so ComFrame would have to be accepted by each state commissioner and legislature, then signed off by governors.
“It has to reach a significant amount of approval by a super majority of state legislatures and governors, and the way it is currently structured that just is not going to happen.”
ComFrame has too much of a “checking the box mentality”, is too complicated and should not dictate where insurers allocate capital nor create a new level of regulation, Mr Leonardi says.
Munich Re predicts period of growth
The global insurance sector is set for strong growth until 2020, according to a new report from Munich Re.
Expansion will be particularly strong in emerging markets, but reinsurance growth will be slower than the primary industry, its annual Insurance Market Outlook says.
“The global economic recovery is also benefitting the insurance industry,” Munich Re Chief Economist Michael Menhart said.
“We expect the economies of key industrialised countries to improve in the second half of [this year] and [next year]. Consequently, this will lend impetus to demand for insurance.”
The property and casualty (P&C) insurance market will grow about 50% by 2020 to €1.85 trillion ($2.44 trillion), while the life insurance market will grow almost two-thirds to €3.1 trillion ($4.08 trillion), Munich Re estimates.
The global primary insurance market will see premium growth of almost 3% this year and about 3.5% next year on a “revival of life insurance business”, it forecasts.
In reinsurance, growth of about 1% is expected this year, rising to 2.3% next year. The life reinsurance sector is expected to outperform P&C reinsurance.
Mature markets will “remain the dominating growth force”, maintaining a total primary insurance premium market share of about 73% in 2020.
The market share of Asia’s emerging economies will double from 8% last year to 16% in 2020, Munich Re says.
“Approximately half of all the additional premium earned between [this year] and 2020 will come from the US, China and Japan,” Mr Menhart said.
“In this respect, saturated markets and emerging markets both represent great potential for growth in insurance and reinsurance alike.”
Middle East and Africa dominate terrorism risk map
Almost half of the 200 countries featured on this year’s Terrorism and Political Violence Map have identifiable risk, Aon Risk Solutions says.
Threats are particularly prevalent in Africa, according to the 10th annual report, which measures for risks including terrorism, sabotage, strikes, riots, revolution, rebellion, coups and war.
Eleven countries’ risk ratings have been upgraded, including Argentina, Egypt and Jordan, while 19 have been downgraded, including Germany, Italy and the UK.
Of the countries with an identifiable terrorism threat, those deemed to be most at risk include Afghanistan, India, Iraq, Nigeria, Pakistan, Russia, Somalia, Syria, Thailand and Yemen.
Europe has the most positive regional outlook, with 47% of countries rating lower this year because of “receding civil unrest associated with the financial and economic crises”.
The Middle East is rated the most unstable region, with 64% of countries at high or severe risk, reflecting terrorism, unrest and conflict in the wake of the 2011 Arab Spring.
The Middle East and North Africa have the highest proportion of countries with terrorism and sabotage peril, at 85%.
Risks were assessed against a backdrop of economic crises, shifting geopolitical balances and two years of “unusually high” levels of civil unrest, according to Henry Wilkinson, head of the intelligence and analysis practice at The Risk Advisory Group, which partnered with Aon on the map.
“North and west Africa and the Middle East stand out as regions of increasing risk,” he said.
“Civil wars in Libya and Syria in particular have contributed to violent risks in nearby countries.
“Egypt returns to the highest risk rating this year due to persistent civil tumult, political instability and terrorism.”
Talks continue as UK flood cover deadline nears
The future of UK flood insurance remains uncertain after insurers and the Government failed to reach a new agreement in last-minute talks.
The current statement of principles on flood cover, which was introduced in 2000, expires on June 30.
A transitional agreement will need to be put in place while talks – which are “at a crucial and intensive stage” – continue, according to an Association of British Insurers (ABI) spokesman.
Under the current arrangement, insurers provide flood cover to homes and businesses in high-risk areas on the condition the Government invests in mitigation.
Neither side wants this arrangement to continue.
The ABI backs a flood reinsurance system, with at-risk properties pooled, an agreed entry premium and insurers able to submit risks to the pool, funded by a government levy.
Any solution must ensure “the availability and affordability of flood insurance for those at flood risk, but [must] not place unsustainable costs on wider policyholders and the taxpayer”, Environment Department Minister Richard Benyon says.
Allianz celebrates record quarter
Allianz has reported record-high revenue and a 20% increase in operating profit to €2.8 billion ($3.66 billion) for the first quarter.
All three business segments contributed to the growth, putting Allianz on course for a full-year profit of €9.2 billion ($12 billion), CEO Michael Diekmann says.
Property and casualty revenue grew 2.7% to €15.2 billion ($19.87 billion) and profit increased 11.5% to €1.3 billion ($1.7 billion) on rate increases and fewer catastrophes.
The combined ratio fell 1.9 percentage points to 94.3% after one of Allianz’s best quarters since the start of the global financial crisis.
Life and health revenue grew 8.3% to €14.8 billion ($19.3 billion) on growth in unit-linked products, with premiums increasing by double digits in most core markets.
The division’s operating profit was €855 million ($1.12 billion), up 3.6% on the corresponding period last year.
Allianz’s asset management arm reported a 47% increase in operating profit to €900 million ($1.18 billion) on rises in performance fees and assets under management, plus greater margins.
Low interest rates hit Zurich Q1 profit
Zurich Insurance Group has reported a 7% drop in after-tax profit to $US1.07 billion ($1.09 billion) for the first quarter, after weak investment markets offset a strong underwriting performance.
Operating profit was steady at $US1.4 billion ($1.42 billion), with all core businesses performing well and maintaining focus on underwriting discipline and expense management, according to CEO Martin Senn.
“We continue to operate in a challenging economic environment with persisting low interest rates, against which we have posted strong, high-quality underlying profits,” he said.
Operating profit from general insurance fell 6% to $US807 million ($818.99 million), while gross written premium was $US10.69 billion ($10.85 billion), up 2% on the first quarter last year.
This reflects a focus on disciplined underwriting and expense management, Zurich says.
The underlying loss ratio improved by 1.5 points. The combined ratio declined to 94.9% from 94.6%, reflecting lower investment income and higher commissions.
Global Life increased operating profit by 6% to $US308 million ($312.58 million) and reported a 69% rise in new business value to $US332 million ($336.93 million).
Investment income fell 5% to $US1.39 billion ($1.41 billion).
Scor posts solid result
Scor says net profit grew 7% to €111 million ($145.6 million) in the first quarter – a good result in an uncertain economic environment, according to the reinsurer.
Total gross written premium was €2.39 billion ($3.14 billion), aided by “very good… global property and casualty (P&C) renewals and the signing of major new contracts by Scor Global Life”.
The company forecasts premium income of more than €10 billion ($13.12 billion) for the full year.
Gross written premium from the P&C business was €1.2 billion ($1.57 billion), while the division’s combined operating ratio was 90.4%, aided by fewer natural catastrophes.
The P&C business’ technical profitability is “significantly exceeding the strategic plan objectives”.
Scor forecasts P&C premium income of €4.9 billion ($6.43 billion) for the full year.
This year marks the end of the company’s strategic plan, which has established Scor as a “major player in the global reinsurance sector”, Chairman and CEO Denis Kessler says.
“Scor is actively preparing its new strategic plan, which will define the group’s road map for the period [from] mid 2013 to mid 2016 in an economic and financial environment that remains highly uncertain.”
RIMS supports terror legislation extension
The Risk and Insurance Management Society (RIMS) has backed an attempt to extend the US Terrorism Risk Insurance Act (TRIA) for another 10 years.
It comes after Congressman Bennie Thompson introduced the Fostering Resilience to Terrorism Act following the recent Boston bombings, which he calls a “stark reminder” of the threat to America.
“If TRIA is allowed to expire next year, there may be fewer insurers offering terrorism insurance and prices potentially could increase,” Mr Thompson said.
“By extending this program for 10 years, we will ensure much-needed stability and predictability for the business community.”
TRIA “provides critical financial assistance” to businesses affected by terrorism, according to Carolyn Snow, RIMS Board Liaison to the society’s external affairs committee.
“Failure to [extend it] will result in potentially damaging gaps in insurance coverage, leaving countless businesses exposed,” she said.
Congress passed TRIA in 2002 after the September 11 2001 attacks, which saw reinsurers withdraw from terrorism cover, forcing insurers to do the same.
The Act provides a government reinsurance backstop and requires business insurers to offer terrorism coverage.
UK brokers announce strategic review results
The British Insurance Brokers’ Association (BIBA) has revealed the first recommendations of a strategic review that aims to make it “a top-tier trade association capable of meeting the challenges of the 21st century”.
BIBA will become better at explaining “who we are, what we do and the value we bring” and listening to members via a “structured program of regional visits”, new CEO Steve White told the annual conference.
The association will change the way it segments its membership, with five new groups that have been endorsed by the board: companies in the north with a turnover below £1 million ($1.56 million); companies in the south with a turnover below £1 million; companies with a turnover above £1 million; networks, aggregators and managing general agents; and UK nationals, London market and international members.
BIBA’s governance is also under review, with a proposal for a main board with 10 to 12 members, supported by five advisory boards in each member segment and a regional advisory board.
Board-level restructuring will “better reflect the segmentation of our membership”, Mr White says.
BIBA will also strengthen the public affairs and regulation areas of its executive team.
It plans to introduce a code of conduct after members called for the association to “play a more active role in raising standards”.
This will help BIBA do its part to restore “trust and confidence” in UK financial services, Mr White says.
The proposals are subject to consultation and approval at an extraordinary general meeting.
Regulation remains a focus this year, in which the Financial Conduct Authority has taken over regulation, progress is expected on the EU’s Insurance Mediation Directive and the Consumer Insurance Act will be introduced.
“We will move up a gear on our work in Europe to ensure we fend off inappropriate directives that threaten our competitiveness,” Mr White said.
“We want enterprise to flourish and so will be lobbying for fairer, more proportionate, cost-effective regulation for our low-risk sector, which does not stifle enterprise.”
Mr White recently took over as CEO from Eric Galbraith.
Regulator scrutinises UK claims process
Consumer complaints about UK personal lines claims have prompted a strategic review of the sector by the Financial Conduct Authority (FCA).
Concerns about delays, poor customer service and unfairly declined claims must be urgently addressed, according to CEO Martin Wheatley, who announced the move at the British Insurance Brokers’ Association (BIBA) conference.
“Very often, we are talking about enormously stressful periods in people’s lives,” he said. “Touchstone moments. Someone taken seriously ill on a family holiday, a house burgled, a property flooded.
“It would be very difficult, if not impossible, to defend any company if it was found to be aggravating these experiences by dragging its heels − or trying to wriggle out of its responsibility to pay legitimate claims.”
The review will focus on household and travel claims, and obtain evidence directly from claimants.
Mr Wheatley wants companies to ask whether their claims culture is “fit for purpose in the modern world”.
“We need to quickly determine – for the sake of the insurance industry as well as its customers – whether there is a case to answer.”
The review’s findings and recommendations will be reported by the end of the year.
BIBA, the Association of British Insurers (ABI) and the Chartered Institute of Loss Adjusters have set up a claims working group to engage with the FCA and improve customers’ experience and understanding of claims.
“The claims experience is the shop window by which the industry is often judged and insurers are committed to ensuring customers get the service they need when they most need it,” ABI Director of General Insurance Nick Starling said.
Analysis
Another set of standards, and more costs for insurers
The Australian Prudential Regulation Authority (APRA) wants to make risk management in the financial services industry easier by having the same rules across general and life insurers and the banks.
It has put together a package of new standards to harmonise the regulations by consolidating some standards that apply to insurers with those of the banks. And vice-versa.
It’s a sensible move, as many financial institutions selling insurance are both banks and insurers.
But the regulator has managed to slip a few ideas into the new proposed standards that won’t please the companies they’re aimed at – and they’re also unlikely to be cheap to implement.
Probably the biggest concern for insurers is the requirement to appoint an independent chief risk officer (CRO).
In the draft proposed standard (CPS 220), APRA wants an insurer’s risk management functions to be overseen by a designed CRO.
“The CRO must be involved in, and have the authority to provide effective challenge to, activities and decisions that may materially affect the institution’s risk profile,” the draft standard says.
“The CRO must be independent from business lines, the finance function and other revenue-generating responsibilities.”
APRA has ruled out the CEO, CFO, appointed actuary or head of internal audit taking on the job.
“The CRO must have a direct reporting line to the CEO and have regular and unfettered access to the board and the board risk committee,” the standard proposes.
In most insurers, this will be a new role and will be seen as being on par with the CEO and CFO in an organisation’s management hierarchy.
According to Financial Recruitment Group MD Judith Beck, the CRO would command a salary of $250,000-$400,000, depending on the size of the organisation, with incentives added to the base salary.
Ms Beck says trying to recruit somebody of this calibre with the right expertise will be a long process as they do not move based purely on financial incentives.
“These people are more conservative, highly skilled and tend to be loyal to an organisation,” she told insuranceNEWS.com.au.
“To meet the requirements of the job means it is not a junior role as a CRO will have to hit the ground running.”
Ms Beck says the requirement for the CRO to deal with boards will means any appointments will favour people with legal backgrounds.
APRA has put a July 1 2014 deadline for the implementation of the new standard, but that might not leave enough time for an insurer to recruit somebody.
“A person who could fit the CRO role might be on a contract that requires six months notice,” Ms Beck says.
“It could also take a number of months to attract the right candidate as they would not make a decision over a cup of coffee.”
She says insurers should be thinking about the job selection criteria of the CRO at least 12 months before the implementation date if they want to attract the right person.
Under the new standard, insurers will have to create a risk management strategy, a written business plan setting out their operational implementation of the strategy and a board risk management committee.
The business plan must be reviewed annually and the results reported to the board.
Insurance company boards will also have to make annual declarations to APRA on their companies’ risk management.
The document will have to be signed by both the board and the risk committee chairman before being submitted to the regulator.
With all the regulation that has been imposed in the past year – unfair terms in contracts, Future of Financial Advice and super changes among them – the last thing insurers want is more regulation.
But APRA hasn’t just limited itself to risk management. Last week it also released draft Prudential Standard CPS 510, which covers governance.
This 27-page standard lays down the law on insurers’ board and senior management structures, joint ventures, remuneration, auditors and how people must be allowed to give information to APRA unimpeded.
The cost of meeting all these governance requirements isn’t known at present, but APRA does seem to be concerned about a backlash because it has asked for cost-analysis submissions from the industry.
In fairness, many insurers will already be meeting many of the requirements, but the appointment of a CRO and possible board changes to find an independent director for the risk management committee will add to the bottom line.
Governance has been a big cost in the financial year so far, and it looks like the next one is going to be no different.
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