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Pandemic could lead to 'insurance by subscription'

The COVID-19 outbreak is likely to create significant change, including the birth of “insurance by subscription”, Finity Consultants Director Graeme Adams says.

While the virus has brought “waves of uncertainty and disruption” to insurance, he envisages that in future, “rather than organising and paying for insurance annually, a subscription-based insurance contract is for a much shorter period, typically one month”.

Mr Adams believes this will give more flexibility to consumers and insurers.

“The advantage of a subscription service is that products and services (including insurance) can be bundled together in the form of an account, where the customer can choose to purchase various levels of insurance, mitigation and restoration services,” he says.

“Insurance by subscription enables an insurer to be more customer-centric rather than the one-size-fits-all product centricity offered by most insurers.”

See Analysis.

Swiss Re looks at public-private BI solutions

Swiss Re is actively engaged in discussing possible joint public-private arrangements for covering business interruption risks, the group’s Chief Economist Jerome Haegeli says.

“The private sector cannot bear it alone,” he told an Australian briefing last week. “You need to have a pre-arranged solution with the Government and I wouldn’t be surprised that you are going to see more public-private structures for insurance of pandemic risks.”

Mr Haegeli says while it is possible to model pandemic risks, private insurance coverage is challenged by the sheer scale of the events and their correlations with financial markets.

Swiss Re Australia and New Zealand MD Mark Senkevics says pandemic exclusions in business interruption policies resulted from the SARS outbreak and the conclusion that a pandemic could bankrupt the entire industry.

“Pandemic models are being completely rewritten as we speak,” he told the briefing. “The last major data point that we had around pandemic was the 1918 flu. SARS and MERS were also pandemics but more limited in their impact.”

Swiss Re expects the COVID-triggered global recession will be almost twice as sharp and deep as the global financial crisis experience. A rebound will be followed by a protracted recovery and adjustments to long-term repercussions.

Dr Haegeli says recently identified megatrends will be accelerated, major paradigm shifts are in the making and the longer-term economic and political implications should not be underestimated.

Globalisation has likely peaked, with implications for international supply chains, while the coronavirus will lead to digitalisation impacts for insurance products and claims handling, he says.

SME insurance firms low on confidence amid virus fallout fears

More than half of insurance and financial firms polled in a national SME outlook survey say the coronavirus outbreak has affected their businesses, and 42% are worried about the next 12 months.

About 66.7% have seen a reduction in sales, according to data provided to insuranceNEWS.com.au by marketing services company Sensis.

“The insurance industry is probably more concerned than a lot of other industries,” Sensis Head of Corporate Communications Will Clarke told insuranceNEWS.com.au.

“If you compare it with retail or cafes and hospitality, you would expect them to be less impacted. But it’s not. They have been impacted just as badly. They could be finding it harder to sell insurance now to their clients.

“What we have found is many small businesses have just stopped spending. They are trying to cut costs as much as possible. They are stopping advertising or trying to downgrade their insurance.”

Sensis polled 1015 SMEs in March from a range of sectors including 71 insurance brokers and financial firms for the quarterly Sensis Business Index. Manufacturing, retail, construction, transport and wholesale were some of the other industries that made up the survey responses.

The index revealed that overall confidence has collapsed at its fastest pace since the survey started 25 years ago, dropping from a positive 40 at the start of March 10 to negative 13 two weeks later.

“Australia’s small businesses were feeling the squeeze before the impact of the coronavirus hit,” Sensis CEO John Allan. “The extraordinary speed of the change in confidence is not something we’ve ever witnessed before.

“It was as if a high-speed train had hit the majority of SME businesses in Australia, with 47% surveyed now worried about the future.”

Incoming ICA chief sees importance in tackling climate change

Incoming Insurance Council of Australia (ICA) CEO Andrew Hall puts climate change high on his list of priorities, while the man he’s replacing admits he wishes he could have done more.

As reported in a Breaking News bulletin last week, Mr Hall, currently Commonwealth Bank’s EGM Corporate Affairs, will take over from Rob Whelan in September.

Mr Hall says general insurance will play a “vital role” in the recovery from the pandemic and bushfire crisis.

But he says insurance also needs to “continue tackling the challenges of climate change and important regulatory changes, while also transitioning to the new code of practice”.

In an interview in the upcoming issue of Insurance News magazine, Mr Whelan says one of his greatest regrets is not taking a “stronger stance” on climate change.

“It’s a delicate balance with the political environment that you are working with because there were very strong views within government at various times that this was not an issue and that we needed to keep out of it,” he said.

“While we always maintained the view that [climate change] is an important material risk, the extent to which we could be vocal about this was somewhat limited.

“I would like to have done more, and taken a stronger stance.”

ICA President and Chairman Gary Dransfield says Mr Hall’s appointment “follows an extensive national recruitment process”.

“His corporate knowledge and his understanding of customers, the regulatory and political environments and the financial services sector, will help him chart ICA’s advocacy program to elevate the value of insurance both to our economy and our society,” he said.

Mr Hall has spent the past seven years with Commonwealth Bank, and was previously Woolworths’ Director of Corporate and Public Affairs for six years.

He started his career as a journalist in regional NSW in 1994, before moving to Canberra in 1996 to work in federal politics for 10 years as a ministerial media adviser.

From 2001 to 2007 he was the Federal Director of the Nationals, leading the party as campaign director for federal elections.

An in-depth interview with Rob Whelan will be published in the June edition of Insurance News magazine.

Claims trickle in after 5.8-magnitude quake in New Zealand

New Zealand’s Earthquake Commission (EQC) said today about 60 claims have been lodged by homeowners hours after a 5.8-magnitude quake struck near the town of Levin, 50km north of Wellington.

The quake struck at around 7:53am NZ time this morning and there have been at least 45 aftershocks since then, according to various local media reports.

“This was a slab event, relatively deep, the energy was widely dispersed and therefore felt across the country,” EQC Deputy CEO Renee Walker said. “It has triggered close to 37,000 felt reports to Geonet, which I understand is a record.

“By 3pm today, nearly 60 homeowners have lodged a claim for damage with us.”

She urged affected homeowners to lodge claims online with the EQC or call for more information as soon as they can.

Industry lukewarm to 'Medicare-style' insurance pricing idea

A “Medicare-style” system to price risk in bushfire-prone areas is not the answer to the premium affordability problem facing property owners, according to the Insurance Council of Australia (ICA).

As reported last week, a University of NSW report says the publicly funded universal health insurance scheme’s focus on equality offers the best approach to blunting the impact of rising premiums caused by climate change-induced bushfires.

But ICA is not convinced, likening the idea as similar to an insurance pool that could potentially “saddle policyholders and communities with unfair costs and additional bureaucracy.”

“The Insurance Council believes other solutions would be fairer and more effective in ensuring the long-term sustainability of communities in high-risk areas and reducing premium pressures,” spokesman Campbell Fuller told insuranceNEWS.com.au.

“The ultimate goal should be to protect at-risk communities through physical mitigation infrastructure and improved policy settings relating to building codes, risk-appropriate land-use planning, and the removal of state taxes and levies that have a significant impact on insurance affordability.”

According to the report, Social Justice and the Future of Fire Insurance in Australia, the current market-based model of setting home premiums for at-risk properties is increasingly untenable.

Bushfires will become more frequent and severe because of climate change, raising questions over whether the Pure Actuarial Fairness pricing model should still be used to assess future risk.

Actuaries are also lukewarm to the idea of using a “Medicare-style” approach.

“Insurance price signals can act as an important incentive to encourage reduction of risk,” Actuaries Institute CEO Elayne Grace told insuranceNEWS.com.au. “Actuaries are very conscious of community expectations regarding fairness and routinely consider both fairness based on risk and fairness based on the ability to obtain insurance.”

Professor Jeremy Moss, the report’s lead author, says the report was prepared to start a public dialogue on how the country should protect citizens’ welfare as more climate change-fuelled severe weather events are expected.

“I’m asking the question whether or not the current model of insuring at-risk homes is fit for purpose,” he told insuranceNEWS.com.au.

Claims on the rise as ex-cyclone whacks WA

Insurance claims are being lodged in WA today as the remains of an unusual out-of-season cyclone continue to bring strong winds and rain to the state.

Ex-Cyclone Mannga swept south over the weekend, toppling trees and leaving some 50,000 Western Power customers without electricity last night as it reached Perth and the southwest.

The Insurance Council of Australia says around 300 claims have been lodged so far.

Cyclone Mannga formed near the Cocos Keeling Islands late last week, becoming a Category One storm before moving toward WA.

The Bureau of Meteorology says a wind gust of 132km/h was recorded at Cape Leeuwin early this morning. Widespread severe weather is expected to continue in southwestern parts of the state today, with warnings issued for locally destructive winds and abnormally high tides.

Former Winley MD slams fraud recovery failure

The former Director and MD of Perth authorised representative company Winley Insurance Group has criticised the authorities for failing to track down the perpetrators of an $8.69 million fraud which led to the company’s collapse in 2016.

Jeff Bailey told insuranceNEWS.com.au that “innocent people” have been pursued while those responsible for misappropriating the money from the company trust fund have been able to walk away.

As reported by insuranceNEWS.com.au last week, liquidator RSM Australia Partners’ second and final report makes clear that there will be no payment to creditors as only a fraction of the money was recovered.

Mr Bailey and CFO Nickolas Rapos paid $165,000 between them following court-ordered mediation, and just over $100,000 had previously been recovered from a company bank account.

“I was a director, I understand that,” Mr Bailey said. “But they are happy to have a go at the people who have stayed here, and nobody is interested in trying to find those responsible.

“ASIC has bigger fish to fry and the police are a joke.

“You can’t tell me that they can’t find them with today’s technology. It’s completely and utterly wrong.”

WA Police declined to comment on whether a criminal investigation has ever been launched.

But insuranceNEWS.com.au understands it has not – and that after reviewing information provided by the liquidator in 2017 officers decided it was better handled by the Australian Securities and Investments Commission (ASIC).

ASIC previously banned Mr Bailey permanently from the financial services industry, but have refused to confirm whether any further action is planned.

RSM Partner Neil Cribb told insuranceNEWS.com.au that although the claim against Mr Bailey and Mr Rapos was for the full amount of misappropriated funds, "this does not mean the money went into their pockets”.

A previous RSM report names Chandanie Godwin and Michael Kapilovsky as possible de facto Winley directors, and Steven Godwin as a shadow director.

Mr Cribb says claims were not submitted against those individuals “because we don’t know where they are”.

“They are overseas somewhere. We don’t have any funds and it is not the liquidator’s role to go chasing people endlessly.”

Asked where he thinks the money went, Mr Cribb replied: “Into a big black hole – we would suggest overseas.”

He noted a $5.17 million loan from Winley to a company called Private Equity Fund Pty Ltd, which has not been repaid.

“We would question whether that was really a loan,” he said.

Winley’s known liabilities totalled $3.31 million, and insurance companies are among those owed money.

Mr Cribb told insuranceNEWS.com.au he believed many affected insurers “haven’t bothered claiming” due to payment of a dividend being unlikely.

Distraction, inattention major cause of truck incidents: NTI

Driver inattention or distraction caused 39% of major truck incidents last year, up from 29.6% in 2017, according to the latest study from NTI’s National Truck Accident Research Centre.

Fatigue remains the single largest cause of truck driver deaths, with 34.8% of fatalities the result of tiredness, followed by inattention or distraction at 30.4%, the biennial study says.

The study is based on 848 incidents last year where at least one vehicle involved is insured with NTI and resulted in claims of over $50,000.

In serious incidents where a car is involved, about 80% of it has been found to be the fault of the car driver.

NTI has described the statistic as “startling” and called for more caution as road usage picks up following the easing of virus lockdown measures.

“We had been on a downward trend of heavy vehicle-related deaths and had hoped to hit zero within the next decade, but tragically, last year we saw more loss of life, not just for truckies but all road users,” CEO Tony Clark said.

“The report found the number of truck driver deaths caused by distraction more than doubled in the past two years.

“Another worrying trend we saw was that 82% of the crashes involving truck drivers aged 25 years and under were caused by distraction.”

NTI says it will start to produce the study annually instead of every two years.

Click here for the report.

Fitch issues insurer ratings recap

Fitch Ratings has published a review of its ratings on insurers in Australia and New Zealand in the light of the impact of the coronavirus pandemic.

The review includes nine insurers including insurance groups. The Insurer Financial Strength (IFS) ratings on six of the insurers were affirmed with stable outlooks. The IFS ratings on two others were affirmed, but the outlooks were revised to negative from stable. The rating on the last insurer was downgraded and remained on negative outlook.

“Fitch expects the insurers’ financial performance and earnings to deteriorate as a result of the economic fallout from the pandemic, especially via higher claims and lower investment yields,” the agency said.

“In particular, Fitch took negative rating actions on insurers that were more exposed to the deteriorating economic conditions, including a lenders’ mortgage insurer as well as an insurance group with banking exposure, which would be affected by higher unemployment and a worsening housing market.

“Increasing employee retrenchments could also lead to higher redundancy claims for some insurers.”

Fitch expects the capital strength of the insurers to remain stable “despite the pandemic shock”.

The rating actions for the insurance companies’ public IFS Ratings were as follows:

Ratings Affirmed with Stable Outlooks

  • QBE Insurance Group’s Issuer Default Rating (IDR) affirmed at A- and QBE’s core subsidiaries’ IFS Ratings affirmed at A+ (Strong).
  • AIA New Zealand Limited”s IFS Rating affirmed at AA (Very Strong).
  • ClearView Wealth Limited's IDR affirmed at BBB and ClearView Life Assurance Limited's IDR affirmed at BBB and IFS Rating affirmed at BBB+ (Good).
  • First Insurance Limited's IFS Rating affirmed at BB+ (Moderately Weak).
  • MARAC Insurance Limited's IFS Rating affirmed at BB+ (Moderately Weak).
  • Manchester Unity Friendly Society's IFS Rating affirmed at BB- (Moderately Weak).

Ratings Affirmed with Outlooks Revised to Negative from Stable

  • Suncorp Group Limited's IDR affirmed at A+, and AAI Limited's IDR affirmed at A+ and IFS Rating affirmed at AA- (Very Strong).
  • Southsure Assurance Limited's IFS Rating affirmed at BBB+ (Good).

Ratings Downgraded with Outlook Remaining Negative

  • Genworth Financial Mortgage Insurance Pty Limited's IFS Rating downgraded to A (Strong) from A+ (Strong).

Mansfield Awards secures key sponsor

The Mansfield Awards – the industry’s premier claims awards – will be sponsored by Steadfast for the fourth year running.

The broker network has supported the scheme since the inaugural event in 2017.

Named after the English Lord Chief Justice who introduced the concept of utmost good faith to the insurance process in 1766, the awards are organised by Insurance News and LMI Group.

“It’s great to have Steadfast continuing to support the Mansfield Awards,” Insurance News Publisher Terry McMullan said.

“Right from the start they have been enthusiastic supporters of the awards concept. Excellence in claims needs to be recognised and rewarded.”

Winners are calculated using official reports and surveys conducted by LMI, with the results weighted so all insurers are viewed equally. Companies and individuals are not invited to make submissions for an award.

Time is running out to provide feedback on claims teams in several different categories. Click here before May 31.

This year’s presentation, made via a webinar as a result of COVID-19 social distancing measures, will take place on July 23.

Australia’s mortgage insurer risk 'moderately high', S&P says

S&P revised Australia's mortgage insurance sector industry risk from low to “moderately high” and says profitability will be pressured by worsening economic conditions.

Risks are “firmly on the downside” given uncertainty surrounding the duration of the current COVID-19 related downturn and the timing and extent of the rebound, it says.

The ratings agency says early signs that volumes were rising emerged before the COVID-19 pandemic but now demand for mortgage insurance will soften further over the next 12 months, reflecting less activity in the housing market.

“Market growth prospects are not supportive of the sector's near-term profitability,” S&P said.

Australia is not immune to the impact of coronavirus and “the shape and form of recovery remains unclear,” S&P says.

The ratings agency is forecasting a 4% economic contraction in Australia this year and 7.5% unemployment.

A decline in demand for houses will impact headline premiums and higher unemployment could lead to an increase in claims costs for two to three years, weighing on profits, S&P says.

The ratings agency expects mortgage insurers' profitability will moderate further over the next one to two years, with the number of new policies written contracting and increasing claims resulting from higher unemployment and a potential decline in property values.

New mortgage insurance premiums have contracted for each of the past five years, largely due to reduced risk appetite due to lending constraints imposed by the regulator.

NZ, Australia in 20 countries best placed for recovery: FM Global

Australia has been ranked 17th in the 20 countries best placed for economic recovery after COVID-19, sitting five spots above Singapore.

The ranking comes from US-based commercial property insurer FM Global, which assessed 130 countries for their economic resilience.

New Zealand is ranked at 15, two spots behind the UK. Australia fell between Canada and Belgium.

Norway, Switzerland and Denmark took the top three spots. Venezuela ranked 129 and Haiti took last place.

FM Global Australia’s Senior VP and Operations Manager Lynette Schultheis says the pandemic has brought many businesses to a standstill and caused significant disruption and economic uncertainty.

“Australia has not been immune,” she said. “However, it is encouraging to see that steps taken to date to mitigate our risk across a number of key areas.”

That had placed businesses on a strong footing as they look to recover from this unprecedented operational shock.

The annual FM Global Resilience Index measures economic, risk quality and supply chain.

Australia scored 90.1 of a possible 100 for resilience, beating out 113 other countries. Only Norway achieved a perfect score.

Countries’ rankings are derived from 12 measures that address business concerns around such vulnerabilities as natural hazards, cyber threats, political and economic risk.

Australia scored well for its fire risk quality and natural hazard risk quality, helped by quality and enforcement of building codes.

Australia also ranks highly for supply chain resilience, including control of corruption, supply chain visibility and quality of infrastructure, highlighting the quality of transport, telephony and energy infrastructure, as well as Australia’s ability to track and trace consignments across its supply chain.

Still, FM Global says businesses with supply chains extended into neighbouring countries across Asia may be cause for concern as a number of major manufacturing hubs in Asia ranked poorly, including major trading partner China.

Globalisation of industries such as manufacturing created complexity which could leave business leaders unprepared for significant disruption in supply chains, and for the potential financial, legal and reputational risks that result, it says.

“This pandemic should reinforce the importance of striking a better balance between cost-effectiveness and a diversified supply chain,” Ms Schultheis said.

Australia’s overall resilience ranking was held back by its cyber risk, oil intensity and corporate governance.

icare produces COVID-19 workplace guide for employers

NSW state insurer icare has prepared a guide to help employers plan for a safe return to the workplace as social distancing measures are eased in the state.

The COVID-19 Recovery Employer Toolkit offers practical steps to identify the operational areas and protective strategies that businesses can adopt to ensure employee wellbeing and safety.

“Following this unprecedented period of quarantine and social isolation, safely mobilising a sustainable workforce is critical to NSW’s economic recovery post COVID-19,” CEO John Nagle said.

“As employees begin to return to their workplaces, in what will most likely be a phased transition, icare is dedicated to supporting the workforce sustainability and smooth reintegration of employees to the workplace.

“Our COVID-19 Recovery Employer Toolkit provides employers with clear guidance on how to identify risks and implement best practice within the new working environment to create better mental and physical health outcomes for the people of NSW.”

The toolkit is based on icare’s research report, The Effects of Public Health Events on Workforce Sustainability, and is focused on good leadership, consistent and clear communication and best practice support.

AFCA expands support for non-English speakers

The Australian Financial Complaints Authority (AFCA) has improved its resources to help people from culturally and linguistically diverse communities better understand how and when to make a complaint.

New resources have been designed in languages other than English – including a series of videos featuring AFCA’s own staff speaking their first language – to make it easier for all communities to access financial dispute resolution.

Almost a third of AFCA staff were born overseas.

Chief Ombudsmen and CEO David Locke says people from culturally and linguistically diverse communities can face greater challenges when it comes to resolving financial complaints, including exclusion, discrimination and lower English literacy rates.

"AFCA is committed to providing a service that is accessible to everyone, including those who come from culturally diverse communities, or who might be vulnerable or disadvantaged,” Mr Locke said.

AFCA, which has also increased its translated resources from 14 languages to 20, offers a free interpreter in more than 75 languages. The five most frequently requested are Mandarin, Arabic, Cantonese, Vietnamese and Spanish.

The resources include information about AFCA’s service, the types of complaints AFCA considers and how to contact them using the interpreter service, as well as complaint and feedback forms and brochures.

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QBE’s reinsurance will limit UK business interruption costs

QBE, which faces a potential UK class action over cover for shutdowns, says reinsurance would limit its net business interruption claims costs in the country to $US75 million ($115 million).

Business interruption is usually provided as part of a broader policy for property damage and does not typically cover claims arising from the COVID-19 pandemic, it says in a statement to the Australian Securities Exchange today.

“Many businesses are facing an extremely concerning time at present and we are working closely with broker partners and agents to support our customers during this uncertain period,” it says.

QBE and London-based Aviva have been identified for legal proceedings over business interruption claims by the Hospitality Insurance Group Action (HIGA).

Legal firm Mishcon de Reya said last week it has narrowed its focus to the two companies after a review of more than 500 policies from a range of insurers submitted by applicants.

“We are contacting those HIGA applicants insured by Aviva and QBE and inviting them to confirm their continued interest in participating in a group claim,” Head of the Insurance Disputes Practice Sonia Campbell said.

Other businesses in the sector with specifically worded BI policies underwritten by the insurers have also been invited to get in touch by Friday next week if they want to participate.

“We believe this is the best way to ensure some financial recompense for these policyholders following their sudden and enforced closure,” Ms Campbell said.

The legal firm says it’s in discussions with class action funders and expects to be able to move forward by June 10, with the aim of issuing a claim as soon as possible after that.

HIGA says the policy wording for QBE relate to its Hotel Insurance Policy, Leisure Combined, Business Combined Insurance Policy and Nightclub and Late Night Venue Policy.

QBE has declined to comment on the potential action.

Steadfast update shows business holding up despite virus

The latest update from Steadfast Group indicates business at Australia’s biggest brokerage has so far performed according to its pre-virus expectations.

Steadfast dropped its earnings guidance for this financial year because of the uncertainties caused by the pandemic, but the trading update it released last week shows pre-tax earnings in April are holding up.

Earnings before interest, tax and amortisation (EBITA) in April, which represents the first full month of COVID-19 restrictions, are in line with the forecast it made before the virus broke out in March.

“EBITA for the 10 months to April remains strong at 21.8% ahead of the same period last year,” the update said. “Premium rates continue to rise, with some small volume reductions in our equity brokers, offset by expense savings.”

Its Steadfast Underwriting Agencies arm continues to outperform with strong organic growth, it says.

The April business update is a first for Steadfast, which did not provide a monthly report until the virus crisis erupted in March. The broker has since announced it will keep investors informed of its trading performance after withdrawing its earnings guidance for this financial year.

Steadfast adds there has been no adverse impact on its working capital position. The business also has an unutilised corporate debt facility of $180 million available to draw on if needed.

The deferred premium offer from some insurers has seen a very low take-up from clients, Steadfast said.

Before the pandemic broke out, Steadfast forecast an underlying net profit after tax of $100-110 million and EBITA of $215-225 million for this financial year.

The business made $53.2 million in underlying net profit after tax and EBITA of $108.9 million in the December half.

PSC on course to meet earnings target despite disruption

PSC Insurance Group says its business is performing according to guidance set before the virus pandemic broke out in March and remains on course to meet its earnings forecast for this financial year.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) in the 10 months to April “remains in line with expectations”, and is about 35% higher from a year earlier, the broker says in a trading update.

With two months to go before the current financial year ends, the business expects to achieve more than $57 million in underlying EBITDA, as previously flagged at its recent AGM.

As an added measure, PSC said it has undertaken a review of “the costs in the business and have tightened those where appropriate” in light of the current economic situation.

“The benefit of these changes will largely flow into the FY2021 year results,” PSC says. “We have positive expectations for revenue and know that it will also benefit from the first full year of contribution from the acquisitions made in [this financial year].”

Flamingo Ai sells for $100 to meet capital demands

Listed insurtech Flamingo Ai is being sold to an investment company in a deal that will be put to shareholders in the middle of the year.

The buyer is Rymamay, a nominee for the Craig Neil Investment Trust, which agreed to pay a “nominal consideration” of $100.

Flamingo said last week that it made the decision to seek a buyer after it became clear it was unlikely to be able to raise the levels of capital it needs to service its current clients in Australia and the US, and to roll out its Intelligent Knowledge Sharing Hub.

“Given its rate of cash burn in order to execute on the current strategy the company would need to raise substantial capital, which it had been seeking,” Flamingo said in a statement to the Australian Stock Exchange last week.

Company founder and the current Head of Business Development, Catriona Wallace – who was the subject of a cover story in Insurance News magazine in April last year – has been given notice but will remain on the company’s board. Flamingo has proposed that CEO Olivier Cauderlier will continue in his role.

Under the proposed deal Rymamay will assume all the company’s assets, including all current and prospective customer agreements, all intellectual property, customer contracts and IT equipment.

Flamingo estimates it will have around $1.4 million in cash at the completion of the transaction.

In September the company revealed a full-year net loss of $7.2 million on revenue of $769,683 and said full-time headcount had been halved to 21.

QBE beats out Genworth in NAB tender for LMI deal

QBE has won a tender to provide Lenders Mortgage Insurance (LMI) to the home loan customers of National Australia Bank (NAB), securing the business previously held by Genworth.

NAB says it won’t renew its LMI contract with Genworth – which last year was worth 12% of its annual gross written product or $52 million – after it expires on November 20.

Genworth CEO Pauline Blight-Johnston says her team is disappointed with the outcom after the company “presented a strong offer that reflected the risk of the portfolio while maintaining adequate returns on equity for our shareholders”.

Genworth renewed its largest customer CBA in January for a further three years and has relationships with more than 100 lenders across Australia. It says it also recently secured an exclusive LMI relationship with a non-major bank, renewed for three years from April 2020, and an extension with a mutual lender on an exclusive basis for three years from April.

Earlier this year NAB decided to move forward with only one LMI provider as part of a wider effort to simplify its core home lending business.

It put a request for proposals out for tender in February, from which QBE was selected as the bank’s exclusive mortgage insurance provider.

NAB says it will continue to work with Genworth to manage and support existing LMI customers.

“Genworth and QBE have been great partners with us for many years and this was a difficult decision given the strong value of their service to NAB and our customers,” a spokesman said.

Tower plans to simplify its corporate structure

New Zealand insurance group Tower has announced plans to simplify its corporate structure, a move that will make Tower Insurance the listed parent company of the business.

Tower Insurance will change its name to Tower Limited, becoming the amalgamated and continuing company. It will be the listed entity on the New Zealand and Australian stock exchanges with the “TWR” ticker.

For the changes to occur, Tower Limited, Tower Financial Services Group and Tower New Zealand intend to undertake a short-term amalgamation under Section 222(2) of the Companies Act 1993 down into Tower Insurance.

Tower said today that it aims to complete the amalgamation plan no later than September 30, subject to approval from the Reserve Bank of New Zealand. Approval from shareholders is not required for the proposed changes.

“Tower Insurance does now anticipate any material adverse change to its financial condition or solvency position,” the business said in an investor update.

When the amalgamation is in place, Tower Insurance will continue to be the insurer licensed by the central bank. Investors with shares in Tower Limited prior to the changes will become shareholders of the new parent company.

Existing Tower Insurance policyholders will remain covered under the same terms and conditions after the changes are introduced, and their rights and obligations remain as it is.

IAG invests in Australian rural intelligence start-up

IAG has invested in rural intelligence start-up Digital Agriculture Services (DAS) to help its customers better understand and manage their farm property risk by using insights from satellite imagery.

Melbourne-based DAS, which is backed by CSIRO and was established in 2017, offers AI-powered climate risk intelligence for farmers, lenders, insurers, commodity traders and rural suppliers to better assess physical risk remotely and rapidly.

DAS technology reveals what the risk is for a particular rural property, farm or portfolio, from anywhere in the world, offering a remote virtual window to assess physical risk, including drought stress, flood, frost, fire, water or land use.

The platform also analyses and predicts productivity, assesses factors such as vegetation, flood or water, and offers risk scores for every rural property, including for bushfire.

IAG Ventures Director Scott Gunther says combining DAS data, geospatial imaging, analytics and AI machine learning with IAG’s agricultural insurance knowledge could reinvent insurance for Australian farmers.

“The insights and learnings are going to also allow us to explore new products and services,” he said. “We will be able to empower Agri customers with data and insights about their property and assets to help them better understand and prepare for risk.”

In the first phase of the partnership, IAG and DAS will provide all Australian rural property owners with access to a free risk report that outlines bushfire and climate risks to help farmers better understand and prepare for natural disasters.

Other investments made by IAG’s venture capital fund Firemark Ventures include Airtasker, Life360, HyperAnna, UpGuard and ActivePipe.

IAG is the largest agribusiness insurer in Australia via it NRMA Insurance, CGU and WFI brands.

NM ties with Zurich as Proteus Marine goes to NZ

NM Insurance has expanded its Proteus Marine Insurance brand into New Zealand.

Proteus will operate under a binding authority from Zurich and will offer a wide range of Cargo, Carriers and Marine Liability insurance products, as well as managing commercial marine lines for Zurich as the renewal dates of current Zurich New Zealand commercial marine lines pass.

The Proteus range targets SME and mid-market marine customers.

Matthew O’Sullivan, Head of Motor & Marine at Zurich, says the insurer is “delighted to bring insights and experience to our new arrangement with Proteus to ensure ongoing success”.

“We are looking forward to working with Proteus Marine and leveraging their strong marine capabilities and in-market distribution in New Zealand to provide offerings and solutions to more customers.”

Allianz supports international students with wellbeing program

Allianz has launched a new wellbeing program for international students and visitors in Australia who have experienced isolation during the COVID-19 pandemic.

Over 290,000 Allianz Global Assistance customers are currently studying and working in Australia and the insurer says many have suffered anxiety due to COVID-19 physical distancing measures impacting their work, study and social interactions.

The one-month free online program includes live fitness, yoga and mindfulness classes conducted via video link.

“International students and visitors are navigating this pandemic away from their loved ones in a foreign country, which can contribute to a lot of stress and anxiety,” Allianz Partners CEO Matthew Clayton, said.

“We’ve created a program focused on connectedness and mental resilience to help improve their wellbeing.”

The new health and wellness program is complemented by Allianz Global Assistance’s Safety Services package, powered by Sonder.

The 24/7 app connects students in need of help with local professionals and multilingual specialists, providing advice on security, safety and welfare issues and offering support in the case of an immediate crisis.

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Regulatory & Government

Weather changes 'loading the dice' for bushfire risk

Climate change and drier weather conditions are “loading the dice” as Australia’s bushfire risk increases, a Bureau of Meteorology scientist told the Royal Commission into National Natural Disaster Arrangements today.

Head of Client Monitoring Karl Braganza said the interplay of background climate trends and natural variability is favouring drier conditions.

The country is experiencing hotter droughts, lower rainfall in the southeast cooler months and fire seasons that are becoming longer across Australia, leading to greater overlap between regions.

“What we are looking at here is an intensification of the fire weather into the future,” he said.

The impact of changing climate on rising bushfires risks was also highlighted earlier today by the CSIRO in the first day of royal commission hearings.

IAG EM Natural Perils Team Mark Leplastrier also highlighted IAG research that showed the changing patterns of cyclones, hailstorms and bushfires and the impacts that are often not captured in broader regional data.

“This is our best interpretation of how we think the risk will change, and we encourage feedback from the scientific community,” he said.

IAG has called for improved Government mitigation funding and the introduction of a national rating system for all bushfire-prone communities, properties and structures in a submission to the bushfires royal commission.

The National Bushfire Risk Rating (NBRR) system is proposed in an IAG-commissioned Menzies Research Centre study into strengthening resilience in the wake of the past summer’s bushfires.

“An NBRR will provide consistency when measuring risk, which will be useful to insurers pricing risk and provide a benchmark for individuals, businesses and communities that take steps to reduce risk,” the Menzies proposal says.

The royal commission earlier highlighted the impacts of the coronavirus on the recovery from the summer bushfires.

“The ongoing impact of the global coronavirus pandemic has been profound,” Senior Council Dominique Hogan-Doran said in introductory comments.

“As the evidence will show, the recovery from the devastating impacts of the 2019/2020 bushfire season has been slowed and fragmented. Planning for future seasons appears to have been interrupted.”

The Royal Commission into National Natural Disaster Arrangements’ first two-week block of hearings will run until June 5. The commission is due to deliver a final report by the end of August.

'All hands on deck' virus response delaying APRA agenda

Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres says much of the planned policy and supervisory agenda for this year is likely to be pushed into 2021 as the COVID-19 response requires “all hands on deck”.

Chairman Wayne Byres told a Finsia webinar today that the crisis had moved quickly since APRA first published its agenda for this year in January.

“Eight weeks later we announced most of it would be deferred until at least the end of September,” he said today. “Realistically, many items will not restart until 2021.”

Mr Byres says the deferral has allowed banks and insurers to dedicate time and resources to maintaining their operations and supporting customers, while also allowing APRA to intensify its focus on monitoring and responding to the impact on entities’ financial and operation capacity.

“For the industry and APRA, COVID-19 has been a case of ‘all hands on deck’,” he said. “We will come back to our broader agenda once we have a better sense of the landscape ahead of us.”

My Byres says Australia has been fortunate to enter the year with the financial sector in good health.

“It has also been very resilient from an operational perspective. Both those things have proven very valuable in navigating the past few months.”

Mr Byres says banks have played a role as a ‘shock absorber’ for the economy, and other sectors have also contributed to the immediate virus response, helping soften the blow of a very severe economic contraction.

“Insurers have been able to support customers by modifying terms and conditions to help

those affected by the virus, and the superannuation sector has been playing a role in promptly dealing with payments under the Government’s early release scheme,” he said.

Government acts to oversee litigation funders

Class action litigation funders will come under increased regulatory scrutiny following a Federal Government decision requiring that they hold an Australian Financial Services Licence.

Treasurer Josh Frydenberg says a removal of exemptions, to take effect from late August, will also require funders to comply with the managed investment scheme regime.

The changes ensure litigation funders face the same scrutiny and accountability as other financial services and products under the Corporations Act, he says.

The Insurance Council of Australia has previously argued that litigation funders should come under a licensing regime and also be subject to some form of capital adequacy requirement.

“Closer regulatory scrutiny of litigation funders is a welcome step towards providing appropriate protection for all parties to class action litigation, including defendants and insurers,” spokesman Campbell Fuller said.

The Federal Government earlier this month referred an inquiry into litigation funding and the regulation of class actions to the Parliamentary Joint Committee on Corporations and Financial Services. A report will be released by December 7.

The Association of Litigation Funders of Australia says the Australian Law Reform Commission and Australian Securities and Investments Commission have pointed to the courts as best placed to regulate funders and oversee claims and their costs.

“These important issues should be properly ventilated and debated by all stakeholders and not dictated by the power being brought to bear on politicians by entities representing the interests of corporate Australia and the insurance industry,” it says.

Litigation funders have been blamed for fuelling a rise in class actions, particularly against listed companies, leading to soaring premiums for directors’ and officers’ cover.

NIBA urges brokers to prepare for UCT reforms

The National Insurance Brokers Association (NIBA) plans to step up its preparations for the new unfair contract terms (UCT) regime that will commence next April.

NIBA CEO Dallas Booth says more information about the changes and how they will affect the industry will be provided. He has already urged brokers to seek legal advice on the new laws and their application to new insurance contracts.

UCT laws will apply to insurance contracts on April 5 as planned following the passage of the Financial Sector Reform Bill in Federal Parliament last year. The Federal Government’s recent decision to defer implementation of a number of Hayne royal commission reforms does not extend to the UCT changes.

“It’s something that brokers are going to have to come to grips with and to learn about,” Mr Booth says in a video to members last week. “It’s a fairly technical legal issue and I do recommend you talk to your preferred legal provider to get an assessment as to whether any broker wordings would be particularly liable to challenge.

“It will be particularly important if your firm has its own wordings, particularly for domestic insurance, for retail customers.

“You are going to have to review your policies to see whether any of those clauses, any provisions in the contract would be regarded as unfair.”

The move to ban unfair terms in insurance contracts flows from a recommendation by the Hayne royal commission in its final report to the Government.

A Melbourne-based broker says he has not been able to prepare for the looming changes because of the disruption caused by the coronavirus pandemic. A lot of his time has been spent helping his clients, who have mostly been affected by the revised clauses in Landlord policies.

“I will get to [the UCT reforms] but I haven’t started yet,” the broker told insuranceNEWS.com.au. “It has been pushed to one side. The COVID-19 thing is a daily issue. There has been lot of time taken up with that."

Home cyclone defence project gains extra funding

A Queensland cyclone resilience program that has strengthened more than 1700 homes and reduced premiums will receive an extra $21.25 million in a funding extension supported by insurers and brokers.

The Household Resilience Program, launched two years ago, provides money to upgrade homes built before 1984 through roof upgrades, tie-downs and door and window strengthening.

The program extension, announced as part of measures to support jobs and kick-start the Queensland economy, includes $11.25 million from the State Government and a federal contribution of $10 million.

“The insurance industry supported this initiative the first time around and backs the renewal of it this time, particularly in light of the tough financial situation many North Queensland homeowners and tradies are in as a result of COVID-19,” Insurance Council of Australia spokesman Campbell Fuller said.

Homes upgraded under the program are located up to 50km from the coast between Bundaberg and Cooktown.

IAG CEO Australia Mark Milliner, who has been a longtime supporter of community resilience programs, says helping households to invest in strengthening properties creates “stronger, more confident communities one house, street and suburb at a time”.

“We look forward to continuing our support for our customers who invest in making their home and community more resilient into the future with premium reductions to reflect their lower level of risk,” he said.

The National Insurance Brokers Association (NIBA) says mitigation programs such as the Queensland cyclone resilience initiative are one of the most sustainable way to reduce premiums.

“NIBA has long campaigned for increased public and private disaster mitigation works, most recently in our submission to the Royal Commission on National Natural Disaster Arrangements,” CEO Dallas Booth said.

Queensland Housing and Public Works Minister Mick de Brenni says premiums were reduced by an average $310 for the 1749 homes assisted in the first stage of the program.

“We know that COVID-19 has hit budgets hard [and] the last thing we need right now is a cyclone to hit regional families when they’re down,” he said.

“This will make a big difference for homeowners on low incomes, while stimulating the local jobs economy.”

SIRA seeks insurer placements for recovering injured workers

The NSW State Insurance Regulatory Authority (SIRA) is asking insurers to get in touch if they are happy to host injured workers who are ready to begin recovering at work.

SIRA’s Connect2Work program facilitates a short-term voluntary work placement for an individual with a host employer. It was developed in response to the COVID-19 fallout on both workers and employers.

The host employer receives a training assistance payment of $200 a week and is not required to pay the worker.

The individual may be looking for work, or they may be recovering from an injury and unable to return to suitable employment with their pre-injury employer due to COVID-19.

Employers willing to host workers through the program can email John Zaharis at john@rrp.com.au.

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Life Insurance

Life insurers ease rules for TPD claims during virus crisis

The life industry has announced a temporary measure to support total and permanent disability (TPD) policyholders who have lost their jobs or are working less hours during this coronavirus outbreak.

Policyholders who make a claim will be assessed according to their employment status before the event was declared a pandemic on March 11 by the World Health Organisation, the Financial Services Council (FSC) says in a statement on behalf of participating member insurers.

The measure means workers with super-linked TPD policies will still enjoy the same level of cover regardless of their employment status. In normal circumstances, changes to TPD covers are automatically triggered if a policyholder has a new work arrangement in place.

“A claim for TPD is assessed on whether the person is expected to be able to work ever again,” FSC CEO Sally Loane said.  “For this reason, the TPD definition used to assess a claim is based on the person’s recent working arrangements.

“Typically, this depends on the number of hours the person was working and whether they were in casual work before the illness or injury happened. Broadly speaking, the fewer hours you work, the stricter the definition used to assess your TPD claim.”

The support measure will be in effect until September 27, when the  JobKeeper wage subsidy scheme ends, and claims must be lodged before January 1 next year.

Consumer advocate Super Consumers Australia has described the measure as a “band aid solution” that will see many policyholders lose out once the JobKeeper program expires.

“That doesn’t sound great to me,” Super Consumers Australia Director Xavier O’Halloran told insuranceNEWS.com.au. “Once the JobKeeper scheme is removed, potentially the real risk for consumers falling into those more restrictive terms becomes real because they will be at threat of losing their jobs.”

Pandemic 'will minimalise life offerings'

Life insurance products in the post-pandemic landscape will offer “very minimal benefits and features,” Centrepoint Alliance says, giving customers a chance to decide what they want in their policies.

Insurance Specialist David Spiteri says in a blog post he expects life insurance companies “to change the way in which their current product suites are designed”.

“They will be very basic; however, the client will have the opportunity to build their policy with additional features and benefits as an option.”

He lists as an example where change can be expected an income protection policy with the standard definition of disability.

“Customers would be offered a very plain product with the option to expand the standard definition to a three-tiered definition that most retail insurers currently have.

“This example will reduce premiums significantly and clients will only pay for benefits and features that they want added,” Mr Spiteri says.

He says the pandemic has triggered a greater interest in life insurance from consumers but for the wrong reason.

Most of the calls to advisers are from clients wanting to cancel or reduce the policies because they are worried about their jobs.

Government to ban stamping fees

The Federal Government has announced it would ban the payment of stamping fees in relation to listed investment companies (LICs) and trusts, following a Treasury consultation on the matter.

The fees are an upfront one-off commission paid to financial services licensees for their role in capital raisings associated with the initial public offerings of shares.

A statement from Treasurer Josh Frydenberg’s office says the changes will take effect from July 1.

“Whilst new LICs capital raisings have largely ceased since the inception of COVID-19, it is important that the ban on conflicted remuneration is extended ahead of any resumption of capital raising activity,” the statement said.

“Extending the ban on conflicted remuneration to LICs will address risks associated with the potential mis-selling of these products to retail consumers, improve competitive neutrality in the funds management industry and provide long-term certainty so that this segment of Australia’s capital markets can continue to operate effectively and provide investors with opportunities to diversify their investments.”

The Financial Planning Association (FPA) has welcomed the move, saying it will provide Australians with the confidence to invest in LICs and trusts.

Permanent CGT relief measure gives certainty to super funds: FSC

The Financial Services Council (FSC) has welcomed the passage last week of the Treasury Laws Amendment Bill, which gives merging superannuation funds permanent capital gains tax relief.

The temporary measure had been due to expire on July 1.

“This relief has been extended several times, and we are pleased to see the Government delivering on its Budget announcement to make this a permanent policy,” FSC CEO Sally Loane said.

“With many merger and consolidation programs underway across the superannuation industry, it is vital that superannuation funds have certainty that existing policy settings will continue.”

The measure is one of the recommendations made by the Productivity Commission in its final report to the Government in December 2018 on ways to improve the superannuation system.

“The current arrangements remove unnecessary impediments that would otherwise apply to mergers by allowing super funds to transfer revenue and capital losses to a new merged fund and to defer taxation consequences on gains and losses from revenue and capital assets,” Assistant Treasurer Michael Sukkar had said in February when the bill was read a second time.

“Extending the relief will give fund trustees certainty when planning merger activity and will provide wider benefits to fund members and the superannuation system as a whole through increased fund scale and efficiencies.”

IOOF class action settled without payout

Financial services group IOOF announced today a class action filed against it alleging breach of duties as superannuation trustees has been “discontinued, with no order as to costs”.

IOOF says in a statemen that it is “making no payment to the plaintiff, its lawyers, its funder or any other class member as part of this settlement.”

The company says it is very pleased with the outcome after reaching an agreement with law firm Quinn Emanuel Urquhart & Sullivan, which filed the legal action in April last year in the NSW Supreme Court.

“The settlement requires court approval and the plaintiff has agreed to seek this approval at the earliest opportunity,” IOOF says in the statement.

Quinn Emanuel Urquhart & Sullivan filed the class action after IOOF executives gave evidence at the Hayne royal commission into financial sector misconduct. It said the evidence given showed IOOF’s conduct breached its continuous disclosure obligations under the Corporations Act and ASX listing rules.

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The Professional

ANZIIF appoints two new board members

The Australian and New Zealand Institute of Insurance and Finance (ANZIIF) has added two new members to its board: Sedgwick Australia CEO Diego Ascani and Ando Insurance CEO John Lyon.

Mr Ascani oversees insurance, loss adjusting, forensic accounting and building restoration services across Australia. His experience in insurance spans over 20 years and as an executive leader he has contributed to the auditing and change management of claims practices for both government and general insurers.

Mr Lyon has been pivotal in the growth and development of New Zealand general insurer Ando Insurance, building a team of more than 180 staff in four years.

Gallagher Bassett creates work from home guide

Gallagher Bassett has created a step-by-step guide designed to maximise the effectiveness of employees working from home and support businesses to keep productivity levels near normal during the COVID-19 lockdown.

The editable guide, called The Ultimate Work from Home Toolkit, is aimed at employers and their teams.

“Dining room tables and kitchens across the country have been transformed into workspaces as many employees have been instructed to work from home due to COVID-19,” Gallagher Bassett says in a statement.

“A change of working environment can lead to increased productivity for some employees, but…can lead to a dip in productivity for others.”

Sections in the toolkit include home office health and safety, creating the perfect space, staying connected with team members, setting up for productivity and staying mentally and physically healthy.

“The insurance industry provides a valuable role in supporting businesses and the community during crisis events,” Gallagher Bassett Australia CEO John McNamara said.

Click here for the free, interactive toolkit.

Zurich supports 20 charities with extra donations

Zurich Australia’s Z Zurich Foundation is allocating $1.43 million to 20 different charities in Australian and New Zealand charities in the wake of COVID-19.

Foodbank Australia will receive $1 million to help it source and distribute additional essential food and grocery items to around 2400 charities around Australia that are experiencing a spike in demand given the economic downturn.

Foodbank Australia CEO Brianna Casey says there has been an unprecedented 48% increase in demand for food relief across its charity agencies and new demographic groups who have never previously asked for food assistance have emerged.

“We are so grateful to Z Zurich Foundation for this incredibly generous donation which will allow Foodbank to continue to scale up and respond to this new ‘normal’ for as long as needed,” Ms Casey said.

The latest funding is on top of more than $2.2 million which Zurich annually donates to its “hero” community programs, plus an additional $1 million donated by the Zurich Foundation (ZZF) in Switzerland to various charities in the wake of the Australian bushfires earlier this year.

The new funding tranche will be allocated to charities associated with mental and physical wellness, homeless support and food security, and domestic violence.

Suncorp makes top internship program list

Suncorp has been recognised as having one of the best internship programs in the country, according to a survey by the Australian Association of Graduate Employers.

It is the only general insurer to make the Top 40 Intern Programs list, coming in at 28th in the rankings. TAL, the sole representative from the life industry, placed 15th in the list that has advisory and restructuring firm McGrathNicol in top spot.

The survey in the February-March period is based on responses from more than 1700 interns who have taken part in a work placement program during the preceding 12 months.

Suncorp People Experience EGM Helen Davis says the internship placement is an important part of its recruitment program.

“We see it as a great opportunity to provide interns with first-hand experience,” she said. “They can also experience what it's like working at Suncorp and decide whether our culture is the right fit for them.”

The insurer has a paid, 12-week vacation program from November to February for students who want on-the-job experience.

Claim Central appoints technology chief

Claims solutions specialist Claim Central Consolidated has named Fabien Ruffin as Chief Technology Officer (CTO) of its software arm, Intelligent Thought.

He joins from Domain Group, where he was Group Platforms Technology Director and interim CTO and CIO.

Mr Ruffin starts today on the job, reporting to Divisional CEO Mark Cohen. He will set the group’s technology strategy and innovation plans.

“His track record demonstrates his incredible strength at delivery and building strong teams, and we look forward to him achieving these results again as part of our team,” Mr Cohen said.

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International

Thin ice: S&P lowers reinsurers’ outlook to negative

S&P has lowered its outlook on global reinsurers to negative from stable, saying COVID-19 has pushed the sector “farther out on thin ice”.

The global reinsurance sector is facing “historically unusual times” where a single event – the pandemic – is materially disrupting both the asset and liability side of their businesses, S&P’s says.

“There are not many places that provide respite,” its latest report on the sector agency says.

COVID-19 related losses in the first-quarter added an average 10 percentage points to the combined ratio for the sector, S&P estimates. Coupled with investment losses, this dropped the sector's return on capital to about 3.5% in first-quarter 2020 from 7.4% at the end of 2019, while the cost of capital increased.

The ratings agency calculates reinsurers will have failed to earn cost of capital three times within 2017-2020 – the worst sequence of results in the past 15 years. The sector will not earn its cost of capital before next year at the earliest, S&P says.

“The sector's ability to earn its cost of capital in 2020 has visibly reduced to almost negligible, bearing in mind the sector still faces the North Atlantic hurricane and Pacific typhoon seasons.”

With meteorological forecasts of above-normal activity during this year's Atlantic hurricane season and expectations for additional COVID-19 related losses, reinsurers have less room to absorb major natural catastrophes, the ratings agency says.

S&P revised its 2020 aggregate combined ratio expectation for the top 20 global reinsurers to 101%-105%, assuming these companies bear around 30% of insured COVID-19 losses.

“We see downside risk to our expectations. We estimate a two-point hit to the aggregate combined ratio for the top 20 global reinsurers for every $10 billion increment in COVID-19-related insured losses.”

S&P notes that reinsurance profitability is “more akin to an endurance race than a 100-metre sprint,” and disciplined underwriting and risk pricing, tighter terms and conditions with clear exclusions, and overall proper risk management will be key if reinsurers are to preserve earnings and capital strength.

It says COVID-19-related claims in property and casualty reinsurance are rising and started to negatively affect reinsurers in the first quarter. These losses mainly include event cancellation claims such as postponement of the Tokyo Olympics and the cancellation of other large sporting events, and to a lesser extent business interruption, directors’ and officers’, credit, and travel.

The ratings agency’s economists predict a global economic contraction of 2.4% this year before a rebound to growth of 5.9% next year.

ABI rejects 'goodwill gestures' on business interruption

The Association of British Insurers (ABI) has warned hospitality trade groups that underwriters cannot afford to make “goodwill gesture” compensation payments outside policy terms for business interruption.

The warning comes as QBE’s UK operations face the threat of a class action from a hospitality industry group.

“The scale of the problem would see the cost of such payments easily run into billions of pounds for which the insurance industry has not collected premiums or reserved,” ABI Director General Huw Evans says in a letter.

“Such goodwill gestures could therefore only be delivered at risk to insurer solvency and require insurance executives to breach their legal and regulatory responsibilities to do nothing that will endanger the financial safety of the company.”

Mr Evans says insurers are expected to pay out £900 million ($1.7 billion) to businesses for interruption as a result of the COVID-19 crisis as part of an estimated £1.7 billion ($3.2 billion) in insurance payouts in the UK from ABI members and Lloyd’s.

The One Voice Group of hospitality trade associations has written to the ABI calling for more funds to flow from the industry, saying that “with one or two exceptions, the collective failure of insurers to step up and meet their obligations has been deeply disappointing”.

Business interruption pandemic exclusions also remain controversial in the US, where the Insurance Information Institute last week appeared before a House of Representatives subcommittee.

“Any efforts to retroactively rewrite business interruption policies are not only unconstitutional but would imperil the insurance industry’s ability to pay covered insurance claims filed by American homeowners, drivers and injured workers,” CEO Sean Kevelighan said.

UK brokers slam critical report on commissions

The British Insurance Brokers’ Association (BIBA) has slammed a “headline-grabbing” report by consultancy Mactavish which questions current remuneration structures.

The report finds UK brokers receive as much as 80% of their remuneration from insurers, and just 20% from clients, which creates potential for “a huge conflict of interest”.

“Much of broker remuneration is directly linked to premiums so brokers stand to benefit from the coronavirus-fuelled rise in insurance rates,” Mactavish says.

“These conflicts risk leaving brokers acting as distributors for favoured insurers – often using inappropriate, over-standardised policy terms which have again been exposed by failed coronavirus-related business interruption insurance claims.

“Policyholders are advised to run their own competitive tenders among brokers as a way of achieving better cover and lower premiums.”

BIBA says one of brokers’ fundamental roles is to act in their customer’s best interests “which is exactly what they do”.

“Remuneration by way of commission is actually beneficial for customers who are able, because the broker is paid in this way, to receive advice before having to commit to buying a particular insurance policy,” BIBA said.

It says the UK Financial Conduct Authority (FCA) has rules which outline a number of requirements in managing conflicts of interests and “these are followed very closely by brokers”.

“Conflicts of interests will always exist in any intermediated sector which is why the FCA, requires and monitors these to be managed, which they are,” BIBA says.

“The FCA examined conflicts within a thematic review quite recently, and taking their findings into consideration we wholeheartedly dispute the issues raised by Mactavish in their report.

“Brokers have helped clients receive millions of pounds in claims payments since the beginning of the COVID-19 pandemic and continue act for their clients to get fair claims settlements.

“Given the highly regulated nature of the insurance sector, this report by Mactavish could be considered  opportunistic and in light of their business model, designed to allow them to gain from these published opinions.”

NOAA predicts busy Atlantic hurricane season

Forecasters at the US-based National Oceanic and Atmospheric Administration (NOAA) expect an “above normal” Atlantic hurricane season.

NOAA’s outlook predicts a 60% chance of an above-normal season, a 30% chance of a near-normal season and only a 10% chance of a below-normal season.

The Atlantic hurricane season runs from June 1 until November 30.

NOAA forecasts 13 to 19 named storms, of which six to 10 could become hurricanes, including three to six major hurricanes (category 3, 4 or 5).

An average hurricane season produces 12 named storms, of which six become hurricanes, including three major hurricanes.

Prolonged recession tops COVID risk perception survey

Fear of a prolonged global recession has topped concerns in a World Economic Forum COVID-19 risk perception survey conducted in partnership with Marsh & McLennan and Zurich.

Bankruptcies and consolidation, the failure of industries to recover and supply chain disruptions have also been identified as key worries.

An increase in cyberattacks and data fraud has been nominated as a leading concern for companies by 50% of respondents, while a breakdown in IT infrastructure and networks is identified by around 30%.

The survey was conducted early last month and gathered responses from nearly 350 senior risk professionals on concerns for their companies and for the world over the next 18 months. Participants selected eight risks from a list of 31 and could also nominate other issues.

Economic fears dominated responses for both company and global impacts, while the list also included geopolitical, environmental, societal and technology issues.

Some 40% said another outbreak of COVID-19 or a different infectious disease was of greatest concern for the world.

Setbacks to climate action investment was identified by 18% of respondents as one of the most likely risk outcomes and 16% nominated it as one of the most concerning.

The World Economic Forum says the report aims to raise awareness and trigger timely debate as governments and businesses design post-lockdown measures.

“To ensure positive outcomes from this crisis, the immediate and longer-term emerging risks must be managed,” it says.

Lockdown spurs industry to broaden drone usage

Insurers will step up the use of drones, which proved to be a valuable tool in aiding the industry during the virus-imposed lockdown, London-based consultancy GlobalData says.

It says the pandemic has highlighted more than ever the benefits of using the unmanned aerial devices.

About 65% of insurance firms polled in GlobalData’s recent Quarterly Tech Trends survey expect drone technology to disrupt the industry and 35% say they intend to invest more in drones.

“The value proposition of drones has centered on the speed and safety they offer in loss adjustments, which ultimately resulted in operational efficiencies and cost savings,” Senior Insurance Analyst Beatriz Benito said.

“At a time when many insurers have been badly hit by the pandemic, technology that has the potential to bring operational savings is likely to lure the industry. On the other hand, customers will benefit from quicker claims processing and faster payouts.”

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Analysis

Insurance by subscription in a post-pandemic world

By Graeme Adams, Director at Finity Consultants

Over the past few months COVID-19 has brought waves of uncertainty and disruption to just about every industry in the world, and the insurance industry is no exception.

The pandemic no doubt will have many repercussions and implications for businesses for many years to come.

On the upside it will have the potential to create a more agile, digital and convenient insurance industry with benefits for both insurers and customers.

What is certain is that COVID-19 will lead to lasting change in the way businesses and consumers insure. One likely change could be “insurance by subscription”.

Rather than organising and paying for insurance annually, a subscription-based insurance contract is for a much shorter period, typically one month.

This means that each month a new contract of insurance is entered into, usually by rolling over the terms of the previous contract. Where the contract terms or the insurer’s assessment of risk changes, this is reflected in a different premium in the following period.

For annual policies, automatic renewal each month applies unless either party intervenes. Renewals are automatically sent immediately after payment is received for the current month to comply with the Insurance Contract Act provisions that renewal notices must be available no less than two weeks before renewal is due.

The advantage of a subscription service is that products and services (including insurance) can be bundled together in the form of an account, where the customer can choose to purchase various levels of insurance, mitigation and restoration services.

Insurance by subscription enables an insurer to be more customer-centric rather than the one-size-fits-all product focus being offered by most insurers today.

This customer-focused approach enables insurer services to better reflect the dynamic nature of customer needs and risks. The challenge is that customer needs can change more rapidly than an insurer’s ability to affect change with an annual policy.

Currently it takes up to two years for changes to an insurer’s annual policy to be washed through. For example, if insurance by subscription had been in place at the start of the COVID-19 pandemic, insurers would have been in a much better position to implement an appropriate reduction in motor premiums due to anticipated lower claims frequency.

On average, a policyholder would wait no longer than two weeks to see the premium savings.

The dynamic and customer-centric design that is at the heart of insurance by subscription better positions general insurers to restore trust than the annual product design approach.

This is because subscription services can utilise significant amounts of data (especially where the Internet of Things is used), and the sharing of data requires trust on both sides.

Customers are more likely to trust a company that better reflects their needs and responds more quickly to them.

Over the past couple of years the general insurance industry has already been subjected to a significant amount of regulatory change.

These changes have meant insurers have issued a number of product disclosure statements and supplementary product disclosure statements, resulting in a degree of complexity with respect to coverages potentially over a two-year period.

Insurance by subscription does away with that complexity because policies have much shorter durations.

In a nutshell, insurance by subscription gives insurers and customers much more flexibility, which is needed in our rapidly changing world.

The on-boarding and policy maintenance processes are generally customer-driven so that the customer can use coverage and premium parameters that suit their specific needs.

So how does it compare to annual insurance? When compared to an annual policy, subscription-based insurance has the following key advantages.

Insurers:

  1. Per usage pricing per month is now possible for some products, such as telematics-enabled car insurance. This should result in more accurate pricing at a policy level. In addition, temporary changes to premium, as used during COVID-19, are easier to implement on a monthly basis.
  2. Policy coverage can change or be updated each month if necessary. This could reduce unforeseen exposures in some cases. This would have been useful in the recent rent default cover COVID-19 issue in Landlord policies.

Customers:

  1. Premiums better reflect the underlying risk. For example, a car that does just a few kilometres a week (as measured by telematics data) could generate a lower premium when compared to the same risk but with higher usage.
  2. Subscriptions can be paused as required. For example, a subscription could be paused if the car was kept in a locked garage while the customer was in isolation, or absent for some time.

In the COVID-19 world of 2020 and beyond, a prolonged recession and higher unemployment could result in a surge of risks that are outside normal tolerance levels - think riskier driving, more uninsured vehicles.

Insurance that “goes to sleep” during prolonged periods of inactivity as is currently happening should be highly rewarded with consumer interest.

COVID-19 has lit the fuse under the possibilities presented by new technologies, changing consumer needs and a more demanding regulatory environment.

It will only be a matter of time until agile insurers seize the opportunity to provide more flexible and customer oriented products.