14 December 2020
This is the final Monday edition of insuranceNEWS.com.au for 2020, with our Daily update service continuing through to Friday. The Daily will be back in action from January 18, with the weekly returning on February 1.
During the recess our Breaking News service will continue to operate, keeping you informed of any important industry developments.
Massive natural catastrophes, a pandemic and lockdowns have made 2020 a year we won’t soon forget, but in all the uncertainty we took heart from the fact that so many people made insuranceNEWS.com.au their go-to place for industry news and information.
insuranceNEWS.com.au journalists worked through the lockdowns to keep our far-flung national (and global) audience updated on industry issues that came thick and fast. The value of what we do is reflected in the figures recorded so far this year – 7,481,896 pageviews (812,000 more than last year) from 841,802 individuals who made 2,168,225 visits.
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Australian Small Business and Family Enterprise Ombudsman Kate Carnell says action to improve insurance affordability is needed as soon as possible, with longer-term mitigation unable to deliver immediate relief.
Ms Carnell says measures to address climate change and major construction projects such as levees to improve resilience are a key part of the bigger picture, but many small businesses are facing insurance market failure.
“This is something we have got to deal with,” she told insuranceNEWS.com.au. “These are businesses that need solutions now, next year, not in 20, 30 or 40 years’ time.”
The ombudsman’s insurance inquiry report released last week makes 15 recommendations which include proposals that would see governments taking more of a role in the insurance market and actions insurers can take, including on renewal and claims handling processes.
Ms Carnell says current challenges go beyond normal cycles that are delivering a hard market. Other changes driving rising costs and availability issues include climate impacts, an increasingly litigious culture and building problems highlighted by the Grenfell tower fire in London.
“This is actually market failure, which is the reason why the Government has got to get involved here,” she said.
Recommendations include extending the Australian Reinsurance Pool Corporation’s role to include natural disaster cover for commercial property, capping personal injury liability and moving ahead with a no-fault national insurance injury scheme.
It calls for a ban on conflicted remuneration for brokers and greater clarity on commissions, fees and government taxes in insurance quotes.
The inquiry says the current 14-day statutory notice on renewals is not long enough. Insurers should provide notice of 60 days for a refusal, premium increases above 15% or where there are changes in exclusions and excesses.
Australian insurers are likely to introduce more flexible insurance offerings in the new year, including usage-based cover, as a focus on serving the demands of existing customers turns to luring new business.
That’s the view of consultants EY, which says insurers were particularly occupied with meeting their existing customers’ needs as they battled pandemic and bushfire claims in 2020.
EY Oceania Insurance Leader Grant Peters says this focus will continue into the new year, but he also expects to see insurers “bring new value propositions to market to help attract new customers”.
He also predicts motor claims may rise to previous levels towards the end of 2021 after a reduction in 2020, while some pressure on income protection claims and some forms of commercial insurance claims may emerge due to the tougher economic outlook.
Insurers will also continue to remain focused on balance sheet and capital management in 2021 as a low interest rate environment and challenging economic conditions put pressure on investment returns, premium volumes and liability valuations.
“We saw several insurers raise capital on equity markets in 2020 and we may see further M&A activity in the sector during 2021,” Mr Peters said.
He says insurers will also need to manage regulatory changes, including a new IFRS17 global accounting standard, new design and distribution obligations and income protection product reforms being driven by regulators.
Zurich catastrophe data company Perils has estimated property and motor insurance losses from October’s “Halloween” hailstorms in Queensland at $1.23 billion.
During the afternoon of October 31, severe thunderstorms with large hail struck surrounding areas of Brisbane, the Gold Coast and the Sunshine Coast.
Deemed a catastrophe, the event marked the first such declaration for the 2020/21 natural disaster season.
“The south east Queensland Halloween hailstorms were a particularly noteworthy event given the sheer size of the hailstones in some areas and its relatively early occurrence in the 2020/21 summer season,” head of Perils Asia-Pacific Darryl Pidcock said.
The pressures on the insurance industry and the “ever more extreme” nature of events mean it is increasingly important to deliver industry losses and intensity data, he says.
In the days immediately after the Halloween storm, the Insurance Council of Australia (ICA) said more than 8500 claims had been lodged, with about 60% for damage to motor vehicles and 40% for damage to houses, mainly to roofs, skylights, awnings, windows and solar panels. Interior damage also affected a significant proportion of homes.
In recent days, an eastern trough has dumped hundreds of millimetres of rain between the Fraser Coast and the NSW border.
An ICA spokeswoman told insuranceNEWS.com.au there have been a small number of weather-related claims around the region so far.
A significant event is considered unlikely to be declared at this stage, although insurers are placing additional resources on standby to assist customers of required.
Perils has now reported three hailstorm events in Australia this year, with total industry losses more than $3.64 billion. The latest estimate, which it says is based on loss data collected from the majority of the Australian insurance market so far, will be updated on January 25.
The Insurance Council of Australia (ICA) will seek a rapid decision on the validity of business interruption exclusions citing the Quarantine Act if the High Court agrees to hear its appeal on the issue.
ICA has decided to seek leave to appeal the NSW Court of Appeal judgment, which found exclusions citing the Quarantine Act and subsequent amendments are not valid in rejecting COVID-19 claims.
“If special leave to appeal is granted, the ICA would seek for the matter to be heard in the High Court as quickly as possible,” the group said last week.
Typically, it can take 3-4 months from point of filing to when a decision is made on whether an appeal will be heard, but the process can be hastened with an expedition request. The High Court has a summer recess throughout January.
ICA says pandemics were not contemplated for coverage under most business interruption policies, premiums were not collected to reflect the cost of cover, reinsurance was not generally available and reserves not established.
“Those business insurance policies that were intended to cover pandemics predominantly in the entertainment and health sectors, have paid out,” CEO Andrew Hall said.
“However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”
ICA also intends to file a second test case that explores other policy issues not dealt with in the first case, including proximity and prevention of access, and is working with stakeholders to finalise the parameters.
Australian Broker Network has responded to a dispute ruling that went against the business after one of its authorised representatives was found to have breached its duty of care to a client and must pay compensation.
“As members of AFCA we are bound by their decision and accept its findings to be in the best interests of the client, despite our submission to the complaint,” Director Tremayne West said.
As reported by insuranceNEWS.com.au, AFCA ruled the broker had not used proper care and skill when changes were made to the client’s policy when it was up for renewal in December 2018.
The client only found out the sum insured for the business truck was reduced by $30,000 to $20,000 after it made an unsuccessful claim to fully recover the truck’s repair cost of more than $26,000.
Mr West says the ruling has highlighted two aspects that serve as “a worthy reminder” to the industry.
He told insuranceNEWS.com.au that risk advisers need to have clients’ best interest at front of mind at all times.
“In this example it was beholden on Yes Insurance Group to properly understand and caution the client on their instruction, and not just follow it,” Mr West said. “To reduce the sum insured to the level requested should have highlighted concerns and a response to the client that the truck was worth considerably more.
“Then written instruction should have been sought from the client to confirm their [instruction] to reduce the sum insured. The confusion in this case was the value of the truck, as opposed to the truck and body combined.”
AFCA says the broker not only failed the client when it misunderstood the instructions given before the policy was renewed, it also did not reasonably determine if the reduced coverage was suitable for the client’s needs and did not immediately inform the client after the policy was changed.
The client told AFCA it had asked whether the truck’s chassis and tray could be insured in separate amounts. They say they did not ask the broker to lower the sum insured.
AFCA says a competent and experienced broker would have realised reducing the sum insured by $30,000 was an “unusual request” and reached out to explain the changes may be a risky move.
Mr West says risk advisers all must take notes on telephone instructions, complete day books, make entries into policy administration systems and email client instruction for confirmation response.
“While the outcome of this example was payment of around $6000 payable by Yes Insurance to the client, the potential ramification for other instances could be multiple times of this amount,” he said.
Read here for the AFCA ruling.
Marsh says there is a chance of new directors’ and officers’ (D&O) insurance providers entering the market now that the premium pool “appears sustainable” after rate increases of over 100% in 2018 and last year.
However, rates are expected to still harden in the near to medium term as class actions and related claims show no signs of easing, the broker says. Marsh’s ASX200 client data shows average D&O rates have increased more than 200% so far this year.
“The premium pool being collected now is at a level which appears to be sustainable,” Marsh Head of Financial and Professional Liability Craig Claughton told insuranceNEWS.com.au.
“The conditions are at a point where new entrants may consider coming into the market. However, premiums are still expected to grow in 2021.”
A number of key insurers quit the Australian and global D&O markets this year, according to Marsh’s Directors’ and Officers’ Liability Insurance Market Recap 2020 report. Competition remains low and Marsh says it is unaware of any new players that entered the local market this year.
The report says insurers have compounded the hardening tough D&O environment by engaging in “opportunistic pricing” and offering little flexibility, leaving companies in a bind as premiums show no signs of easing in the foreseeable future”.
As a result many companies have been forced to review their entire risk management strategies, with some looking at alternative and previously untested risk transfer solutions as a way around the situation.
Marsh says instances where insurers have used opportunistic pricing as a negotiating tactic include holding off quotations or renewal terms until a few days before policies expire, potentially leaving insureds vulnerable with limited choice at the eleventh hour.
In such cases insurers often charge premiums “many times greater” for a policy’s excess layer portion, despite it carrying less exposure than the underlying layer of coverage. In a multi-layer policy the underlying layer responds first to a covered loss and when its limit is exhausted, then only will the excess layers kick in.
Marsh says the majority of insurers have displayed a general level of inflexibility and unwillingness to find solutions for their clients.
“These insurers, seemingly, are not concerned about losing such business,” Marsh says in the report. “There are, however, exceptions to the majority, where select markets are still willing to work with loyal clients to reach mutually agreeable solutions and outcomes, which has resulted in some insureds maintaining a reasonable level of cover.
“However, many insureds are left with little or no choice. Where insureds have chosen to stop buying cover due to cost, this premium is potentially lost forever to the insurance market.”
Companies are looking at non-traditional ways to protect directors and officers, such as using captives where the provider of the insurance cover is wholly owned or controlled by the insureds.
Click here to download the report.
Alpine resort operators say insurers have “over-reacted” to the growing bushfire threat, making insurance cover unaffordable or unavailable.
As insuranceNEWS.com.au has previously reported, many sectors including caravan parks and regional pubs have already been hit by reduced underwriter appetite following last year’s devastating fires.
Now the Mount Buller Ratepayers Association (MBRA), which represents stakeholders in the Victorian alpine region, has added its voice to growing concerns, saying that insurance for alpine properties has become a major issue.
The association claims some insurers, including QBE and Allianz, stopped offering alpine insurance this year, while other providers carved out bushfire risk or introduced unaffordable premium increases. It says that underwriting agency Miramar, which held a large amount of Mount Buller business, also cut bushfire exposure.
QBE says it does still cover alpine risks, however, and Miramar says that while bushfire exposure was reduced earlier this year, the sub-limit has now been lifted.
“Premiums have escalated to unaffordable levels,” the MBRA says. “Some underwriters have withdrawn from the alpine market. Others have imposed an unreasonable excess. Some stakeholders have been tempted to self-insure although this is contrary to lease requirements.”
MBRA says it is working with industry bodies and the Government to find “an affordable solution”. It carried out a survey earlier this year and found 67% of members were without bushfire cover.
Committee member Chris Hollier told insuranceNEWS.com.au the issue is not specific to Mount Buller and is “the same throughout the entire alpine area in Australia”.
“The majority of Mount Buller property will not be covered for bushfire going into the bushfire season,” he said.
“People are being forced to self-insure or run the gauntlet. It’s an over-reaction by those insurance providers pulling out, and a profit grab by some that remain.
“I appreciate that there has been billions of dollars of bushfire claims but there has never been a lodge lost to bushfire on Mount Buller.”
Mr Hollier says an “alpine mutual” is being investigated as a possibility by a group of brokers, but details are not yet clear.
The Insurance Council of Australia (ICA) says it acknowledges the need for affordable insurance in alpine regions and is “looking at ways we can address this important issue”.
“Reinsurers see Australia as a high-risk jurisdiction for many insurance products, and this is driving an increase in reinsurance costs which in turn may be having an impact on premiums for some customers,” the council told insuranceNEWS.com.au.
“The cost of some premiums have increased following the black summer bushfires, as insurers are reassessing and repricing risk.”
ICA says a focus is needed on “the high level of risk for some building stock in bushfire and natural disaster-prone locations”.
QBE told insuranceNEWS.com.au it is still offering cover “above the snowline” but that each risk is assessed on its merits, while Allianz says alpine resorts may have been caught up in a recent review of bushfire exposure.
A Miramar spokesman told insuranceNEWS.com.au that it writes an alpine facility through Network Insurance Group (NIG), which it has partnered with for three years.
“In May this year, we reduced our bushfire exposure to a sub-limit of $250,000 per location,” the spokesman said.
“We have worked tirelessly with our security partners and NIG to have this sub-limit lifted so that we are now in a position where we can offer bushfire to the full value of the location.”
The Insurance Brokers Code Compliance Committee has expressed concerns over the independence of brokers who sell add-on products to clients on behalf of insurers.
The Committee aired its worries after its report found brokers earn a commission of around 20% of gross written premium from each sale. Only a small number receive a fixed fee instead of a commission. These fixed fees vary depending on factors such as the product being sold or the length of the insurance coverage.
While only 2.6% of code subscribers arrange add-ons for clients, the report found many were using sales practices that don’t always prioritise clients’ needs.
The report says most brokers handle insurance add-ons well, but there is room for improvement.
“The Committee has a concern that the prospect of earning commissions on these products has the potential to jeopardise brokers’ independence,” the Committee says in the report.
“This is a very important issue for insurance brokers because the practice of selling and the products themselves have been the subject of serious criticism for some time.
“The professional reputation of the entire industry could be put at risk if the few brokers selling these add-on products do not take great care to ensure staff are trained in ethical sales practices and understand the risk of harm these products might bring for the wrong customers.”
The Committee says it decided to launch an own motion inquiry to find out whether and how code subscribers sell add-ons and if they made an effort to ensure these products are useful, reliable and of value to their clients.
Out of the 12 code members that offered add-ons in the 2018/19 financial year, seven of them are large brokerages with more than 100 full-time staff.
The Committee says information provided by the 12 code members indicates there is an over-reliance on scripted conversations and supplementary documentation such as product disclosure statements.
It urges code members that sell add-ons to take steps to improve the way the products are sold. These include making sure a product’s purpose is clearly explained to clients, evaluate a client’s needs, risk profile and eligibility as well as explain the costs plus relevant exclusions.
Click here for the report.
The general insurance industry is likely to see an increase in merger and acquisition (M&A) activities in the next 24 months, according to a new report from KPMG.
It says insurers post-COVID are looking to acquire businesses that will provide additional growth opportunities, synergies and cost optimisation.
There may also be interest from foreign insurance players as they have often been keen on the local market, where the products are mature.
Australia being a comparatively smaller market also offers an opportunity for foreign insurers to test new products as well as achieve geographical diversity to reduce risk.
KPMG predicts next year could be equally as challenging for the industry as the past year, which has seen its profit collapsed by almost 50% to a near 10-year low of $2.3 billion.
Uncertainty over the outcome of the industry’s challenge against the NSW Court of Appeal decision that ruled business interruption (BI) pandemic exclusions citing the now repealed Quarantine Act are not valid is not the only test facing the industry in 2021.
The industry must contend with persistent weak investment returns, a situation that is not going to improve in the foreseeable future as interest rates remain at near-zero levels, the result of aggressive efforts from central banks to haul the global economy out of the coronavirus recession.
Other pressing tasks include the raft of Hayne royal commission reform measures that will be introduced in the coming months, such as the extension of unfair contract terms to insurance contracts and moves to regulate claims handling as a financial service.
The industry also must brace for more severe and frequent weather events as climate change takes hold, increasing insurers’ exposure to natural perils such as floods and bushfires.
“This has been a very difficult year for the industry, with natural catastrophes, significantly unfavourable investment results due to volatile markets, and a spike in reinsurance costs,” KPMG Insurance Lead Partner David Kells said.
“And the situation has become more challenging with the recent court ruling on business interruption losses due to COVID-19 not being excluded under the Quarantine Act. If the judgment survives the proposed court appeal, this will have significant implications for many insurers.”
KPMG Insurance Partner Scott Guse says the potential impact of the BI claims court fight on insurers is reflected by the $750 million capital-raising undertaken by IAG.
“You’ve seen one major insurer go out and do a capital-raise to fight off a potential cost,” he told insuranceNEWS.com.au. “It’s an area where the insurance companies don’t have a lot of reinsurance protection, unlike the catastrophic weather events.
“Something like this hasn’t happened…so any exposure they get is really going to have to be borne by the insurance companies and not by reinsurers.”
But he says the industry remains well capitalised. “It’s not going to go broke or anything like that, but there may need to be some further capital raising and certainly significant provisions, depending on how court judgments go.”
Click here for the KPMG General Insurance Industry Review 2020 report.
Motor vehicle theft fell 7% across Australia to the lowest level since 2015 in the year to September, as borders were closed and movement was restricted due to COVID-linked lockdowns.
Some 52,638 thefts were recorded, the National Motor Vehicle Theft Reduction Council (NMVTRC) says in its December Theft Watch report.
Theft volumes were down in all jurisdictions except Queensland, which
recorded a 3% increase for the period, which was a slower pace than previously rapidly escalating theft volumes.
Motorcycle thefts fell 11% while the categories of passenger/light commercial and heavy/other each decreased 6%.
By model, the Holden Commodore is the most popular passenger car among thieves, with 967 thefts recorded. That is followed by the Toyota Hilux MY05-11, Nissan Pulsar, Ford Ranger and Toyota Hilux MY12-15.
As social and travel restrictions normalise nationally, the NMVTRC urges Australians to heed its “Pop. Lock. Stop.” advice by popping keys out of sight and locking doors and windows.
In Australia, a car is stolen every 11 minutes – 70% with their own keys.
Half of all cars stolen are taken from the home, including driveways, carports and garages. Offenders often sneak into homes through unlocked doors and windows, and while the homeowner is present. Victims are on average left out of pocket $5000, the NMVTRC says.
Businesses can expect cyber insurance to become more costly as insurers respond to “unsustainable losses” and regulators seek to hold companies accountable for breaches, according to Axa XL.
Insurers have already taken a number of actions to reduce their underwriting exposure, Product Leader Cyber Risk APAC Max Broodryk says.
These actions include cutting policy limits, increasing retentions, restricting offerings to specific clients or industry segments. A few insurers have decided to quit the market entirely after several large losses globally last year and this year.
“Many companies should prepare for the likelihood that their expenses for managing and mitigating cyber risk will go up,” Mr Broodryk said.
“Hence, it is essential for the collective community of clients, brokers, insurers and cyber-security experts to continue sharing expertise, best practices and lessons learned.
“Only by working together, increasing security, and reducing or eliminating the proceeds of crime (like ransom payments), it is possible – not assured, but possible – we will get to the point where cyber-crime becomes yesterday’s problem.”
Even as demand for cyber protection increases, insuring against the risk presents multiple challenges for insurers and underwriters.
Digital adversaries are continually creating new tools and methods, seeking to exploit any IT weaknesses for financial gains. The risk of being caught is fairly low, which makes it attractive to criminal gangs, some nation-states and opportunistic amateurs.
“The unpleasant fact is that cyber-crime today is profitable,” Mr Broodryk said. “It doesn't require much upfront capital. Payoffs from five to over eight-figures are not uncommon.”
While increased enforcement from regulators should benefit companies by pushing them to take cyber security more seriously, these actions could further compound the difficulties insurers face in determining a fair and sustainable rate for cyber insurance.
“In particular, as regulators take a more proactive role in holding companies accountable for their cyber-security systems and procedures, that could impact the ‘tail’ on cyber policies because penalties and third-party claims for compensation are usually levied long after these events occur,” Mr Broodryk said.
Speculation is growing that the Commonwealth Bank (CBA) may pitch its $1 billion general insurance business to four major insurers in the local market as early as next year.
Ratings agency S&P says Westpac's recently announced sale of its general insurance business to Allianz is among the final steps by the major Australian banks to exit non-core businesses like general insurance.
Australian media has reported that investment bank Goldman Sachs has been hired to sell CBA’s insurance division, which may attract interest from bidders including Suncorp, IAG, QBE and Zurich. The Australian newspaper says CBA is expected to launch the sale of its general insurance unit in the first quarter of next year.
Westpac agreed a $725 million sale deal with Allianz for mid-2021, and CBA said in 2018 it was also considering selling its general insurance operations. The Westpac deal includes a 20-year agreement for the distribution of Allianz general insurance products to the bank’s customers.
S&P analyst Craig Bennett says buyers of the CBA business will typically be from the larger insurers already in the market looking to expand their footprint, or extend their distribution via bank channels.
"It will likely come down to the price being offered and long-term alignment of interests if there is a distribution agreement attached,” Mr Bennett said.
It could also be used as a platform for smaller, emerging companies that have lacked underwriting experience.
CBA is facing a number of legal cases, including a class action, which allege it tipped customers into inappropriate insurance policies.
The Australian newspaper says IAG could be eager to buy the business after new CEO Nick Hawkins told staff when he was the CFO that mergers and acquisition activity was on the agenda.
Meanwhile, QBE has said it may postpone major strategic moves as it searches for a new CEO after the departure of Pat Regan.
CBA's life insurance operations were sold to AIA Group in 2017 for $3.8 billion, while ANZ Bank completed the sale of its life insurance business to Zurich last year. NAB finalised the sale of 80% of its life insurance business in 2016 to Nippon Life for $2.4 billion.
CBA also sold a 55% interest in its Colonial First State wealth management business to Kohlberg Kravis Roberts for $1.7bn in May.
"While general insurance is not as capital-intensive as life insurance, a similar strategy is expected as [CBA] continues to restructure," IBIS World Senior Industry Analyst Yin Yeoh said.
The scale needed to run viable general insurance arms may be another factor as banks find it hard to compete with the big four insurers in Australia.
"General insurance is a narrow-margin business that requires capital support," Digital Finance Analytics analyst Martin North says. "Scale players have dedicated underwriting and claims management processes and systems. General bankers are not as capable [as] insurance managers.”
CBA’s income from insurance fell 5% to $139 million on a cash basis for the year to June 30. General insurance contributed $21 million to the bank's group cash net profit, down 40% from a year earlier.
QBE has announced Fiona Larnach will take over the role of Group Chief Risk Officer (CRO) in March next year. She will replace Peter Grewal, who has decided to return to the UK.
Ms Larnach, whose appointment is subject to regulatory approval, was most recently Barclays UK CRO. Before this, she was Commonwealth Bank of Australia Retail Banking CRO.
She has worked across risk management, finance and treasury during her near-30 year career. Her other previous roles included a risk advisory partner position at Ernst & Young consulting to insurance, banking and wealth management clients.
“We have worked hard in recent years to build our risk capability with good risk management practices now firmly embedded in our day-to-day operations,” QBE interim Group CEO Richard Pryce said.
“We are delighted to welcome [Ms Larnach] to QBE. She brings a unique combination of skills and experience that will help us to further evolve our risk management practice.”
Ms Larnach will be based in the head office in Sydney and will be a member of the Group Executive Committee, reporting directly to Mr Pryce if her appointment is approved.
Adelaide-based MGA Insurance Brokers has entered into a joint venture with fellow AUB Group broker Austbrokers HCI in Toowoomba.
MGA MD Paul George says the agreement increases MGA’s Queensland offices to five.
“We look forward to introducing our services, system advantages and access to the market that the MGA Group will bring,” he said, adding that Jeff Stevens will continue as MD of Austbrokers HCI.
MGA also has 15 offices in SA, eight in NSW, seven in Victoria, two in the NT and locations in the ACT, WA and the Cambodian capital of Phnom Penh.
AUB Group MD and CEO Mike Emmett says he was looking forward to seeing positive network collaboration results.
“This partnership will enable Austbrokers to leverage the benefits of MGA’s processes and central services.”
IAG has issued new fact sheets educating Australians about tropical cyclone and flood risk and encouraging them to take action to prepare for destructive weather events.
Australia is at present experiencing a La Niña weather system, which brings a higher risk of severe storms.
IAG claims data shows the average claims cost to repair homes affected by floods during last year’s Townsville floods was $80,000.
Its research reveals extreme tropical cyclones, storms, hail, floods and bushfires are becoming more frequent and intense in a warmer world. The increase in global temperatures to date is already influencing these events and impacting communities now, the insurer says.
“It’s important that people are aware of the risks they face based on where they live so that they can prepare for these weather events,” IAG EM Natural Perils Mark Leplastrier said.
The IAG Flood Fact Sheet highlights the local government areas in each state at highest risk and outlines the potential damage and clean-up costs they may face, including the cost of stripping-out wall linings and floors to sanitise properties.
The Tropical Cyclone Fact Sheet provides an overview of the key risk areas and outlines the different wind regions and wind classifications that homeowners should be aware of when building or renovating their homes.
It also provides an overview of retrofitting options for homes to make them more resilient. It also calls on property-owners to check local council websites for storm tide zone and evacuation information.
The fact sheets were developed by IAG’s Natural Perils team, which comprises climate scientists, meteorologists, hydrologists, engineers, statisticians and actuaries.
Assetinsure has appointed Martin McConnell to take over as CEO from Gregor Pfitzer, who is leaving the company.
Mr McConnell, currently Head of Financial Risk Products, has been with the insurer since 2011 and has been a member of the executive committee for nearly two years. His appointment as CEO takes effect next month
Assetinsure, which was acquired by Lombard Australia Holdings in July last year, says the board and shareholders have expressed gratitude to Mr Pfitzer for his dedication and achievements over many years and the decision for change had been reached by mutual agreement
“After a great deal of reflection, I have come to the conclusion that it is time for Martin to take over and for me to move on,” Mr Pfitzer said last week.
“We have experienced turbulent times, but the situation has now stabilised to the point where I feel comfortable to make a change.”
Mr Pfitzer, who has held executive roles at the group since joining 17 years ago, will assist with a transition period through February.
“The company was a start-up in 2003 and the business has gone from strength to strength under his stewardship,” Assetinsure and Lombard Director Johnny Symmonds said last week.
The insurer was purchased by CBL in 2015 and later impacted by that company’s financial difficulties despite being separately capitalised and managed.
New Zealand-based CBL Corporation was placed into voluntary administration in February 2018 and then into liquidation in May last year.
Assetinsure reported a net profit of $5.4 million last calendar year, after it fell to $3.8 million in the previous period.
AM Best has downgraded its outlook for Pacific International Insurance’s Australian arm to negative from stable, citing the “high levels of execution risks” presented by its growth plan for the business.
The insurer’s Financial Strength Rating was affirmed at B++ and Long-term Issuer Credit Rating at bbb.
The outlook downgrade from the ratings agency comes more than a week after its New Zealand operation was issued with “formal directions” by the Reserve Bank of New Zealand for repeatedly failing to comply with its reporting and disclosure obligations.
AM Best says Pacific International’s business profile is limited. While the company has undergone a material transformation from a small niche liability insurer to a more diversified general insurer in Australia and New Zealand, it is focused mainly on motor and related products.
AM Best says South Africa’s Badger International has injected $13.5 million in capital to support the insurer’s material change in operational scope since it took over the business in May 2018.
The material change was related to Pacific International Insurance’s acquisition of the renewal rights to “a sizeable portfolio of existing motor business in Australia” and the associated increased capital requirements.
“The negative outlooks reflect the heightened sensitivity of Pacific’s balance sheet strength and operating performance assessments to execution of the company’s growth plan,” AM Best said.
“AM Best considers the company’s latest business plan to present high levels of execution risk, and failure to successfully achieve it could weaken Pacific’s operating performance and risk-adjusted capitalisation materially.”
The ratings agency says it expects Pacific International’s prospective risk-adjusted capitalisation to deteriorate notably in the coming years as a result of the further substantial premium growth targeted by the company.
It also anticipates capital adequacy to remain highly sensitive to the successful execution of the company’s business plan, and to the achievement of performance targets and projected capital generation over the medium term.
It expects Pacific to remain a modest-sized player with a market share below 1% in the Australia general insurance market over the medium term.
Specialist insurance provider CFC Underwriting has rolled out a cyber-focused underwriting platform in Australia for brokers to arrange covers for SME clients.
The London-headquartered business says it built CFC Connect to simplify the underwriting process to support brokers in the fast-growing cyber insurance market.
The platform is only available to brokers who are already doing business with CFC.
Brokers using the platform need only to provide the clients’ website to access a set of bespoke quote options based on their pre-set preferences. They can also create new quote variations and bind immediately.
“The long-winded question sets associated with cyber insurance created a barrier for brokers selling cyber coverage,” CFC Cyber Development Leader Lindsey Nelson said.
“We also recognise that the challenging economic environment caused by the coronavirus pandemic has laid down a new hurdle as SMEs are forced to review the necessity of every single dollar they spend.
“So we’ve also enhanced the inner workings of Connect to provide brokers with a bespoke sales tool kit to help them focus on the right exposures for the right clients and convert more sales.”
Ms Nelson says CFC has seen growing demand for cyber insurance in Australia, especially from SMEs who are increasingly aware of their exposure to the digital threat.
She told insuranceNEWS.com.au the platform “is all about getting the right risk profile data about SME customers to underwrite their risk effectively and as quickly and efficiently.”
Brokers using the platform will find it easier to meet the growing demand and need for cyber products from SME clients, she said.
Allianz Partners Australia has launched a new self-serve portal to automatically calculate premium refunds that customers impacted by COVID-19 customers might be entitled to.
The portal is significantly cutting process times, with many customers getting money back in as little as three business days, Allianz says.
The portal, which calculates and issues partial or full refunds of unused premium, was developed in less than three months. It covers travel policies that have gone unused, rental vehicle excess and event ticket insurance.
Allianz Partners has already refunded more than $8.5 million to around 24,500 people. Up to $12 million could be returned to more than 100,000 Australian policyholders via the portal over coming months.
Chief Market Manager at Allianz Partners Australia Damien Arthur, says customers whose plans were impacted by COVID-19 began receiving refunds in June, and Allianz has already manually refunded more than 16,000 customer policies.
“The new portal is enabling us to process refunds much quicker to help provide customers with a faster, more positive experience,” Mr Arthur said.
Allianz customers can check their eligibility by visiting www.policymanager.com.au/aga.
Zurich-owned Cover-More has partnered with Japanese low-cost carrier Peach Aviation to provide travel insurance.
Peach services seven cities in Japan, where it has operated since 2012. Before COVID-19, it offered 21 domestic and 18 international routes, carrying 20,000 passengers each day.
“Cover-More and Zurich already work closely together in Asia Pacific with two other major airlines in Australia and New Zealand and we are excited to add Peach Aviation to this growing list of forward-thinking airlines,” Cover-More Asia Pacific CEO Judith Crompton said.
Auto & General has deployed UK insurtech Aquarium Software’s cloud-based platform, a one-stop solution for pet insurers.
Aquarium’s platform uses machine learning to evaluate data and complex content and support decision-making during policy and claims processes. It promises to vastly reduce operational overheads and slash the time for the policyholder to get paid from multiple days to just a few seconds.
“We are incredibly impressed by many aspects of the project including the core system functionality, the on-time delivery and the professionalism of the team,” Auto & General GM Pet Health Insurance Patricia Kleinhans said.
She says Aquarium is able to remotely implement its platform within just a few months, allowing Auto & General to start operations in record time.
The coronavirus pandemic has escalated pet purchases in Australia, creating significant new business potential for the pet insurance sector.
Passage of the Financial Sector Reform Bill 2020 through Parliament is a “major step forward” in implementing the recommendations of the Hayne royal commission, the Federal Government says.
The legislation will strengthen the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products, to prevent pressure selling to consumers.
It will also introduce a deferred sales model for add-on insurance products, make the handling and settlement of insurance claims a financial service, and allow provisions in financial services industry codes to be enforceable.
The Insurance Council of Australia (ICA) says it welcomes passage of the Bill but cautions that some “practical implementation issues” remain.
ICA says the legislation gives insurers “the certainty needed to put in place new processes and systems to bring the benefits of these reforms to consumers”.
“The Insurance Council and its members now look forward to working with Commonwealth Treasury, ASIC, and other groups such as consumer advocates to bring these reforms to life,” CEO Andrew Hall said.
“There are practical implementation issues that we are keen to see resolved so the legislation can maximise consumer outcomes as effectively and quickly as possible.”
The insurance industry has cautioned against making changes to the Privacy Act in a submission to an issues paper seeking feedback on whether the scope of the legislation and its enforcement mechanisms remain fit for purpose in the digital age.
The submission from the Insurance Council of Australia (ICA) to the Attorney-General’s Department says the industry is comfortable with Section 2A of the legislation setting out the objects of privacy protection of individuals.
“These recognise that the protection of the privacy of individuals needs to be balanced with the ability for businesses to carry on their legitimate activities,” ICA says.
“Members are bound by the Australian Privacy Principles and take active steps to ensure compliance and recognise their importance in upholding robust privacy protections for consumers.”
ICA says its members are concerned about the implications of introducing a requirement for an express notice to be given when collecting personal information. Presently information collected by insurers is limited so that they may only deliver products or services that are requested by consumers.
“The purpose of information collection in insurance is not for large scale aggregation purposes by advertisers,” ICA says. “The current framework allows insurers to collect, use and disclose information where it is reasonably necessary for the establishment, exercise or defence of a legal or equitable claim.”
There are already a number of appropriate, written notifications to consumers when collecting information to provide insurance products.
ICA says introducing a specific “notice of collection” may have the opposite impact intended.
“Given that consumers already receive many disclosures and notices regarding insurance, providing additional ones may result in confusion and/or refusal to properly read and understand the information supplied,” ICA warned.
On whether a statutory tort for invasions of privacy is needed, ICA says its members are wary of the likely fallout should such a measure be introduced. A tort has the potential to increase the risk policyholders’ exposure to public liability claims in particular.
“Insurers would need to reflect the greater risk they were taking on, by either specifically excluding the tort from coverage or re-evaluating the price of insurance products,” ICA says. “If a statutory tort is introduced, it should be confined to intentional or reckless invasions of privacy.”
Consumer advocates say they support the introduction of a statutory tort for serious invasions of privacy. They say such a measure will protect consumers whose claims are being investigated by insurers.
“In insurance claims handling, assessment and investigation practices have a significant impact upon consumers,” the joint submission from the Financial Rights Legal Centre, Consumer Action Law Centre and Financial Counselling Australia says.
“Without a statutory action for invasion of privacy any person can without your consent take photographs, still pictures and videography of you in a public place.”
The Government is reviewing the Privacy Act in response to the Australian Competition and Consumer Commission’s Digital Platforms Inquiry final report, which was released last year.
The review will consider issues and recommendations made in the final report, including whether a statutory tort for serious invasions of privacy should be introduced, and whether the Privacy Act should include a “right to erasure”.
The issues paper outlines the current law and seeks feedback on potential issues relevant to reform. A discussion paper will be released in early 2021, seeking more specific feedback on preliminary outcomes, including any possible options for reform.
Click here for the issues paper.
The Australian Securities and Investments Commission (ASIC) has set out its expectations for determining target markets for retail products and distributing them appropriately in a regulatory guide for new laws that aim to drive a consumer-centric approach.
The guide was released last week after further consultation this year on the product design and distribution obligations that take effect from October 5 next year.
ASIC says it has taken a principles-based approach to its guidance on the laws, which apply to insurance, banking and superannuation products.
“Issuers and distributors should be monitoring and reviewing their products in light of consumer outcomes and adjusting arrangements when necessary,” the regulator says.
“There is no one-size-fits-all approach that can be set out in guidance.”
Acting Chairman Karen Chester says the obligations are a “game changer” and should assist industry to deliver better consumer outcomes, while managing non-financial risks and avoiding costly remediation.
“The obligations require firms to set their own boundaries to suit their business, products and customers,” she said.
“If they stay within these boundaries this will mean less enforcement action from ASIC and the opportunity for deregulatory initiatives over time.”
Regulatory Guide 274 is available here.
The Australian Prudential Regulation Authority (APRA) will reduce a $250 million additional capital requirement applied to Allianz Australia last year to $150 million, saying the insurer has made progress in “addressing issues”.
The remaining capital add-on will remain in place until Allianz fully completes remediation work to strengthen risk management.
APRA imposed the additional capital requirement on Allianz in August last year after 36 banking, insurance and superannuation entities were asked to “self-assess” against risk governance expectations.
This was in order to gauge whether governance weaknesses identified at the Commonwealth Bank also existed in other businesses.
APRA Executive Board Member Geoff Summerhayes said Allianz had shown “demonstrable progress on its remedial work program” though “removal of the entire charge will not be considered until Allianz embeds the required improvements across its business.”
In May last year APRA said it had uncovered “material weaknesses” in governance after it examined the 36 self-assessments, which included nine general insurers, four life insurers and three private health insurers. APRA strengthened its prudential expectations in response and raised its supervisory intensity for all regulated institutions.
The self-assessments were submitted at the end of 2018 after the prudential inquiry into the Commonwealth Bank of Australia uncovered operational and governance shortcomings.
The participating general and life insurers were Allianz Australia, Chubb, Genworth Financial Mortgage Insurance, Hollard, IAG, Munich Re, QBE (Australia), Suncorp, Swiss Re, AMP Life, Challenger Life, MLC and TAL Life.
The COVID-19 outbreak has compressed a decades’ change into a few years and will lead to lasting impacts on the ways insurers do business, Australian Prudential Regulation Authority (APRA) Executive Board Member Geoff Summerhayes says in comments made as his term concludes.
“The community’s risk appetite has changed,” Mr Summerhayes says. “I don’t think you can have societal change like we’re having right now and then only offer the same products, services and customer solutions that were being offered in 2019.”
People are interacting in a different way and firms will be looking at the business opportunities that can flow from that and how they can be insured and packaged as they think about their commercial viability into the future.
“As a regulator we tend to focus on risk, but there’s as much opportunity here as there is risk,” he says in a conversation released on the APRA website. “The challenge for businesses and regulators is to adapt.”
COVID has driven two megatrends, the rapid expansion of digitisation of the economy and the importance of customer connection, and Mr Summerhayes expects both will drive the evolution of regulated entities and will be areas where APRA will need to pay close attention.
“Businesses that are digitally enabled and customer connected have done better, regardless of industry,” he says. “Those businesses have been able to pivot their business models, distribution channels, products and services, and they’ve done it quickly so they can remain viable, and in some cases, they’ve really thrived.”
Mr Summerhayes, who has overseen general insurance and the life and health sectors, will leave APRA when his five-year term concludes at the end of this month. Previously he was Suncorp Life CEO.
During his term he has also raised the profile of climate-related risks through speeches and work with regulatory forums.
“I think we’ve made a huge impact on the Australian regulatory landscape and done a lot internationally,” he says. “There’s been a paradigm shift in awareness, and increasingly, action, in the last four years.”
Mr Summerhayes says he learned a lot about working with customers and creating positive experiences in a previous working life, and the lessons apply to financial services.
“When I finished university, much to my parents’ horror, I started running nightclubs,” he says.
“I actually learned some really valuable lessons there, and it’s still how I think as a leader. If you’re running a team, or running an organisation, you’re actually creating a set of experiences for your employees and your customers.”
Creating positive experiences means that people will stay, and keep buying, he says.
“They’ll keep partnering with you and they’ll keep coming back. So be conscious that working in financial services isn’t a service to you, it’s a service to others.”
Australian Reinsurance Pool Corporation (ARPC) CEO Christopher Wallace says extending the mandate of terrorism pools to pandemics could assist the insurance industry as its reputation is hit by COVID-19 related claim denials.
“I worry about the reputation impacts to the insurance industry,” he told a recent event hosted by the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP).
“A terrorism and pandemic scheme could provide certainty to policyholders that cover will be provided and it would be beneficial to the insurance industry so long as there is also risk transfer.”
Dr Wallace says insurers do not have the capital to cover pandemic risk, but it could be confusing to policyholders as pandemic risk becomes an excluded peril much like terrorism.
Insurers have brought test cases over contested business interruption exclusions in Australia and the UK, while a number of legal battles are also being fought on other fronts.
“The important focus on testing the effectiveness of pandemic exclusions needs to be balanced with other solutions to address the risk so that the insurance industry remains relevant,” Dr Wallace said.
Pandemic and terrorism events are both systemic risks with similar characteristics, but the biggest problem with insuring pandemics is the rapid speed and scale of financial response needed, he says.
“Governments have quite rightly focused on providing fiscal stimulus for pandemic relief measures to save jobs and businesses, these have included subsidies to businesses and unemployed,” he said.
“An effective pandemic business interruption response ideally would target small business, have a time limited duration, and be simple or front-end paid.”
Pools would also facilitate the involvement of reinsurers, amid likely limited retrocession appetite, by reducing and diversifying their geographic risk, he says.
Dr Wallace is President of ITPRIP, which was launched in 2015 to support closer international collaboration between sovereign-backed terrorism pools.
Parliament has passed the legislation for new insolvency laws that could potentially impact trade credit insurers.
The new laws, which take effect on January 1, draw on key features from Chapter 11 of the US Bankruptcy Code.
The legislation introduces a new, simplified debt restructuring process for small businesses facing financial distress. The US-style process applies to incorporated small businesses with liabilities of less than $1 million, giving them control of their operations as they restructure their existing debts.
The reforms were announced in September by Treasurer Josh Frydenberg, who said the measures will help small businesses survive the economic impact of the pandemic.
However, Lockton Companies Australia has warned the measures could have ramifications for trade credit insurers in the form of increased claims.
National Manager Dean Jenkins has previously said the reforms would make it easier for companies with debts of under $1 million to enter into a new form of insolvency.
He says the reforms will also see a rise in requests to agree to repayment proposals from practitioners acting on behalf of client’s customers.
“There is a general consensus in the trade credit market that claims activity is going to rise after the January holiday period, but this is historically when we see a spike in activity anyway,” Mr Jenkins told insuranceNEWS.com.au.
“The question is, will these new reforms supercharge those normal numbers?
“The key to managing repayment plans and post repayment credit is going to be transparency of the debtors’ financial position, especially from a trade credit point of view.
“If a repayment plan is proposed and acceptable, insurers are only going to reconsider credit cover again if the financials stack up. Traditionally these have not always been widely available or shared; so this needs to change.”
The Insurance Council of Australia (ICA) has proposed an accreditation process for rehabilitation providers in the NSW compulsory third party (CTP) scheme in a submission to the State Insurance Regulatory Authority (SIRA).
ICA also called for a focus on value and outcome-based rehabilitation practices that benefit injured people, mandate a requirement that rehabilitation consultants in CTP and workers’ compensation must have at least two years’ experience and revise the competency and skill-building framework with a focus towards delivery standards in the CTP scheme.
Promoting and encouraging innovation in the CTP scheme, surveying claimants and making public the reviews of accreditation providers for the CTP and workers’ compensation schemes are the other suggestions made by the ICA.
“The ICA and our insurer members believe that effective workers’ compensation and CTP schemes are characterised by improved recovery and return to work performance, a value and outcome-based policy framework and ensuring sustainable high-quality providers and easily accessible services,” the ICA submission said.
ICA says its proposals will support efforts to improve the policies and framework for rehabilitation providers in the NSW workers’ compensation and CTP schemes.
SIRA, which is responsible for the regulatory functions of the CTP and workers’ compensation schemes, is seeking inputs from stakeholders on the NSW policy and framework underpinning the approval, engagement and performance of workplace rehabilitation providers.
It says the consultation is focused on the decline in return to work rates following workplace injuries in the workers’ compensation scheme and that workplace rehabilitation services need to be outcome-focused.
The other areas of focus are reforms to the CTP scheme that were introduced less than three years ago. SIR says an opportunity exists to improve recovery and return to work goals and outcomes regardless of the scheme.
ICA says its proposal for an accreditation process in the CTP scheme will help improve the quality of care, streamline operations, reduce liability risks and provides areas of where there can be room for improvement.
Unlike the workers’ compensation scheme, workplace rehabilitation providers are undefined in the CTP legislation, which means mechanisms for approval of participants are not available.
“The accreditation process will provide standards and accountability that providers need to adhere to, one that insurers can rely on and that injured people can trust,” ICA said.
“The ICA suggests leveraging standards and approval mechanisms in NSW through the development of an accreditation process for the CTP scheme and reviewing the current requirements in the workers compensation scheme.”
Click here for the SIRA consultation paper.
The Queensland Government has partnered with CSIRO to develop a guide for improving the bushfire resilience of new and existing homes.
This is the fourth guide to be issued following earlier publications on storm tides, cyclones and flood.
The newly-released Bushfire Resilient Building Guidance for Queensland Homes provides solutions for adapting homes and gardens to be more heat resistant. It comes after a season in which more than 3000 bushfires burned 7.7 million hectares across the state, impacting 23 communities.
“Scientists are predicting longer bushfire seasons and more extreme bushfire conditions, so managing bushfire risk is essential for Queenslanders living in areas prone to bushfire,” Deputy Premier and Minister responsible for the Queensland Reconstruction Authority (QRA) Steven Miles said.
The guide says climate change has led to longer and more intense periods of extreme weather and more elevated fire weather days. From a building perspective, this means an increase in the chance of bushfire and in the potential severity.
Bushfire resilient homes and landscapes help reduce loss of life, the number of buildings impacted and lost, the social and financial cost of recovering, and they also conserve and enhance Australia’s biodiversity.
The measures improve energy efficiency as they reduce gaps and openings and boost insulation.
“Bushfire resilient homes also tend to be better built, meaning lower maintenance costs compared to traditional buildings. These economic and environmental benefits are magnified when considering future predicted climate changes,” the guide says.
The cost of building a bushfire resilient home - or retrofitting an existing home to be bushfire resilient - need not be prohibitive, it says.
CSIRO project leader Justin Leonard says the advice incorporates lessons learned from Victoria’s 2009 Black Saturday Bushfires and CSIRO’s research after every major fire event in Australia since the 1983 Ash Wednesday fires.
“This guidance goes beyond the official building regulations,” he said.
The guide can be viewed here.
Key peak bodies have expressed support for the Morrison Government’s decision to wind up the Financial Adviser Standards and Ethics Authority (FASEA) and introduce other measures that will reduce red tape.
The Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) say the moves would help the industry address rising operating costs, part of which are due to increased regulatory compliance.
They say the proposed moves will mean better access to affordable financial advice for Australians, who have spurned professional guidance because of the prohibitive fees charged.
Assistant Superannuation, Financial Services and Financial Technology Minister Jane Hume announced the changes last week, saying the measures will strengthen the financial advice sector and provide consumers with improved access to better quality and affordable guidance.
Ms Hume has in October told the industry the Government was aware of advisers’ concerns over the cost impact of regulatory reforms and ways to ease the burden were under consideration.
Under the changes announced, the Government will proceed with the creation of a single, central disciplinary body for financial advisers as recommended by the Hayne royal commission.
The disciplinary body is to be set up by expanding the operation of the Financial Services and Credit Panel (FSCP) within the Australian Securities and Investment Commission (ASIC). The FSCP currently supports ASIC in the exercise of its regulatory functions with respect to the making of banning orders against individuals for misconduct.
The standard-making functions of FASEA will be moved to Treasury and the remaining elements of FASEA’s role, including administering the adviser examination, will be incorporated into the FSCP’s expanded mandate.
“These reforms will further streamline the number of bodies involved in the oversight of financial advisers, resulting in FASEA being wound up,” a statement from the Treasurer’s office says. “Legislation implementing these reforms is intended to be introduced into Parliament in the first half of next year.
“The Morrison Government is committed to continuing to improve the regulatory framework applying to the financial advice sector and ensuring that Australians can get access to affordable advice to help them plan for their future.
FPA CEO Dante De Gori has described last week’s announcement as a “step in the right direction.”
“The FPA has been calling for a simplification of standards setting and the establishment of a single disciplinary body to reduce red tape and untangle an unreasonably complex regulatory framework that is stifling the financial planning profession and driving up the cost of advice,” Mr De Gori said.
“We welcome the Government’s commitment to simplifying regulation and the first steps towards giving Australians a better chance to access and pay for financial advice they need, when they want it.”
AFA CEO Philip Kewin says the peak body supports moves that remove red tape for advisers and improve outcomes for consumers.
“Financial advisers and the advice industry as a whole have been hit with layers and layers of regulation that have increased the cost to provide advice without any clear consumer benefit,” Mr Kewin said.
“The AFA will continue to campaign for better outcomes for advisers and the clients they serve.”
The Australian Securities and Investments Commission (ASIC) has updated its regulatory guide on conflicted and other banned remuneration to take into account recent legislative changes.
ASIC says the updates in Regulatory Guide 246 reflect the end of the grandfathering of conflicted remuneration for financial product advice on January 1.
The guide also reflects the extension of the ban on conflicted remuneration to stamping fees paid in relation to listed investment companies and listed investment trusts - excluding real estate investment trusts - that took effect on July 1 this year.
“The ban on conflicted remuneration for financial product advice applies to all benefits given on or after January 1 2021,” ASIC says. “Product issuers are required to provide rebates to clients for all previously grandfathered benefits that they remain legally obliged to pay on or after 1 January 2021.”
The ending of grandfathering of conflicted remuneration paid to financial advisers is a recommendation made by the Hayne royal commission in its final report last year to the Government.
Click here for the ASIC regulatory guide.
Every financial services firm should be made to comply with the Privacy Act, the Financial Planning Association (FPA) says in a submission to an issues paper from the Attorney-General’s Department.
The recommendation of a financial product should not be the determining factor in whether the legislation applies.
At present financial planners are largely subject to the Privacy Act even if they have less than $3 million in annual turnover.
They do not enjoy the small business exemption – which refers to entities with under $3 million in yearly revenue – as they are generally classified as “reporting entities” under Section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
“Of the 54 items in that definition [of reporting entities], most relate to the act of providing or arranging a financial product,” the FPA said. “A business that does not hold an Australian Financial Service licence and/or does not arrange a financial product will not be caught by this definition.
“There are a range of financial services businesses that may fall outside this definition, including financial planners who provide only strategic advice (which does not involve a financial product recommendation), and financial or money coaches.
“The FPA considers it is appropriate for all businesses that collect personal information in order to provide a professional service - whether this is financial advice, strategic advice or financial coaching - to be subject to the Privacy Act framework.”
It says a standardised framework of notice, such as standard words or icons, would be beneficial in helping consumers understand how entities are using their personal information.
Such a notice would ensure that disclosures are made in plain language that is focused on consumer understanding rather than addressing compliance risks for the organisation. It would also promote a broader understanding of privacy issues in the community and provide a common language that improves the effectiveness of the disclosure system as a whole.
Consumer advocates have also made a submission to the issues paper, which is seeking feedback on whether the scope of the legislation and its enforcement mechanisms remain fit for purpose in today’s digital economy.
The joint submission – from the Financial Rights Legal Centre, Consumer Action Law Centre and Financial Counselling Australia – wants measures to restrict, limit or prohibit certain uses and disclosures related to the collection of genetic test results.
They say the stronger privacy safeguards for genetic test results must be a requirement for providing goods and services or entering into life insurance contract.
“We have called out life insurers because the use of genomic information is a clear and well- known case where misuse and abuse needs to be looked at very closely,” Financial Rights Legal Centre Policy and Advocacy Officer Drew MacRae told insuranceNEWS.com.au.
Superannuation trustees have been urged to look into ways to improve outcomes for group insurance members after a new report found wide variations in the design and pricing of default cover.
In the report from the Australian Securities and Investments Commission (ASIC), it was also found members of some super funds may be receiving relatively low value for money and trustees have shortcomings in data and analysis.
“Trustees should reflect on the findings in this report,” ASIC said. “The pivotal role trustees play in designing default cover and buying insurance on behalf of their members means that they need to be accountable for the outcomes their members receive.”
ASIC says trustees need to measure and understand the outcomes they are delivering to different cohorts of their members. They should take into account this understanding when they are designing and pricing their default insurance arrangements.
When the design and distribution obligations regime comes into effect on October 5 next year, super trustees will be required to design fit-for-purpose products that meet consumer needs, and to take steps to ensure their products are reaching the right consumers.
ASIC says the changes mean trustees will need to ensure that insurance arrangements are considered when identifying the target market for a choice offering.
According to the ASIC report, 86% of super members with insurance have it on a default setting. Many of the members are not even aware that they have insurance through their superannuation, or that they are paying for it.
“Many Australians hold life insurance through their super fund,” ASIC Commissioner Danielle Press said. “Almost 10 million superannuation accounts have insurance attached, and a majority have the default insurance offered by the fund.
“The decisions superannuation trustees make about default insurance arrangements are important because most fund members stay with the default.”
Zurich has appointed Darren Wickham as Head of Group Insurance in its Life & Investments’ leadership team.
Sydney-based Mr Wickham, who will join Zurich in March after nine years at TAL where he was most recently EGM - Group Life, will support Zurich’s portfolio of superannuation fund and corporate group insurance partners.
“Group Insurance is a key growth platform for Zurich Australia, one where we have significant opportunity and capability since our acquisition of OnePath Life,” Life & Investments CEO Justin Delaney said.
Mr Wickham has spent three decades as an actuary and specialist in superannuation and retirement income and benefits, including as a partner in Mercer’s retirement, risk and finance practice.
Commonwealth Bank of Australia (CBA) expects to wrap up the sale of its 37.5% stake in Chinese insurer BoCommLife by the end of this month after the deal finally secured regulatory approval in China.
The bank will receive a final sale proceed of $886 million from Japan’s MS&AD Insurance Group Holdings, the parent company of Mitsui Sumitomo Insurance, CBA said in a statement last week.
CBA announced the divestment in 2018 and later had to quarantine the sale so that it could proceed to sell CommInsure Life to AIA.
The bank says the total increase in unaudited post-tax statutory earnings from the BoComm sale and other divestments is about $840 million and will be recognised as a non-cash item in its first-half results for the 2020/21 financial year.
Four directors have been re-elected to the Underwriting Agencies Council (UAC) board, with Kurt Nilsen being confirmed for a further one-year term as Chairman.
The successful nominees were Vice-chair Emily Walker (Axis Underwriting), Treasurer Trent Brown (Allstate Underwriting), Company Secretary and Public Officer Heath Amber (Millennium Underwriting Agencies) and Simon Lightbody (Steadfast Underwriting Agencies).
The incoming directors will serve two-year terms.
Five people contested the four available places at the election in Sydney on Thursday. Kevin Corkery (Wellington Underwriting) was unsuccessful. He was first elected in 2008 but did not stand for re-election in 2010.
Mr Nilsen (Lion Underwriting) and fellow directors Eric Lowenstein (Tego) Jeanene Hill (Canopius) and Anthony Porter (AFA) were not required to stand for election this year.
UAC, formed in 1998, has more than 100 voting members and almost 50 business service members.
In his address to the AGM last week Mr Nilsen said all underwriting expo dates and venues are set for 2021 and he is confident members will enjoy “near to normal” broker engagement in the year ahead.
UAC’s membership base continued to grow in 2020, with seven voting members and eight business service members welcomed.
“UAC’s role is vital to the agency sector’s culture of expertise, efficiency and reliability,” Mr Nilsen told members.
“Underwriting agencies are a vital element of the insurance industry. UAC, as your independent representative body, plays a core role in promoting the sector and advocating on your behalf.”
The Insurance Council of Australia’s (ICA) departing Head of Government and Stakeholder Relations Richard Shields has been appointed to the Professional Standards Councils.
Mr Shields was nominated this year for a three-year term by Federal Government Assistant Treasurer Michael Sukkar.
The councils are independent statutory bodies with powers to assess and approve applications from associations for professional standards schemes. Council members come from areas including law, accounting, insurance, property management and company directorship.
The ICA said last month that Mr Shields would be stepping down in early 2021, with the group combining its Government and Stakeholder Relations and Communications teams into one Public Affairs group.
Mr Shields has previously held a range of external relations, political and advisory roles. He is also a former deputy state director with the Liberal Party (NSW Division).
Bobby Lehane, who finished his six-year tenure as CEO at CHU Underwriting Agencies on Friday, has revealed his next challenge: a charity “swimathon” over three months to raise funds for Lifeline.
He plans to complete 100 swims covering 250km from January to March, targeting every ocean rock pool in NSW. The venture has already raised more than $6000 of a target $50,000. Donations can be made here.
Lifeline has experienced a large increase in counselling demand this year, with call volumes up by more than a quarter.
“In this very challenging time, Lifeline plays a very important role in our communities. Accordingly, your support is more important than ever as it helps to maintain core service levels,” Mr Lehane’s new ‘Rock The Pool 2021’ blog says.
Mr Lehane welcomes others to also swim with an open invitation to “any and all” who wish to participate.
“I want to use Rock The Pool 2021 to encourage as many people to join me, to challenge themselves with a swim or two and see if it might be something that can be as valuable to them as it has been for me.”
Mr Lehane, whose wife is a financial counsellor for Lifeline, left his native Ireland at age 23 and spent seven years at Zurich prior to joining CHU. He took up swimming six years ago.
He says it brings him “peace, happiness and perspective” and he now wants to share these wellbeing benefits with others.
The swimathon kicks off at Freshwater on New Year’s Day, followed by Pearl Beach on January 9, with more dates to be announced.
Professional Risk Underwriting, or ProRisk, has launched a new-look website at www.prorisk.com.au, providing a more streamlined menu and easy access to ProBind, its proprietary broker trading platform introduced in June.
ProRisk says white papers and webinars are now easier for users to find.
“We’ve created a better user experience for our partners,” ProRisk’s General Counsel & Head of Product Jaydon Burke- Douglas said. “Their time is precious, so streamlining access to ProBind as well as educational content was important in the development of this site.
“We will continue to adapt and meet the needs of brokers.”
ProRisk, which was named Underwriting Agency of the year for 2020 by the Underwriting Agencies Council, offers 21 products and is backed by Swiss Re Corporate Solutions, HDI Global, Assurant and Lloyd’s capacity.
The company employs 32 staff in Melbourne, Sydney, and Brisbane.
Motor Neurone Disease (MND) researchers have received $200,000 after NTI auctioned a restored 1946 Ford “Jail Bar” truck, with the support of the Australian Trucking Association.
More than $87,000 was raised at the auction and NTI added another $113,000 to support researchers as they to continue exploring ways to treat the disease.
The restored Jail Bar was the third truck NTI had restored since 2016 to fundraise for MND research, undertaken with the help of transport industry partners. (The Jail Bar nickname refers to the truck’s iconic radiator grille.)
NTI has raised almost $534,000 in four years for MND research. CEO Tony Clark says the team is committed to supporting MND research in honour of former CEO the late Wayne Patterson, who was diagnosed with the condition in 2015 and died three years later.
“NTI will continue its support of this incredibly worthy cause and has plans to restore another truck in 2021,” Mr Clark said. “This research grant is about supporting research but also promoting awareness of MND, of which two Australians are diagnosed every day.”
NTI’s donation will fund two research grants for Dr Shu Ngo and Dr Adam Walker at The University of Queensland. Using mini-3D spinal cords generated from MND patient skin cells, Dr Ngo’s team will study how neurons and their support cells interact over time.
There are currently more than 2100 Australians living with MND.
Super Typhoon Goni, which hit the Philippines in November, was the strongest storm at landfall in recorded history with average sustained winds of 315 kilometres an hour, Aon’s latest Global Catastrophe Recap report says.
While not one of the most active months for tropical cyclones, November still set multiple records, Aon says, as hurricanes Eta and Iota became two of the fastest-intensifying storms in the Atlantic.
Iota was also the latest-forming Category 5 storm recorded for the basin.
“While 2020 storms have not set any new financial loss milestones, the scientific records serve as a reminder of the risks posed to both developed and emerging markets,” catastrophe analyst Michal Lörinc said.
Goni made landfall on November 1, killing at least 31 people injuring nearly 400 others. Around 250,000 homes were damaged or destroyed, and a vast area of agricultural land was also affected. The overall economic toll is expected to approach $US1 billion ($1.32 billion).
Hurricane Eta made landfall in Nicaragua, before moving to Honduras and Guatemala and subsequently making landfall in Cuba as a tropical storm. Total economic losses in Central America were estimated at nearly $US7 billion ($9.26 billion), most of which were uninsured.
Eta later made two landfalls in Florida as a tropical storm, prompting economic losses tentatively estimated at $US1.1 billion ($1.46 billion), with insurers covering around half.
Hurricane Iota became the first Category 5 hurricane of the 2020 Atlantic Season on November 16, making landfall in Nicaragua and compounding damage in many localities still recovering from Hurricane Eta. Total economic losses were expected to reach $US1.25 billion ($1.65 billion), most of which will be uninsured.
Four notable severe weather outbreaks impacted the US in November, with straight-line winds, tornadoes and large hail. Compound economic losses were estimated to exceed $US1 billion ($1.32 billion).
Extremely intense rainfall hit eastern Spain on November 5-6, causing notable flooding. The Spanish Insurance Consortium expected 12,000 property claims and losses of €82 million ($132 million).
Typhoon Vamco crossed the Philippines on November 11-12 before striking Vietnam on November 15. At least 200,000 homes were either damaged or destroyed and 99 people killed. Total economic losses were estimated to top PHP50 billion ($1.39 billion) in the Philippines alone.
Tropical Cyclone Gati came ashore on November 22, the strongest storm on record to strike the arid nation of Somalia with an estimated maximum wind speed of 165 kilometres an hour.
UK commercial motor insurers can regain businesses that were lost this year to the pandemic disruption if they make an effort to be more flexible with their offerings, according to consultancy GlobalData.
The analyst made the assessment after its SME insurance survey found motor lines were the most affected by the COVID-19 economic fallout.
Out of 20 products SMEs were asked in the survey, the six most cancelled covers all relate to motor insurance. Single-van insurance policies had the highest cancellation rate at 14.7%.
But GlobalData Insurance Analyst Ben Carey-Evans believes many of the cancellations were temporary, which gives insurers an opportunity to rebuild their books.
“A positive outcome from this is that a lot of these would have been temporary cancellations rather than permanent as businesses were unable to travel, and delivery fleets were more difficult during a year of lockdown and restrictions,” he said.
“Of course, online shopping has surged, and many delivery-type businesses are significantly up, so these insurers who have lost this high level of business may also have picked up new customers or upsold contracts.
“It also means commercial motor insurers will need to be proactive in winning back customers next year as normality slowly returns.
Giving SMEs a better deal will be critical as many of them would be operating with smaller budgets in the coming months.
“With SMEs’ budgets squeezed, the key is likely to be in the value proposition of policies, but much can be said for offering flexibility as well, as uncertainty over future lockdowns and continuing restrictions remains,” Mr Carey-Evans said.
The UK regulator has released draft guidance to smooth the process for coronavirus-related claims under some wordings following the High Court’s judgment on business interruption exclusions.
Parts of the High Court judgment have been appealed to the Supreme Court, but the Financial Conduct Authority (FCA) says its guidance relates to matters that are mostly not in dispute.
“We are launching this consultation so that we will be in a position to issue it as soon as possible, once we have the judgment of the Supreme Court,” it says.
The guidance relates to policies that require evidence of the presence of coronavirus within a particular area and outlines the type of information that can be used.
That includes media reports of a case near a premises, National Health Service data on COVID-19 deaths, Office of National Statistics data on deaths and regionally reported government data.
Insureds may also use a geographical distribution methodology, where reported cases are averaged and weighted across an area and an “uplifting” approach which reflects likely under reporting of cases.
The FCA says it’s likely to be relatively straightforward for policyholders whose business premises are located in densely populated areas, such as London, to demonstrate the presence of COVID-19, particularly if the policy refers to a large radius such as 25 miles.
But an undercounting analysis is more likely to be required in more rural locations, especially for periods of time when testing was at low levels.
“As per the court’s declaration ‘absolute precision is not required’, and based on the court’s judgment, insurers will be expected to reach agreement with policyholders as to a suitable undercounting analysis where one is sought,” the draft document says.
Comment on the draft is due by January 18.
Munich Re has released a five-year corporate plan, setting out the list of goals the German reinsurance giant intends to achieve between now and 2025.
Under its Ambition 2025 blueprint Munich Re will retain and bolster its core business model, while advancing its transformation towards new business models.
The business wants to raise its return on equity to 12-14% by 2025 and have at least 40% of managerial positions below the board of management filled by women.
It expects to sustain its profitable growth in reinsurance over the next five years. Property and casualty reinsurance premiums are projected to rise to €31.5 billion ($51.2 billion) by 2025, which would be higher than the €24 billion ($39 billion) it has forecasted for this year.
On the climate change front, the reinsurer aims to reduce by 25-29% the net greenhouse gas emissions in its investment portfolio by 2025, before bringing it down further to net-zero level by 2050.
“Munich Re has already ceased to invest in companies that generate more than 30% of their earnings from coal or by extracting oil from oil sands,” the reinsurer says in the blueprint.
“As for the exploration and production of oil and natural gas (direct and facultative business), Munich Re will be reducing its climate-related industry exposure in such a way that there will be no attributable net CO2 emissions by 2050.”
Australia is creating a knowledge base to assist a global recovery from the COVID-19 pandemic take shape as the nation demonstrates how to keep workers and the public safe while rebuilding the economy, Aon says.
In a new global report entitled Helping Organizations Chart a Course to The New Better, the global broker notes Melbourne ended a 111-day lockdown in October and says “swift and decisive virus containment measures helped the country…manage the virus”.
It says many companies have “also found value in flexible approaches to decision-making”.
“As Australian companies and industries navigate uncertainty, many are finding that there is no time like the present to make long-awaited changes to operating models, digital investments, or other parts of the business,” Aon says.
Aon’s CEO Australia James Baum says organisations are now reassessing and undergoing an overhaul and “effectively looking at the future of work”.
“There is an important opportunity to learn from the pandemic and its impact – to build stronger operational resilience and to explore improvements in how we most effectively use the workplace.”
Ten Aon-business “coalitions” have been launched in Australia, Germany, the Netherlands, and Singapore as well as Chicago, Dublin, London, Madrid, New York and Tokyo, with participants from a broad range of industries helping to develop best practices for moving forward.
Aon CEO Greg Case says the decision to convene the coalitions “was driven by a need to build a collaborative roadmap to make better decisions in an increasingly complex world”.
“How society works, travels and convenes has permanently changed as a result of the pandemic,” Aon says. “Things cannot go back to the way they were.
“That means starting to think about not only today’s pandemic but long-tail risks such as climate change, cyber threats and the health and wealth gaps.”
Zurich has agreed a deal to acquire MetLife’s $US4 billion ($5.2 billion) property and casualty (P&C) business in the US.
In joint agreement with the Farmers Exchanges, Zurich subsidiary Farmers Group Inc (FGI) will contribute $US2.43 billion ($3.22 billion) and the Farmers Exchanges will pay $US1.51 billion ($2 billion).
Farmers Exchanges expects to become the sixth-largest personal lines insurer in the US.
MetLife’s business includes 2.4 million policies, $US3.6 billion ($4.78 billion) in annual net written premium and 3500 employees.
Under the transaction, FGI acquires 100% of the MetLife US P&C business and immediately sells it, less certain assets and liabilities, to the Farmers Exchanges.
Zurich has no ownership interest in the Farmers Exchanges but FGI provides non-claims services to it and receives fees.
“The acquisition … will further boost the share of Zurich’s profits linked to stable fee-based earnings,” Zurich Group CEO Mario Greco said.
“Together with the continued increase in rates in commercial insurance, this transaction will strengthen our ability to achieve our 2022 targets.”
Zurich says the deal will add to its earnings from the first full year after completion – due in the second quarter of 2021 pending regulatory approval – and will deliver Zurich a return on investment of around 10% from 2023.
Farmers Exchanges achieves nationwide presence as well as a 10-year exclusive distribution agreement to offer its personal lines products on MetLife’s Group Benefits platform, which reaches 37 million US employees.
“The acquisition of MetLife’s P&C business is a unique opportunity to accelerate growth and to achieve a significant presence in all 50 states,” Jeff Dailey, CEO of FGI, says.
The Australian Small Business and Family Enterprise Ombudsman has warned insurance market failure is causing a national crisis that needs to be addressed, and has taken calls for government action to a new level.
Debate on direct government involvement in the market has tended to focus on reinsurance pools or mutuals to address affordability issues in northern Australia.
The ombudsman, Kate Carnell, takes a wider approach. She says the Australian Reinsurance Pool Corporation (ARPC) should be expanded to provide reinsurance for all natural disasters for commercial property insurance, while separate action is also needed on public liability and professional indemnity issues.
The Australian Competition and Consumer Commission (ACCC) has already looked at northern Australia’s ability to pay affordable premiums, focusing on home and strata in cyclone-prone areas as part of a three-year inquiry, and its final report is with the Federal Government.
The small business ombudsman’s report encompasses northern issues and also reflects market shifts after last summer’s devastating bushfires, as many small businesses deemed high risk struggle with renewals.
Ms Carnell says climate change impacts are likely to increase over time, affecting a greater number of businesses, and governments need to become more involved in finding solutions.
“We are going to end up with more climate events, not fewer. So, are we planning to tell everybody in the bushfire-affected areas, or north Queensland, to move?
“I don’t think that’s going to be a terribly politically palatable approach. The fact is, it is a problem. It needs to be fixed.”
The inquiry spoke with reinsurers in preparing the report, and Ms Carnell says they have concerns about Australian risk, and touched base with the ACCC and the ARPC.
The recent Royal Commission into National Natural Disaster Arrangements also explored some related issues, recommending state, territory and local government sconsider natural disaster risk when making land-use planning decisions for new developments.
The ombudsman goes further and says where land is released with known issues that are not disclosed to a purchaser or otherwise not apparent, the relevant authority should carry the liability for the issue in perpetuity.
Public liability and professional indemnity are identified as key issues, with premiums soaring amid a more litigious environment and after high profile issues such as building sector failings.
The ombudsman suggests following New Zealand’s approach and introducing statutory caps and says the Federal Government, in co-ordination with the states and territories, should urgently progress a no-fault national insurance injury scheme (NIIS).
The scheme was recommended in a 2011 Productivity Commission report, which also proposed the National Disability Insurance Scheme.
“The risk environment for public liability litigation can only change through government intervention and the current framework of fault-based injury compensation creates uncontrollable risks for insurers and small businesses,” Ms Carnell says. “It’s clear we need a civil liability framework that actually works.”
In the case of professional indemnity, the ombudsman says where there is only one or no insurers left in the market, the Government should provide a scheme of last resort for small business.
The report proposes expanding the Australian Financial Complaints Authority’s (AFCA) mandate so more small business policies are included, helping avoid costly litigation in areas such as liability.
Other recommendations include measures to increase transparency and to potentially drive competition, while it says documentation should set out policyholder mitigation options to reduce premiums.
The report calls for a ban on conflicted remuneration paid to brokers and greater clarity around commissions and fees, including detailing of government taxes and levies that are adding to costs.
Insurers should have to give 60 days’ notice of a renewal refusal, premium hike above 15% or changes in exclusions or excesses, with a current minimum 14 days “a manifestly inadequate timeframe” for small businesses to source alternative cover, it says.
Measures would see the consumer data right extended into the insurance market as a priority and insurtech developments facilitated.
Ms Carnell says the difficulties facing small businesses are not just the result of a typical cyclical upward market move, there are other factors at play that are creating more serious problems.
“There is market failure that will have extreme consequences for the Australian economy if left unaddressed,” she says.
“The recommendations in this report are designed to provide much needed clarity and certainty for small businesses, rebalance risks for insurers, and allow businesses access to the insurance products to protect themselves for when things go wrong.”