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A note from the Publisher

The latest edition of Insurance News magazine is being mailed out this week, and with it we’ll be celebrating a significant milestone.

Once the magazine is in the hands of subscribers around Australia, we will make it available online.
 
It has previously been a subscriber-only print-only publication, and will always still be available in print form for those established and future subscribers who prefer it.

The decision to take the magazine online follows closely behind the launch last week of our new Tuesday-to-Friday daily edition of insuranceNEWS.com.au, which has been very well received by subscribers.

This new service complements our comprehensive Monday afternoon edition, which remains Insurance News’ “flagship” production. 

Much has changed in the 10 years we have been building the Insurance News brand. We now have about 26,000 subscribers to our Monday online news, and 9000 magazine subscribers – numbers that make them the most-read publications of their type in Australia by a very wide margin.

The decision to develop the online magazine option and daily online news service didn’t come without a lot of research and a fair amount of debate, and the feedback to these initiatives in the reader survey we conducted over the past month has reassured us they are positive steps.

Our reasons for the changes are both practical and economic. While we have no intention of limiting the magazine’s print run, the costs associated with printing and mailing continue to rise. Online production has the potential to raise readership levels for minimal cost. 

Then there’s the fact many readers have told us they simply prefer the flexibility and convenience of reading from an electronic device such as a tablet or computer – a trend that’s challenging the print publishing business around the world. 

Our decision to go with the global flow reflects our determination to keep the magazine’s circulation growing. Advertising is Insurance News’ major revenue source, and our priority has always been to provide our industry advertisers with the largest possible readership. They will also now have greater flexibility to devise innovative and exciting campaigns for Insurance News readers across a range of media.

There’s another, more incidental, benefit. Our subscribers include an enthusiastic cohort of overseas readers – many of them expatriates – who will now be able to read the magazine without having to pay for mailing.

Over the next few months we will make all previous editions of Insurance News magazine available online, providing a historical perspective to the issues we have covered over the past nine years. 

Insurance News magazine has always been praised by readers for the in-depth perspectives it brings to issues we’ve covered more briefly in the online news. We are looking forward to bringing those industry insights to an even wider audience.

With a wider range of productions to increase the effectiveness of Insurance News, we will concentrate for now on bedding in our new services.

But I’m sure we won’t be stopping here. The insurance world is changing rapidly, and so are new and exciting ways to communicate that change. 

Terry McMullan

Publisher, Insurance News

‘Numerous headwinds’ predicted – despite rate rises

Commercial premium rises are providing the main tailwind for the insurance industry, which achieved a bounce-back performance last financial year, Finity Consulting says.

But it warns significant multi-year rate rises are needed to bring commercial short-tail classes back into the black, while growth in personal lines is expected to become increasingly difficult.

The insurance margin gained two percentage points to 16% last financial year, and return on equity (ROE) reached 15% for the first time since 2014, assisted by premium rises, a low level of catastrophes and reserve releases.

“In private motor, which accounts for one-quarter of industry net premium, insurers seem to have put the brakes on the strong claims inflation seen in recent years,” Finity Principal Andy Cohen says.

“Coupled with the rate increases achieved, this class has almost returned to target profitability.”

Finity’s annual Optima report says recent rate increases in personal and commercial classes will flow through this year, and there is room for more premium hardening.

But overall industry premium rises are likely to be curbed by low economic growth and low inflation, affordability issues, competitive pressures and the relative lack of domestic growth opportunities.

Finity expects profitability will remain sound, although a little below target.

Reported profitability is expected to contract slightly but remain in double digits this year, while margins and ROE are expected to stay in the 10-15% range for the next three years.

“Although the outlook for overall industry profitability is good, headwinds to watch out for are numerous,” Mr Cohen said.

These include reduced scope for reserve releases, Hayne royal commission regulatory impacts, stronger claims inflation and class actions. Investment returns also remain very low.

See ANALYSIS.

Pricing must keep pace with climate change: Finity

Insurers can’t afford to take a relaxed approach to pricing for climate change, because an escalation in severe weather events may leave them playing catch-up as claims costs are driven higher.

Finity Consulting says premiums are typically set annually, allowing insurers to respond to changing conditions, but companies should ease the risk of underpricing by incorporating external data that reflects weather and climate trends.

“If you do that gradually over the next 10 years or even longer, so there are not big changes all of a sudden, and insurers could be in good shape for meeting emerging claims costs that may come through,” Principal Andy Cohen told insuranceNEWS.com.au.

An article in Finity’s annual Optima report says external data may include weather station readings from the Bureau of Meteorology and information from scientific studies, cross-referenced to allow insurers to review flood and storm pricing in particular areas.

“By looking beyond the claims data to these more granular and specific resources, the insurer can reprice to respond to the changing environment as it happens, rather than always be chasing the trend,” Finity says.

“The benefits are at the margin. We would not expect a major reassessment of premium levels immediately, but over time the insurers that get this right will deliver better outcomes.”

Finity says this approach will also allow the industry to show leadership in helping the community understand how climate change is affecting risk.

See ANALYSIS.

Half of industry cyber breaches go undetected

While insurance companies are focused on alerting clients to the dangers of cyber breaches, their own internal security systems have failed to detect about 47% of cyber breach attempts.

Accenture’s annual cyber security study shows 50% of respondents require more than a week to detect a breach. About 22% of breaches were successful this year, down from 30% last year.

The number of “cyber capabilities” insurers have mastered has jumped to 20 from 12, out of 33 capabilities identified by Accenture.

However, 40% of respondents’ business is not protected by cyber security, while 40% of study participants do not apply the same security standards to partners as they do to themselves.

Companies are extending their infrastructure into digitally connected devices such as cameras, sensors and smart watches, giving criminals more access points and forcing security professionals to safeguard more devices.

About 80% of respondents are confident they can manage the financial risk of a cyber-security event, and 68% say they can minimise resulting disruption.

This has led Accenture to suggest insurance executives may be overconfident in their security.

About 88% of respondents expect cyber-security investment to increase in the next three years; 75% say advanced technologies are essential to a secure future, yet only 40% are investing in machine learning and automation technologies.

About 70% of insurers say cyber attacks are a “black box”, and they do not know how or when they will affect their organisation.

Australia climbs insurance penetration chart

Australia has an insurance penetration rate of 3.5%, the sixth-highest in a Lloyd’s underinsurance study of 43 economies.

The country placed 10th in the last survey, in 2012, when penetration – based on total premium as a percentage of GDP – was 3%.

The Netherlands tops the new list at 7.7%, followed by South Korea (5%), the US (4.3%), New Zealand (4.2%) and Canada (4.1%).

Lloyd’s says underinsurance remains a huge problem in the Asia-Pacific, despite the region’s exposure to natural disasters.

Asia-Pacific accounts for $US134 billion ($188 billion) of the world’s $US162.5 billion ($229 billion) overall insurance gap.

Half of the 18 economies with insurance gaps are from the region, with China recording the biggest exposure at $US76 billion ($106.9 billion).

Lloyd’s study was conducted with the UK’s Centre for Economics and Business Research.

Data loss lawsuits face major barriers

While companies are responsible for keeping clients’ data secure, class actions around data breaches would face significant hurdles in Australian law.

A paper from allied law firms Allens and Linklaters says plaintiffs’ biggest obstacle is establishing how they have suffered economic loss.

Data breaches have become common locally and overseas, but no class actions have been successfully brought in Australia.

The law firm says class actions require a suitable cause of action, and Australia lacks an actionable right to privacy.

Shareholder class actions against companies whose stock is affected by data breaches are a possible route to claims, because that could quantify economic losses.

Plaintiffs could claim a company broke continuous disclosure obligations, but the data breach would have to be big enough to satisfy a court that such obligations applied.

Shareholders could similarly claim the company knew or ought to have known of deficiencies in its systems for handling personal information but failed to disclose them.

They could also base a claim on misleading or deceptive conduct in relation to company statements about handling personal information, which would be revealed as false by the data breach. But quantifying the loss incurred would be difficult. They would need to establish that they relied on those company statements and, by doing so, suffered a loss.

Plaintiffs could run a class action based on breach of contract, but they would have to establish that they suffered an economic loss as a result. They may struggle to attribute the breach to a specific failing by the company. 

A breach-of-contract claim is most likely to succeed when brought by a business in the supply chain that can quantify losses incurred, the paper says.

Plaintiffs could claim negligence by an organisation, but compensable loss is again likely to be the most significant hurdle.

Allens and Linklaters suggest complaints to the Office of the Australian Information Commissioner may help law firms build cases.

In the US, successful class actions have been launched by financial institutions or credit card companies that suffered breach-related expenses such as reimbursing customers for fraud-related transactions.

A class action has been launched against NSW Ambulance in connection with a data breach, and Allens and Linklaters expect to see other actions soon.

Quake experts name Australian hotspots

The Wheatbelt region in WA and Gippsland in Victoria are the areas most vulnerable to earthquakes, according to the latest National Seismic Hazard Assessment.

Canberra ranks as the most exposed capital city because of its proximity to the Lake George and Murrumbidgee faults.

Geoscience Australia says updates to the hazard assessment, the first since 2012, will help with mitigation and disaster planning.

“Science and technology is constantly evolving and improving, and the [assessment] is updated regularly to ensure it incorporates best practice and evidence-based science,” Senior Seismologist Trevor Allen said.

“In regions such as the Wheatbelt and Gippsland, with higher seismic hazard, it is an essential tool for developing mitigation strategies that make at-risk communities more resilient.”

A magnitude-five quake every 10-25 years is likely for Wheatbelt residents.

The southwest region is historically prone to strong seismic activity, including the magnitude-6.5 quake in 1968 near Meckering.

In Gippsland a similar-magnitude quake is expected every 25-50 years.

The Latrobe Valley and Strzelecki Ranges have some of the country’s most active faults with the “potential to host a very large earthquake”.

The region was most recently hit by a magnitude-5.4 quake near the Latrobe Valley town of Moe in June 2012, followed by more than 200 aftershocks.

About 100 quakes of magnitude three or higher are detected across Australia every year.

“It’s impossible to accurately predict exactly when and where an earthquake will occur, but the history of… activity in a region can tell us a lot about its potential risk,” Dr Allen said.

ICA reassesses historic cat losses

The Insurance Council of Australia (ICA) is upgrading its catastrophe data to normalise historic disaster loss figures to last year’s values.

Risk Frontiers, which has strong ties to the industry, will oversee the update.

ICA last carried out a loss normalisation update in 2013.

“The normalised loss values assist insurers and reinsurers to more easily estimate portfolio-level losses should historic events repeat themselves,” GM Risk Karl Sullivan told insuranceNEWS.com.au.

For example, the 1999 Sydney hailstorm, which cost the industry $1.7 billion at that time, would carry a different price tag today.

Factors such as bigger populations, more widespread car ownership and different policyholder demographics can affect loss estimates.

“All these factors mean the insured cost of the hailstorm [repeated today] would be significantly higher than it was in 1999,” Mr Sullivan said.

“Having an appreciation for this assists insurers and reinsurers to establish prudentially sound capital arrangements that help them respond quickly and sustainably to catastrophe events.”

EQC close to finalising storm claims

New Zealand’s Earthquake Commission has settled 84% of claims from storm events between January and last month.

It has received 1333 claims and has paid out more than $NZ17 million ($15.6 million) on 1120 resolved cases, with an average settlement time of 69 days.

The commission settled 98 of 101 claims received after the January storm centred on the Kaiaua-Thames region in the country’s northeast, with about $NZ1.19 million ($1.09 million) paid out.

There were 137 claims after Ex-Cyclone Fehi, with one case still outstanding after the commission paid out about $NZ920,626 ($846,053). About $NZ6.4 million ($5.9 million) has been paid to settle 271 of the 282 claims lodged after Ex-Cyclone Gita.

LMI link to securities in decline

The use of lenders’ mortgage insurance (LMI) policies in residential mortgage-backed securities is falling, according to S&P Global Ratings.

The trend is reducing the traditionally strong influence that mortgage insurers’ underwriting standards have on lenders’ underwriting policies, the ratings agency says.

The decline of LMI is also changing the way the market defines prime and non-conforming home loans. Prime loans are made to borrowers with a clean credit history.

The major banks have less than 25% exposure to LMI, S&P says.

The decline in LMI reflects the banks’ reduced appetite for high loan-to-value ratio lending, which has slowed due to tightened lending standards.

A regulatory focus on lending standards is now the dominant factor shaping underwriting policies, S&P says.

It does not expect exposure to LMI to be completely removed from residential mortgage-backed securities portfolios in the short term.

A decline in LMI usage will not cause lending standards to deteriorate, because the Australian Prudential Regulatory Authority will continue monitoring them, S&P says.

Quake experts examine silent threat to Dunedin

“Quiet” earthquake faults that could cause severe damage in the southern New Zealand city of Dunedin are the early focus of a research project funded by the Earthquake Commission (EQC).

University of Otago Chairman of Earthquake Science Mark Stirling says previous research on the Akatore Fault revealed potential risks, with the fault showing a period of calm for at least 100,000 years before three quakes over a relatively short spell.

“The biggest danger in an area such as Otago is that we don’t think there is going to be an earthquake on one of these “quiet” faults, so we don’t prepare as much as we would in somewhere like Wellington,” he said.

A “hit list” of fault lines to be studied starts with those most likely to affect Dunedin that have not previously been examined.

“First up is the Hyde Fault, which created the Rock and Pillar Range a long time ago, and would greatly affect Dunedin if it ruptured again,” Professor Stirling said.

The EQC has provided NZ$68,000 ($62,689) for the research, which will feed into the National Seismic Hazard Model, used to develop standards for building strength. In 1974 the EQC received 3000 claims after a magnitude-five earthquake struck offshore from Dunedin.

In Insurance News (the magazine) this month

What does the Hayne Royal Commission have in store for the general insurance industry? Insurance News magazine has analysed the royal commission’s hearings to date and spoken to experts who believe the shock that’s coming will be based on tougher regulation rather than a pile of new legislation.

We’ve also examined the evidence given by general insurance executives, and the companies’ reactions after.

Steadfast’s Robert Kelly has led yet another major acquisition – this time of IAG’s CBN authorised representative network. Insurance News speaks to the man who co-founded and leads the industry’s irresistible force, asking about a range of industry issues and Steadfast’s future development.

We’ve also compared the latest results of the Top Three insurers, the impact on insurance of drought and a global outbreak of bushfires, and examined the implications for Australia of the Genoa bridge disaster.

All that and a whole lot more in Insurance News magazine, Australia’s most popular and in-touch publication. Subscribers can expect to receive it through the mail over the next week. And from this issue it will also be available online.

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Corporate

Steadfast lifts forecast after strong start

Steadfast has raised its earnings forecast after a strong first quarter and says it is well placed to pursue further acquisitions.

Earnings from existing broking and underwriting agency businesses increased 10% last year, while the group achieved growth of 6% from purchased operations.

“We have completed several acquisitions that will make a contribution to [the financial year] and have a strong pipeline,” MD and CEO Robert Kelly told the company’s AGM in Sydney on Thursday.

Since the end of the last financial year Steadfast has bought several more broking businesses and one specialist motor agency, investing a total of $90 million. The company has long-term debt facilities of $385 million, with more than $100 million available to fund growth.

Morningstar analyst David Ellis says an extended period of measured growth via acquisition is expected.

“Despite a successful acquisition track record, the strategy increases risk, particularly in paying for assets and integrating acquired businesses,” he says in a research note.

“We are confident that the disciplined approach will continue, with most acquisitions to come from within the broker network or from long-term partners.”

Mr Kelly says Steadfast network brokers and underwriting agencies achieved better than expected growth early this financial year, supported by insurers’ mid-single-digit price rises.

The group has revised its underlying earnings before interest, tax and amortisation (EBITA) outlook to $190-$200 million and its underlying net profit forecast to $85-$90 million for the year to June 30.

In August it forecast EBITA of $185-$195 million and net profit of $82.5-$87.5 million.

Mr Kelly says extending Steadfast’s international reach remains a key strategy. It has 53 network brokers in New Zealand and Asia, and a 40% stake in global group unisonSteadfast.

It will also continue investing in technology, with the Steadfast Client Trading Platform which is forecast to deliver a small EBITA contribution this year, rising towards a target of $23 million in five years.

Suncorp reviews possible Resilium business sale

Suncorp may decide to sell its Resilium authorised representative (AR) network after a review of the business.

The insurer has retained corporate adviser 333 Capital to examine options, which may include a sale, joint ventures or partnerships, or continuing to invest in the business’ current structure.

Resilium was formed in 2011 from the acquisition of AMP’s long-established general insurance sales unit. It later launched a broking arm, Resilium Insurance Broking, which is part of the Steadfast network.

Informed sources have told insuranceNEWS.com.au the business could sell for about $35-$40 million. It reported revenue of $69.2 million last financial year and a profit of $159,000.

Resilium is led by Adrian Kitchin, who joined from Insurance Advisernet in 2015, and is chaired by Pip Marlow.

A Suncorp spokesman said today the company “does not comment on speculation”.

However, told insuranceNEWS.com.au has obtained independent confirmation from a reliable source that 333 Capital has been engaged to report on Suncorp’s options in selling the business unit.

Earlier this month IAG sold its AR group, Community Broker Network, to Steadfast for an undisclosed sum. At the time, a spokesman told insuranceNEWS.com.au the sale reflects the group’s strategy “to focus on our core operations”.

Last month Suncorp sold its life insurance business to TAL Dai-ichi Life for $725 million, with the transaction expected to close by the end of the year.

Suncorp’s move on the AR network reflects a shift in thinking among the major insurers, whose strategic focus has changed from third-party distribution to product manufacturing and a more customer-oriented sales approach.

Morningstar analyst David Ellis says insurers – and financial services companies more widely – want to make more effective use of capital and concentrate on higher-margin businesses.

“It is an ongoing process the insurers are going through,” he told insuranceNEWS.com.au.

AUB acts on alleged misconduct

AUB has appointed external advisers and put an interim CEO in place at Austbrokers Canberra following alleged misconduct at the brokerage.

In a statement to the Australian Securities Exchange (ASX) last week AUB said the “financial misconduct” was identified during an internal investigation and Austbrokers Canberra MD Greg Johnston was “removed” from his position as a result.

An interim CEO has been put in place, but AUB has declined to confirm their identity.

“Remedial action is being taken to address the misconduct, and the relevant authorities, regulators and the affected client have been notified,” the statement says.

“The group has engaged external advisers to assist in the ongoing internal investigation.”

AUB issued a further statement but would not respond to questions about the nature and scale of the alleged misconduct.

“Misconduct by Greg Johnston has been identified by Austbrokers Canberra,” the statement says.

“AUB Group has removed him as MD and as a director of the board, notified authorities, put in place measures to ensure continuity of client service, engaged external advisers and commenced an internal investigation.

“AUB Group and Austbrokers Canberra are fully co-operating with the authorities on this matter, and will not be making any further comment while this investigation is under way.”

Mr Johnston founded the business in January 2007.

His LinkedIn account says the business has evolved from a staff of 12 to become a “major operator” in the general insurance market, with 40 staff across four offices in Canberra, Sydney, Perth and the UK.

The business is understood to have more than 10,000 clients and turnover above $50 million.

The decision to highlight the matter through a statement to the ASX surprised some industry executives, because it is not material to the company’s financial performance.  insuranceNEWS.com.au understands the decision to publish details was made to head off market speculation and protect the group’s reputation and integrity.

Evari partners with Honcho on small business cover

Insurtech Evari has teamed up with online business assistance group Honcho to include insurance in a one-stop shop for start-ups.

Honcho’s cloud-based services include business registration activities, bank account set-up and digital and marketing services.

Evari’s offering will include public and product liability, professional indemnity, business disruption and stock and contents, with a focus on the sole trade market. The construction sector, cafes and restaurants, retailers and professional services are being catered to initially.

“Insurance is a necessity for every business,” Evari CEO Daniel Fogarty said. “When starting out, it feels complicated, but it needs to be actioned quickly to manage the risk to business.”

Policies will give business owners the flexibility to easily make policy changes, while tradies can access a “pause” function to save money on liability insurance when they are not working.

Honcho says it averages 100,000 new customers a year and has formed a relationship with ANZ on banking services.

Suncorp urges incumbents to embrace change

Established companies should not use an uncertain and shifting landscape as an excuse to delay or defer investment, Suncorp CFO Steve Johnston.

He says disruptors, start-ups and entrepreneurs thrive on regulatory, political and technological uncertainty, and incumbents should do the same.

In an article on digital disruption, Mr Johnston urges companies such as Suncorp to cultivate strategic innovation among employees, and to incubate ideas.

The rise of start-ups is giving large, established companies an opportunity to buy in technology and expertise. Putting customers and products together more efficiently will improve economic outcomes, and it does not matter how that is delivered.

Mr Johnston says incumbents can survive fintech disruption only if they establish customers as the most important stakeholder. Companies that build cost and revenue resilience will move from a threatened mindset to one of seeking opportunities.

Companies need a detailed understanding of their customers and needs, and must be attuned to customer preferences.

The business model is being challenged by fintechs and increased regulation, posing a huge challenge for Australia’s largest financial services companies, Mr Johnston says.

Established businesses have diverse customer bases, and not everyone wants to transact digitally. They must think of their customers who are more comfortable dealing with people, and factor these costs in, he says.

Claims experts fill gap as consultant ICPS fails

Queensland-based KMA Consulting Engineering has moved to fill the void left by risk survey consultant ICPS Australia, which is in voluntary administration.

Three former ICPS employees with more than 20 years’ experience have joined the engineering company.

“With ICPS Australia’s failure, there remains the need for a professionally operated company to assist the insurance industry with claim services, particularly causation investigations and post-disaster recoveries,” director Karl Aldrich said.

QBE unveils truck repair network

QBE Insurance today launched its heavy vehicle repairer network, two months after opening a tender for specialist partners.

“As one of Australia’s largest heavy vehicle insurers and in line with our commitment to providing the best customer experience, we’re pleased to launch a heavy vehicle repairer network of preferred suppliers,” EGM Claims Jon Fox said.

“This supply chain will help us ensure… exceptional customer service and high-quality, efficient and cost-effective repairs from suppliers we’re confident can meet evolving customer expectations.”

IAG uses RMS quake model in NZ

IAG has adopted the New Zealand earthquake model of global catastrophe modeller RMS to strengthen its risk assessments.

The tool benefits from a simulation-based framework that models tens of thousands of future quake scenario losses. It is the first to holistically consider losses due to ground shaking, liquefaction, landslide, tsunami and fire after a quake.

The model was updated using lessons learnt from the Canterbury quake in 2010 and the more complex Kaikoura event in 2016.

IAG natural peril specialist Philip Conway says New Zealand has the most technically advanced views of quake risk in the world, and the RMS platform leverages that.

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Regulatory & Government

Industry ‘caught up’ in product rules reform

The National Insurance Brokers Association (NIBA) has called for insurance to be withdrawn from new legislation designed to help eradicate the mis-selling of financial products.

A Senate inquiry is under way into provisions of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018.

The legislation aims to force financial services companies to identify clear target markets for products and appropriate distribution channels, and would allow regulators to intervene at an early stage if consumer harm is detected.

Consumer groups believe this will prevent scandals such as the inappropriate sale of add-on insurance through car dealerships.

But in submissions published last week, the Insurance Council of Australia (ICA) and National Insurance Brokers Association (NIBA) outline fears over the impact on general insurance.

NIBA CEO Dallas Booth told insuranceNEWS.com.au this is another example of mainstream general insurance products being caught up in reforms primarily targeted at other sectors.

“I believe this is designed for investment products, but the impact on insurance could be huge,” he said. “We don’t have any clear picture at all about what the target market determinations will look like and how they are going to work.”

In its submission NIBA expresses concern at the Bill’s impact on brokers.

“We are very concerned that a consumer who might see themselves as falling within a target market might conclude the product is suitable and appropriate for their individual needs,” NIBA says.

“We believe this is very dangerous and potentially very misleading in the hands of consumers.

“Only those providing personal advice such as insurance brokers can advise on whether the product meets the consumer’s individual needs and objectives.

“To suggest insurers and their agents are doing more in the target market determination by reason of this Bill may unintentionally reduce the number of consumers seeking personal advice and the protection that comes with it.

“This is not a good result for the community.”

NIBA says insurance should not be included in the Bill until further consultation is carried out in light of the Hayne royal commission and other reviews.

“If this reasonable approach is not accepted, then urgent discussion is needed to fix what are significant flaws in the proposed Bill,” it says.

The ICA submission says its members are “deeply concerned” the Bill will “hinder rather than improve the likelihood that consumers buy insurance suitable for their needs”.

ICA says the Bill’s provisions have not been designed “to mesh easily with the unique characteristics of general insurance products”. It also warns the distribution obligations may mean insurers have to collect underwriting information again at renewal.

“This would fundamentally change the way insurance policies are regulated under the [Insurance Contracts Act] and require extensive systems changes at substantial cost to the industry.

“A large member has estimated the cost of overhauling its renewal processes to require the re-collection of information will [be] $62 million annually. This is on top of the one-off systems changes of approximately $14 million.”

This would result in higher premiums, ICA warns.

Allianz has also made a submission, echoing NIBA’s concern at a lack of clarity on target market determinations.

“Allianz is concerned that in consultation between Treasury, ASIC, consumer groups and industry, no one group could agree on what ‘level’ the target market should be,” the submission says.

“Unless one can properly determine the target market, which is not reasonably possible based on the current Bill, an insurer has no reasonable compliance certainty as to whether its [target market determination] has been correctly made or whether it is appropriate. Significant civil and criminal penalties apply if this is not the case.”

A submission endorsed by several consumer organisations, including Choice, the Consumer Action Law Centre and the Financial Rights Legal Centre, “strongly supports” the reforms.

“We believe [the reforms] would significantly improve consumer outcomes and improve trust and confidence in the financial system,” the submission says.

“The design and distribution obligations should help to achieve a cultural shift within financial companies away from simply ‘selling’ financial products towards designing and distributing suitable products that meet customer needs.

“Further, equipping the Australian Securities and Investments Commission with product intervention powers would allow the regulator to intervene before consumer harm occurs and deter misconduct by financial firms.”

Consumer Action Law Centre Senior Policy Officer Susan Quinn told insuranceNEWS.com.au consumer groups believe the legislation should go even further.

“We would ask that insurers are required to define who the target market is not, as well as who it is,” she said.

“Most of the problems have been around selling products to those who do not understand them or who cannot claim on them.”

Act fast on stronger powers, Shipton tells Canberra

Australian Securities and Investments Commission (ASIC) Chairman James Shipton has urged Parliament to quickly pass laws to help the regulator crack down on poor behaviour.

The Government plans to introduce legislation this week to strengthen penalties for corporate misconduct, while a Senate inquiry is reviewing proposed product intervention powers.

“It is vital that the increased penalties and regulatory powers – product intervention powers, design and distribution obligations, as well as a directions power – pass the Parliament as soon as possible,” Mr Shipton told a parliamentary joint committee on Friday.

Legislation to be introduced this week would increase maximum criminal penalties for corporations to the greater of $9.45 million or three times the benefit gained or loss avoided, or 10% of annual turnover. Fines and prison terms for individuals in criminal cases would also rise and the maximum penalties in civil cases would sharply increase.

ASIC drew fire in the Hayne royal commission’s interim report last month for favouring negotiated agreements over public denunciation and punishment for wrongdoing.

The report also criticises the regulator for issuing infringement notices with small penalties, rather than pushing for higher fines through courts.

Mr Shipton says ASIC is still experiencing slow responses from institutions, and in some cases deliberate delaying tactics, and it will come down hard on businesses that fail to co-operate.

“If institutions lie, or are otherwise dishonest with us, we will use every power available to us to punish that behaviour. I am a firm believer in the importance and effectiveness of court-based enforcement tools. They are the foundation of any regulator.”

Mr Shipton says a discussion is needed on ASIC’s size and resourcing, given community expectations and the challenges of Australia’s financial system.

“For me, my experience as a regulator in Hong Kong, in a system that also has an industry funding model, is instructive. There, on an adjusted basis, in terms of financial services GDP and financial services population, Hong Kong’s financial regulators are three times the size of Australia’s.”

ICA bolsters call to delay accounting standard

The Insurance Council of Australia (ICA) has joined global peers in calling for a two-year delay on implementation of a new accounting standard for insurance contracts.

It is among nine signatories to a letter urging the International Accounting Standards Board (IASB) to give the industry more time to prepare for International Financial Reporting Standard (IFRS) 17, which is scheduled to take effect on January 1 2021.

Spokesman Campbell Fuller told insuranceNEWS.com.au that “ICA and the other associations are committed to implementation of IFRS 17”.

“However, more time is needed to satisfactorily work through issues such as the treatment of reinsurance when it covers onerous underlying contracts and changes to the presentation of certain assets and liabilities on the balance sheet.”

The Insurance Council of New Zealand is another signatory to the letter.

“It’s better to bring it in right than to push to meet a deadline that insurers globally are finding challenging,” CEO Tim Grafton told insuranceNEWS.com.au. “We hope the International Accounting Standards Board is receptive to the call for a deferral.”

IFRS 17 is one of the most significant changes to insurance accounting requirements in more than 20 years.

“There is no expectation that a delay will result in insurers stopping or slowing their implementation project,” the letter to IASB Chairman Hans Hoogervorst says. “The industry recognises its responsibility for proposing solutions and we are liaising across our markets with the aim of providing timely progress on the necessary improvements to IFRS 17.”

The letter says deferring implementation will allow “for the finalisation of related regulatory changes as required in some jurisdictions, for better change management… on the new and potentially very different financial reporting going forward”.

Reinsurance pool flagged as option for driverless cars

A national reinsurance pool to cover injuries suffered in driverless car crashes is among policy options reached by the National Transport Commission (NTC).

Governments and the insurance industry are grappling with changing liability implications for compulsory third party schemes as automated driving systems become more common.

“It is anticipated that insurance will progressively shift from covering driver negligence to covering [automated vehicle] technical failures,” an NTC paper, issued last week, says.

Its six options include three based on present schemes and three new approaches, with recommendations due to go to state and federal transport ministers next May.

NTC Acting CEO Geoff Allan says current laws are generally set up to cover injuries caused by human error, rather than product faults.

“Laws in most states and territories do not contemplate a non-human driver controlling a vehicle,” he said. “In addition, several jurisdictions require human fault to be proved for compensation to be paid.”

The discussion paper says option three, which expands present schemes to cover automated vehicle injuries, best meets the NTC assessment criteria and would be the simplest to implement.

Under this option, insurers would have rights of recovery against manufacturers, but the paper says it could be complex to establish negligence and product liability. A modification may involve a reinsurance pool funded with contributions from all parties that might be responsible for malfunctions, including manufacturers and telecommunications providers.

The paper also suggests option three could be introduced initially while other approaches are prepared.

“We welcome submissions from insurers, manufacturers, legal experts, academics and individuals,” Dr Allan said.

Heads of motor accident injury schemes have agreed that whatever model is decided upon, no one should be worse off if hurt by an automated vehicle than they would if a person is in control.

Submissions are open until December 12. For more information, click here.

NSW passes workers’ comp dispute reforms

The NSW Government has passed reforms to its dispute resolution scheme for workers’ compensation claims.

The calculation of earnings prior to injury has been simplified – addressing a major source of compensation disputes.

And mandatory insurer internal reviews for work capacity decisions have been removed.

The reforms establish two key pathways for lodging complaints or inquiries.

The Workers’ Compensation Independent Review Office will support workers and the State Insurance Regulatory Authority (SIRA) supports employers, insurers and service providers.

The Workers’ Compensation Commission has also been established, serving as a one-stop shop for compensation disputes.

Injured workers can turn to the commission for all disputes, including work capacity, medical and liability decisions.

Single decision notices have also been introduced, which more clearly outline decisions and the reason behind them.

The reforms remove anomalies between the Motor Accident Injuries Act and the Workers’ Compensation Act, protecting workers’ compulsory third party settlements by limiting the amount of compensation the worker must pay back to the insurer.

Permanent impairment compensation can now be awarded in some cases without an approved medical specialist.

SIRA’s board has been expanded from three to five members to improve governance.

State Minister for Finance, Services and Property Victor Dominello says the current scheme is unnecessarily complex and needs to be simplified for injured workers.

About $2.7 billion is paid out annually to injured workers in NSW, while only 5% of the 95,000 compensation claims result in a formal dispute.

Data laws ‘fail to protect’ intellectual property

Treasury’s revised draft laws for the Consumer Data Right (CDR) regime have been labelled “still too broad” to sufficiently protect insurers’ underwriting data.

The Insurance Council of Australia (ICA) says the proposed legislation should contain a general exclusion of intellectual property, coupled with specific exceptions and anti-avoidance provisions to address potential loopholes.

“In this context, we reiterate our view that underwriting data used by insurers is a source of intellectual property and a commercial asset,” it says in a submission to Treasury.

“It is essential that any requirement to release data does not compromise the underwriting models used by individual insurers to assess and price risk.”

The CDR aims to give Australians greater control over their data. It will be introduced next year, first in the banking sector, followed by energy and telecommunications.

ICA supports the Treasury proposal specifying minimum consultation requirements prior to a sector being designated or rules being made.

It suggests a minimum 60-day public consultation is appropriate because of the issues’ complexity and the significance of the changes.

“This would allow due consideration [of] how the CDR regime could apply to general insurance and other sectors, and achieve the stated aims of improved consumer choice and convenience.”

In a separate submission to the Australian Competition and Consumer Commission, ICA says “careful consideration” must be part of the rules framework consultation when the CDR extends to the insurance sector. The consumer watchdog is seeking feedback on the approach it takes in setting rules for the CDR.

“Any extension of the rules framework to the general insurance sector will require careful consideration of how the CDR regime achieves its stated aims of improved consumer choice and convenience,” ICA says.

Dangerous cladding taskforce sounds premium alarm

The Victoria Cladding Taskforce has warned buildings with combustible cladding will cost more to insure.

“Owners face increased insurance premiums and reduced property values while combustible cladding remains on a building,” it says in a progress report released last week.

The report hails a new loan scheme to help strata owners pay for removal of dangerous cladding.

“We are going further than the rest of the country in assisting building owners directly impacted by combustible cladding through the development of a financial scheme Victorians can access to pay to rectify their buildings.”

But critics say the initiative, which involves councils, lenders and owners/owners’ corporations, is too complex. And joining the Cladding Rectification Agreements scheme will not offer instant premium relief, industry players say.

“The actual cladding rectification agreement process could have been better thought out,” Strata Community Insurance MD Paul Keating told insuranceNEWS.com.au.

“It’s positive that the Government is looking at ways to assist owners, but the premiums are unlikely to reduce until the risk has been mitigated, reduced or lowered. The benefit of reduced premium generally comes after the dangerous material has been removed.”

The taskforce says Victoria has completed an assessment of 1369 private buildings and planning permits where cladding has been listed as a construction material.

Varying amounts of combustible cladding was found in 218 of the 550 completed buildings inspected by the Victoria Building Authority.

ARPC delivers improved surplus

The Australian Reinsurance Pool Corporation (ARPC) had about $13.4 billion in funding capacity for terrorism-related claims last financial year.

The terrorism pool’s annual report shows an operating surplus of $28.2 billion, about three times better than the previous financial year and $14 million above forecast.

The average price of cover for insurers was 4.9% of premium, up from 4.7%.

Premium revenue increased to $169.6 million from $147.2 million. It paid about $147.5 million in fees and dividends to the Government, which includes $55 million for the Commonwealth guarantee and $57.5 million as a dividend for retrospective compensation.

“The ARPC notes that the end of this retrospectivity will imply that future years see a modest net cash inflow after several years of decreasing net assets,” the report says.

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Life Insurance

Industry premium inflows rise

Risk premium inflows to the life insurance sector increased 1.8% to $16.4 billion last financial year, according to consultant Strategic Insight.

Individual risk lump sum grew 2% to $7.1 billion, individual risk income 3.3% to $2.8 billion and group risk 1% to $6.4 billion.

Market leader TAL achieved a 2.8% rise in premium to $2.9 billion, and the second-biggest player, AIA Australia, recorded an 8.4% increase to $2.5 billion.

Westpac-owned BT Group led with a 20.4% surge to $1.3 billion, while scandal-hit AMP Group suffered a 3.3% drop to about $1.9 billion.

Suncorp, which formalised the $725 million sale of its Australian life arm last month, recorded a 1.4% premium inflow rise to $815 million.

MetLife upbeat on adviser reputations

Financial advisers’ reputations can withstand the fallout from the Hayne royal commission, according to research by MetLife Australia.

Surveying consumers and small business owners on attitudes towards buying life insurance through advisers, it found a marked difference to advisers in the two groups’ attitudes. While 56% of consumer respondents say the royal commission will not affect their relationship with their adviser, only 37% of SMEs agree.

About 20% of consumers and 38% of SMEs say it will make them more likely to visit their advisers.

Honesty and trustworthiness are the most important qualities customers seek in an adviser, followed by transparency and experience. About 61% of consumers rate their adviser excellent or very good, with 13% rating them poor or fair.

MetLife Australia Head of Retail Sales Matt Lippiatt says the royal commission has highlighted the need for quality advice.

Up to 40% of consumers and SMEs have been with their advisers more than five years, Mr Lippiatt says. “Consumers and SMEs clearly value the adviser who goes the extra mile to listen to them, understand their needs and communicate regularly and clearly.”

Kiwis draw a line between life and general insurance

More New Zealanders buy general insurance policies than life cover, with a “common misconception” around the cost of life insurance seen as a major reason for the difference.

About 88% of respondents to the survey by sales website Trade Me have motor insurance, while 74% have house and contents cover and 51% life insurance.

The numbers are unchanged from a study four years ago.

About 20% of survey respondents say life insurance is not important to them, compared with 4% for motor and 5% for house and contents.

Some 86% say motor cover is important or very important, while only 52% say the same about life.

Trade Me Head of Insurance Jaime Monaghan says there is a common misconception that life insurance is very expensive.

Millennials are the most underinsured, with only 22% holding life policies. About 71% hold motor insurance and 29% house and contents.

“We’re concerned too many New Zealanders simply don’t want to think about the what-ifs,” Ms Monaghan said.

About 63% of respondents buy insurance online, making it the most common channel.

NZ invites feedback on adviser code of conduct

New Zealand’s Financial Advice Code Working Group has opened consultation on a draft code of professional conduct for financial advisers.

“We encourage feedback from all parties who will be affected by the code, including anyone who is representative of the financial advice industry, as well as consumers of financial advice,” working group Chairman Angus Dale-Jones said.

The code is “technology-neutral” and will apply to robo-advice. It sets out 12 proposed standards and supporting commentary.

It includes requirements to treat clients fairly and act in their interests, act with integrity, manage conflicts of interest, ensure clients understand their advice, give suitable advice and meet standards of competence, knowledge and skill.

The code will sit within a wider regulatory regime including statutory duties, disclosure requirements and licensing.

Mr Dale-Jones says the group aims to create a “workable and robust” code that will help ensure the availability and quality of financial advice.

“Our role in developing the code is to set minimum standards of ethical behaviour, conduct and client care, and competence, knowledge and skill that will apply to anyone who gives financial advice to a retail client,” he said.

Submissions will close on Friday November 9. For more information, click here.

TAL opens online adviser hub

TAL has launched its digital Adviser Centre to help advisers manage clients’ policies.

Advisers can generate quotes, submit applications and provide real-time updates on their customers’ applications and underwriting status.

A dashboard tool will allow advisers to track business metrics, events and client interactions, and they can also access the Risk Academy education portal.

TAL GM Retail Distribution Niall McConville says the technology will drive business growth and better customer outcomes thanks to faster, easier online processes.

“Advisers want to spend less time dealing with administrative processes and more time giving their customers personalised, quality advice,” he said.

SuperFriend recruits Sydney manager

Melbourne-based workplace mental health support group SuperFriend has appointed Rob Costello to the newly created Partner Relationship Manager role in Sydney.

He will manage stakeholder partner relationships with superannuation funds and group life insurers.

Mr Costello has previously worked as a client services manager with Link Group and client manager with TAL, according to his LinkedIn profile.

“SuperFriend is uniquely positioned to positively impact more than half of Australia’s workforce through our super fund partner employers,” CEO Margo Lydon said. “[Mr Costello’s] interpersonal skills and experience will enable these funds to add value to their employer and member relationships by offering greater real-time support.”

BT improves online offering

BT has changed its online application system, aiming to make it simpler for advisers and clients.

The enhancements to LifeCENTRAL+ are based on adviser feedback.

New features include information sharing between advisers and support staff, and a redesigned personal statement section of the application form, allowing advisers to answer questions in the order they prefer.

“The changes we’ve implemented reflect adviser business models… streamlining the application process and making applying for life insurance easier and more efficient,” Head of Product, Life Insurance Kim Cohen said.

NobleOak takes direct life award

NobleOak Life has won the Strategic Insight annual direct life insurance award, edging out TAL Life and Suncorp Life for the top prize.

It also took top honours in the total and permanent disability, income protection and customer service categories.

TAL Life won in the term life, funeral cover level premiums, innovation and overall product categories. Suncorp Life won for funeral cover stepped premiums and bundled products. HCF Life won in the trauma standalone category and OnePath Life won the trauma rider award.

The inaugural health and wellness life insurance award, which recognises programs to improve customer wellbeing, went to MLC Life.

Integrity appoints head of retail

Intregrity Life has appointed William Rogers as Head of Retail Product.

Mr Rogers was previously a senior manager of product development and a research manager at CommInsure, responsible for life insurance.

He has also worked at AMP, REST Industry Super and BT Financial Group on product development.

Integrity MD Chris Powell says Mr Rogers will be involved in the company’s program to build innovative life insurance products that are “adaptable to client needs and unbound by legacy systems”.

The company is conducting a pilot of its retail products with a group of specialist insurance advisers.

It recently appointed Mark McCrea as Head of Operations and Jacqueline Little as Head of Group Product.

FPA names award contenders

The Financial Planning Association (FPA) has announced the finalists in its annual awards program.

The contenders in six categories are:

  • Certified financial planner of the year: Michael Carmody, Viva Wealth; James McFall, Yield Financial Planning; Chris Smith, VISIS Private Wealth
  • Financial planner: Felicity Cooper, Cooper Wealth Management; James O’Reilly, Northeast Wealth; Sandra Slattery, Commonwealth Financial Planning
  • FPA Paraplanner: Pierce Hanlen, Hewison and Associates; Kearsten James, Sterling Private Wealth; Emma Zwaan, Capital Planners
  • Future2 Foundation community service award: Amanda Cassar, Wealth Planning Partners; Wayne Fenton, Elders Financial Planning; Zacary Leeson, HPH Solutions
  • FPA professional practice: Eureka Whittaker Macnaught (NSW); VISIS Private Wealth (Queensland); Wotherspoon Wealth (SA)
  • FPA university student of the year: Mary Hadgis, University of South Australia; Mitchell Harrison, Deakin University; Paul Travis, Griffith University.

Winners will be announced at the FPA Professionals Congress in Sydney next month.

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The Professional

Insurance employment outlook up as workload swells

The insurance, finance and real estate sector has the joint second-best job prospects alongside mining and construction this quarter, according to recruitment group Manpower.

The sector has a net employment outlook of +21%, the strongest in six years.

The figure is up 12 percentage points on the preceding quarter and 11 points on the corresponding period last year.

“Our data is suggesting the industry is preparing for significant changes, both in response to the royal commission and advancing technologies,” a Manpower spokesman told insuranceNEWS.com.au.

“This preparation may require an increase in headcount to manage new compliance obligations and remain competitive in a sector that is rapidly changing due to digital transformation.”

The fourth-quarter report is based on a representative survey of 1515 employers. The transport and utilities sector has the strongest net outlook at +23%.

The national net employment outlook has improved to +15% from +8% in the preceding quarter.

IAG manager joins icare at ‘pivotal’ moment

Insurance & Care NSW (icare) has appointed Andrew Ziolkowski as Group Executive Prevention and Underwriting. 

Mr Ziolkowski was most recently EGM of underwriting with IAG, according to his LinkedIn profile. Before that he was Wesfarmers Insurance’s chief underwriter for about four years until August 2014.

At icare he will drive integration and innovation across the state insurer’s prevention, risk, policy and pricing activities.

“[He] is joining us at a pivotal time in our journey,” CEO John Nagle said. “As an organisation, we are shifting from the transformational agenda of the past three years towards one of operational excellence.”

Leading lawyer joins Acacia

Acacia Insurance has appointed insurance lawyer Mark Williams as an executive director.

Mr Williams founded the insurance law arm of Landers & Rogers in Sydney in 2002, specialising in professional indemnity, directors’ and officers’ insurance and general liability.

He was involved in Australian Securities and Investments Commission investigations following the collapses of Great Southern, Allco and Hastie.

He will provide key insights and advice to clients around risk and exposure, Acacia says.

QBE backs Taronga bird show

QBE is sponsoring Taronga Zoo’s famous bird show this month.

The insurer will match public donations to the QBE Free-Flight Bird Show, which is free and runs twice a day at the Sydney wildlife park’s amphitheatre.

“We’re proud supporters of Taronga Conservation Society and its legendary bird show, which raises much-needed funds to support wildlife conservation,” QBE Chief Customer Officer Bettina Pidcock said.

Top banker joins IAG NZ board

IAG New Zealand has appointed Barbara Chapman as a non-executive director, effective next month.

Ms Chapman has held senior roles in financial services groups in Australia and New Zealand.

She was group executive with Commonwealth Bank in Sydney for more than 11 years, before running the lender’s ASB Bank in New Zealand as CEO and MD for almost seven years to last February, according to her LinkedIn profile.

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International

Neal takes up innovation baton at Lloyd’s

Lloyd’s new CEO John Neal will place a priority on modernising the market, continuing an innovation focus led by predecessor Inga Beale.

Mr Neal, who was  previously the Sydney-based Group CEO of QBE Insurance, took over last Monday at Lloyd’s, where he started his insurance career in 1985.

“It is important that we focus on maintaining the market’s reputation for innovation, accelerating our efforts to modernise the ways in which we do business, and take the time to listen to all of our stakeholders, who are critical to the future wellbeing of the Lloyd’s market,” he said.

Ms Beale, the only women to have led Lloyd’s since it was founded 332 years ago, announced earlier this year she was leaving the market.

Chairman Bruce Carnegie-Brown says key issues for Mr Neal include improving the market’s underlying performance and the launch of the Lloyd’s Brussels subsidiary.

“He joins us at an important time and will continue the drive to improve the market’s long-term success through a number of critical areas of focus,” he said.

FCA points to Hayne inquiry as trust problems persist

A leading UK regulator says the Hayne royal commission provides the latest example of misconduct issues that continue to undermine trust in the sector worldwide.

“The financial crisis of a decade ago, and the subsequent revealing of serious conduct problems in too many areas of financial services, has without doubt severely damaged any sense of trust,” Financial Conduct Authority CEO Andrew Bailey said.

“And that process is not over in all areas – witness the royal commission in Australia.”

Mr Bailey says trust in financial services has changed from the pre-1980s era when executive remuneration was kept to limited multiples of average pay, with greater levels viewed as ostentatious and breaking a societal norm.

“I would go further and argue that this formed the basis of trust, with the expectation of future behaviour and a common value or ethic,” he said at the launch of the St Mary’s University School of Business and Society in London.

Later changes emphasised business owners’ interests and pay was used to incentivise performance, while light-touch regulation reflected a view that if businesses succeeded the public interest would benefit.

“It didn’t work out that way, and in the wake of the crisis we have had to change the approach to regulation in the public interest,” he said.

Recent banking regulation changes in the UK put more weight on individual responsibility and accountability, Mr Bailey says.

“It is no surprise that in the wake of the financial crisis the question was asked, to what extent are we regulating firms and to what extent the individuals in them, and particularly senior management? The answer is both, but with a shift of emphasis towards individuals.”

UK regulators consult on climate risk

The UK’s Prudential Regulation Authority (PRA) has issued a consultation paper on ways insurers and banks should manage financial risk arising from climate change.

Appropriate governance, risk management, scenario analysis and disclosure are the main areas addressed.

For governance, board-level engagement and accountability are expected.

“The PRA’s desired outcome is that firms take a strategic approach to managing the financial risks from climate change, thereby mitigating the associated risk to the PRA’s primary objectives,” the paper says.

The Association of British Insurers has backed the consultation.

“Insurers are often on the front line dealing with the results of rising temperatures and extreme weather, so have a real stake in addressing climate change and are well aware they have a role to play in this,” Head of Prudential Regulation Steven Findlay said.

“We’re keen to contribute to the PRA’s consultation on this topic.”

The consultation closes on January 15.

Meanwhile, the Financial Conduct Authority (FCA) has issued a discussion paper setting out areas of greater regulatory focus to manage global warming effects.

It is seeking input on climate change and pensions, competition and market growth for green finance, investor disclosure, and new requirement for financial services companies to report on climate risk management.

“Climate change presents a disruptive and potentially irreversible threat to the planet,” FCA CEO Andrew Bailey said.

“The FCA can play a key role in providing more structure and protection to consumers for green finance products and ensuring the market develops in an orderly and fair way that meets users’ needs.”

Consultation closes January 31.

Ireland shapes as top post-Brexit destination

Ireland is the favoured country for insurers seeking new office locations after the UK’s Brexit decision.

An International Underwriting Association (IUA) report says Luxembourg ranks a clear second, followed by France, the Netherlands, Belgium, Germany and Malta.

“Insurers have selected a variety of different options for new European offices and no single continental post-Brexit insurance hub appears to be emerging,” the IUA says.

Decisions are typically influenced by the location of current operations, relationships with national regulators and proximity to customer bases.

The UK is due to leave the European Union on March 29, with a transition period to last until the end of the following year, but details are yet to be finalised and insurers are making preparations.

The IUA – which represents non-Lloyd’s international and wholesale insurance businesses operating in the London market – is aware of cases in which the transfer of business from UK to continental parent companies has begun.

Premium income in the London market jumped 16% to £26.31 billion ($48.51 billion) last year, the group’s annual statistics report shows. The total includes £7.98 billion ($14.72 billion) written in other locations but overseen and managed by London operators.

“We have received multiple reports of companies embarking on new lines of business and growing premium volumes in specific classes as part of dedicated business plans,” IUA CEO Dave Matcham said.

There are also instances of books of business being moved to the UK from companies within a wider multinational group and new products being developed, while improvements in survey data collection may account for about one-third of the gain, the IUA says.

Axa secures approval for Ireland move

Axa XL has received in-principle authorisation from Ireland’s central bank to move its European insurance company there from the UK.

XL Insurance Company will move before March 29, when Britain is to leave the European Union, allowing it to continue working with clients and brokers uninterrupted by Brexit.

Axa XL CEO Greg Hendrick says the company appreciates the business and regulatory environment and expertise available in Ireland, and it has long had a presence there.

The branch network in Europe enables Axa XL to write business for domestic markets and provide infrastructure for the “global programs” operation, he says.

Axa will retain XL Catlin Insurance Company in the UK, and its Lloyd’s operations.

Claims chiefs reveal reputation concern

Brand reputation, automation and straight-through processing are the top priorities for insurance claims leaders, a survey commissioned by the Lloyd’s Market Association (LMA) reveals.

It shows the highest priority for participants is their managing agency’s claims brand and reputation. More than 90% selected this as a top-three priority. 

Straight-through processing – particularly regarding delegated authority claims – is respondents’ second-highest priority, and automation is seen as an immediate necessity within market-wide modernisation.

“Canvassing the opinion of three-quarters of all heads of claims at Lloyd’s managing agents has clearly highlighted the challenges ahead and the pace of change being demanded of claims departments,” Tony Rai, Head of London Market Claims at Hiscox and Chairman of the LMA Claims Committee, said.

“The [claims committee] undertook this detailed study to gain a clearer understanding of the fast-changing claims landscape, which will enable us to prioritise our efforts to best support the claims community within Lloyd’s.”

Cat claims take toll on AIG, Swiss Re

Losses are mounting for (re)insurance giants Swiss Re and AIG, as natural disasters affect third-quarter results.

Natural catastrophes will cost Swiss Re nearly $US1.1 billion ($1.55 billion) in the quarter, the reinsurer estimates.

Claims from Typhoon Jebi in Japan are expected to total $US500 million ($702.55 million), while Hurricane Florence in the US will cost $US120 million ($168.61 million).

Multiple smaller natural disasters will cost another $US50 million ($70.25 million).

Man-made disasters are expected to approach $US300 million ($421.53 million) for the quarter, with the cost spread equally across the reinsurance and corporate solutions divisions.

The Morandi bridge collapse in Italy, a shipyard fire in Germany and a dam collapse in Colombia contributed to the cost.

Cumulative losses for the year are broadly in line with expectations, Swiss Re says.

AIG reports even bigger losses. It expects a pre-tax catastrophe loss of at least $US1.5 billion ($2.11 billion), possibly reaching $US1.7 billion ($2.4 billion).

Typhoon Jebi and Hurricane Florence are largely to blame, with Typhoon Trami and revisions to loss estimates for Californian mudslides also contributing.

AIG expects catastrophe losses in Japan and Asia to be almost $US1 billion ($1.41 billion), with US natural disasters costing $US600-$US700 million ($846-$987 million).

Hurricane Michael in the US will cost $US300-$US500 million, which will be included in fourth-quarter results.

AIG estimates it has exhausted about $US700 million of the $US750 million ($1.06 billion) retention under its North America aggregate catastrophe reinsurance program.

CEO Brian Duperreault says AIG is pleased that efforts to restructure its reinsurance portfolio are mitigating exposure to catastrophe losses.

Ex-CEO tapped to chair Munich Re

Former Munich Re CEO Nikolaus von Bomhard has been recommended for election as chairman of the reinsurer’s supervisory board.

Mr von Bomhard was a member of the board of management from 2000 to last year, and was chairman from 2004.

He has been chairman of the Deutsche Post DHL Group supervisory board since April.

Karl-Heinz Streibich has been recommended for appointment to Munich Re’s supervisory board. He is an expert on digitisation and is President of the German Academy of Science and Engineering.

Bernd Pischetsrieder and Henning Kagermann will leave the board at the next annual general meeting.

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Analysis

Industry results: will the bounce-back fall flat?

Insurers buoyed by a benign year for catastrophes, rising premiums and subdued claims inflation may find the business outlook is about to become more challenging.

Finity Consulting describes last financial year as a bounce-back period. The insurance trading result grew to a healthy 16% and the industry’s return on equity (ROE) increased three percentage points to hit the elusive 15% target for the first time since 2014.

But Finity’s annual Optima report does not see the industry climbing to even greater heights. Instead it provides a cautious outlook, with ROE possibly below the target level in the next few years.

“I think we will see we are coming off a high point for returns in 2017/18, but it is not falling off a cliff,” Finity Principal Andy Cohen told insuranceNEWS.com.au.

Large reserve releases, particularly in compulsory third party, have bolstered returns in recent years but will inevitably decline, while claims inflation may tick up next year.

An unusually benign period for natural disasters was a bonus last year, with Insurance Council of Australia-declared catastrophe losses reaching about $620 million, about one-third of the long-term average.

The Bureau of Meteorology last week flagged a 70% chance of El Nino developing in the next few months, which typically increases the drought and bushfire threat in the south while reducing the likelihood of tropical cyclones in the north.

On balance, El Nino is generally associated with better claims outcomes for insurers nationwide, but it is still unlikely last year’s favourable experience will be repeated.

The industry’s main tailwind is the hardening commercial market, although Finity says significant multi-year rate rises are necessary to bring commercial short-tail classes back into the black.

Commercial motor premiums are tipped for a second year of 10% growth, shifting the business class’ profitability outlook to “poor” from “loss-making”.

Corporate property is achieving gains of 7% overall, with increases focused on high-risk locations and industry groups as some insurers develop more quantitative and granular pricing approaches.

Business package premium growth picked up to 6% and a similar pace is expected as insurers seek to return the class to profitability. “If the current price increases continue, we would expect this class to meet target profitability within 2-3 years,” Finity says.

Challenges will come from new entrants. Insurers need to improve pricing sophistication and ensure they have a clear view of profitability in different distribution channels, and have a longer-term strategy for engaging with customers across the multiple options.

Standalone liability was one of the few commercial products to achieve target profitability last year, although it may lose ground a little with increased claim pressures.

In financial lines, professional indemnity is performing in line with targets, while directors’ and officers’ continues to be a market in turmoil. Rate rises of 20-400% were quoted for June renewals, and further material increases are expected.

“One can only expect that further claims pressure will arise from the financial services royal commission, privacy regulation, workplace exploitation, child sexual abuse, and now the [forthcoming] aged care royal commission,” Finity says.

Management liability cover for small and mid-market businesses is also vulnerable.

Private motor, which accounts for one-quarter of industry net premium, rebounded last financial year with strong premium growth and contained claims inflation, while householders’ insurance, which is highly susceptible to weather events, benefited from the catastrophe environment.

Regulatory impacts arising from the Hayne royal commission are still unclear, but Mr Cohen says it is likely general insurance will be affected by changes in response to misconduct elsewhere in financial services.

“We think the general insurance industry will get caught up in any legislative or regulatory reaction to what is happening in the life industry,” he says.

The royal commission follows a number of other inquiries and measures, such as new product distribution rules, that have required additional focus and resourcing.

The Optima report also highlights shifts in market share, and the emergence of increasing competition to major players in the commercial space.

IAG, Suncorp, QBE and Allianz accounted for 68% of all gross written premium last year, down from 74% six years ago, while rival commercial insurers represented 16% of the market after holding about 14% for the previous six years.

“While for the past few years the large insurers have shed market share to smaller personal lines challengers, it appears that this year it has been their commercial portfolios that have not fared as well,” the report says. “This is not surprising given their commercial portfolio remediation over the past year.”

Overall, market participants are likely to continue benefiting from an improved pricing environment, even as they face plenty of other challenges.

“We still see rate increases coming through, particularly on commercial short-tail, which will help the industry, but we have some headwinds,” Mr Cohen says.