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2020 vision Chief executives outline risks and opportunities

Tech trends What’s next for our evolving industry?

FLYING INTO THE FIRE How insurers went the extra mile as Australia burned February/March 2020


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Contents 4 Newsmakers 9 Following the flames

How insurance specialists have swung into action in bushfire-stricken areas with a co-ordinated response program

14 History repeating

Early indications suggest large numbers of bushfire victims will once again be underinsured

18 A nose for arsonists

Australia could follow a US example and train bloodhounds to track down – and deter – people who start fires

20 Temperature up, profits down

Profitability in property classes is set to take a big hit from catastrophes, the latest Barometer research shows

24 New decade, new challenges

We surveyed industry leaders for their assessments of the future for insurance in Australia

29 No quick fix

Sloppy work and complacent governments may have caused the construction industry crisis, but Bronwyn Weir says insurers have a big role to play in the renovation job

32 An answer in the archives

A buried proposal to solve flood cover problems could provide a cyclone region blueprint as the Government looks again at a reinsurance pool

38 Regional smarts

Adroit has spread its wings after starting as a small country brokerage, and Fabian Pasquini sees plenty of opportunity

42 Mind the gap

Australia’s terrorism reinsurance pool still excludes cyber, leaving the nation potentially exposed

specialFEATURE

61 Still flying

Sportscover’s owner Wild Goose Holdings had a turbulent 2019, but its founder says the future remains bright

64 Stormy season

Japan topped last year’s global loss records thanks to super-typhoon Hagibis

68 Going up in smoke

It’s not just Australia – severe wildfires are a rising risk factor for the global economy

70 The cure: innovation and empathy

Science, artificial intelligence and a fresh approach are helping QBE make a difference for injured customers

75 War of the clauses

Double insurance containing escape and excess exclusions remains a grey area

companyNEWS 76 Eye on tech

IAG sharpens digital vision

76 Targeting growth

HDI moves into accident and health

peopleNEWS 78 Rugby stars take on AIG brokers 80 Insurance House Advance inspires partners 83 Steadfast Re turns five in style 84 CGU entertains brokers at polo event 86 McLardy McShane raises $105,000 89 NTI hosts broker partners at Christmas party 90 maglog

2020 vision Chief executives outline risks and opportunities

48 8 insurtech trends for 2020

Tech trends What’s next for our evolving industry?

This year will see the insurtech revolution accelerate, but in what directions?

50 More than just money

Meet an investment company that helps insurtechs by providing them with the support they need to succeed in insurance

55 It’s all about how you use the data

If you wait too long to adopt an idea, you may never catch up. Acord’s Bill Pieroni advocates a less risk-averse approach for insurance in the age of innovation

Pictured from left: Michael Furneaux, IAG; Philip Silverman, IAG; Luke Rogers, Crawford & Company; Jonathan Robson, Suncorp; Marinello Lofaro, Suncorp; Nick Wiesener, ICA

FLYING INTO THE FIRE How insurers went the extra mile as Australia burned

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MOVING ON: WHELAN TO LEAVE ICA It’s been 10 years since Rob Whelan became Chief Executive of the Insurance Council of Australia (ICA), so when insuranceNEWS.com.au reported in early February that he is leaving, the story created a stir. ICA later announced that Mr Whelan, pictured, is leaving to “pursue new roles and opportunities”, with ICA President Gary

“Against a scorecard of lives lost, properties destroyed and saved, and communities torn apart, it continues to be abundantly clear that more needs to be done.” Suncorp Chief Executive Steve Johnston lets loose over government inaction on disaster resilience, adding that Australia must “pull its weight” on carbon emissions.

‘MASSIVE TALENT GAP’ LOOMING Recruitment group Hays has warned the insurance industry it will struggle to find skilled staff to handle dispute resolution, property claims and other key roles because of a long-running talent shortage. Filling broking and underwriting positions will also be difficult as the competition for capable employees intensifies, it says in a new report. “The broker market has seen

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dramatic changes in the past 12 months, which has resulted in the need for higher calibre candidates who can provide sufficient advice to their clients,” the report says. “The talent pool for experienced account executives and account managers remains small due to clear career progression pathways, high retention rates and generous salary packages.

“Available candidates are therefore overwhelmed with job opportunities, and consequently those employers who offer niche areas of expertise are more likely to secure good talent.” On property claims consultants, Hays says insurers may have to reassess their salary packages if they hope to attract strong 0 candidates.

AIG’S EXECUTIVE EXODUS

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Dransfield noting Mr Whelan’s tenure included “some of the most challenging and industry-defining periods, such as several devastating natural disasters and the financial services royal commission”. Mr Whelan is continuing in his role while the ICA board searches for his replace0 ment.

AIG’s International General Insurance Chief Executive Chris Townsend and Asia Pacific Chief Executive Sachin Shah

have both left the insurer to “pursue other opportunities”. Their exits last month followed that of Chief Executive Australia Noel Condon, who departed in December and was replaced by Fairfax Financial executive Nigel Fitzgerald. Mr Townsend, pictured, rejoined AIG in 2017 following a stint as President and CEO Asia for MetLife. Prior to that he had spent two decades with AIG in a number of high-profile roles, including Australia CEO and Hong Kong CEO. He recruited Mr Shah, who

was then running MetLife Japan, to join AIG. Mr Shah started in January last year, reporting to Mr Townsend. CEO Middle East and Africa Steven Barnett has taken over Mr Shah’s role and will report to acting International General Insurance CEO Lex Baugh from Singapore. AIG also announced it won’t be renewing its global sponsorship of the New Zealand All Blacks rugby union team when the current contract expires at the end of next year. It has been the major sponsor of 0 the team since 2012.


CORONAVIRUS AND TRAVEL COVER: SOME DO, SOME DON’T Do travel insurers cover customers against the rapidly spreading coronavirus, which has now caused about 1000 deaths, with new cases being reported around the world every day? The answer turns out to be yes and no. An insuranceNEWS.com.au investigation found the local insurance industry normally applies “broad exclusions” to pandemics and epidemics. But some insurers say policyholders will be covered – under specific circumstances. “Some travel insurance policies will cover travellers whose travel plans have been disrupted by the coronavirus or who have incurred medical expenses,” the Insurance Council of Australia said. “This will depend on when the policy was bought and when the claimant started their trip.” Travel insurer TravelCard has extended its leisure travel policy “beyond its usual parameters”, Chief Executive Peter Klemt said, while Zurich-owned travel insurer Cover-More says there are “differing levels of coverage” in the more than 70 different policies it writes. “There is cover available for medical expenses under many of Cover-More’s travel insurance policies if a customer travelling overseas contracts the coronavirus and is hospitalised,” EGM Sales & Distribution for Asia Pacific Mike Stein said. “However, even if medical cover is available to customers for this event, there may not be cover for travellers’ cancellation or amendment of travel plans and other additional expenses as a result of the coronavirus epidemic.” The best advice to travellers: Read and 0 understand your policy.

SIX CATASTROPHES AND A WILD WEATHER QUADRELLA As insuranceNEWS.com.au reported on Monday February 10, claims from a weekend of flooding and wild east coast weather had already reached $45 million. It was the sixth catastrophe to be declared by the Insurance Council of Australia in five months. Total insured losses from bushfires and this season’s volatile weather have climbed to about $2.56 billion, and claims from the latest disaster are expected to rise sharply. At least 10,000 claims from the latest storms had been received by the morning of February 10, with most from south-east Queensland and along NSW coastal regions. Damage was also reported several hundred kilometres inland and in the ACT. The Bureau of Meteorology says preliminary estimates show 391.6mm of rain fell

in Sydney over the previous four days – the wettest period since February 1990. Trees toppled onto cars and homes, and flooding caused extensive disruptions. If there was any positive to be taken from the catastrophe, it was the fact that the rainfall extinguished some bushfires and reduced the threat from many of those still burning. The latest storm catastrophe comes as insured losses from January’s hailstorms reached $638 million from around 69,850 claims, with the Australian Capital Territory accounting for 53% of the claims. To make it a climate quadrella, Cyclone Damien crossed the Western Australia coast near Dampier and Karratha on the same weekend, causing some dam0 age to buildings and vegetation.

AFTER THE FIRES, THE DEBATE BEGINS Prime Minister Scott Morrison has written to state and territory leaders seeking feedback on terms of reference for a proposed royal commission into the devastating bushfire season. More than 2400 homes have been destroyed in NSW alone, more than 30 people killed, and Insurance Council of Australia (ICA) figures put insured losses from the catastrophe declared on November 8 at $1.9 billion. Mr Morrison says a royal commission will take into account previous reviews, and

cover issues including the deployment of defence force personnel, hazard reduction burns and land-clearing. But National Insurance Brokers Association Chief Executive Dallas Booth says insurance issues must also be addressed. “It will be critically important for the royal commission to examine the impact of taxes and charges on insurance premiums, and the extent to which these taxes and charges are adding to the affordability problems of insurance cover,” he told insuranceNEWS.com.au.

“The Emergency Services Levy in New South Wales is a major burden being carried by policyholders.” New South Wales, Victoria and South Australia have already announced state-level inquiries into the bushfire season. The Insurance Council of Australia has said the New South Wales inquiry should address levels of underinsurance and non-insurance, “including the effect that state taxes and levies have had on the cost and purchase of household and busi0 ness policies in the state”.

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From the

PUBLISHER

BLUE ZEBRA LOSES ITS UNDERWRITER High-profile underwriting agency Blue Zebra is seeking a new underwriting partner after Zurich announced in January it will cease providing security for its policies. The reason Zurich quit? Co-founder Colin Fagen says “they would have liked a better loss ratio”. The current agreement will end on March 16, after Zurich reassessed the agreement in the light of Blue Zebra’s pending expansion and performance that “was not aligned with…expectations”. Blue Zebra launched in 2018, aiming to bring personal lines back to brokers and using smart technology to increase efficiency. It has grown rapidly, with more than 100,000 policyholders and writing $110 million in premium over the past year. It has said it want to increase its offering and even expand overseas. While the company said in January that it’s working exclusively with Youi to replace Zurich, at the time of 0 going to press there was no news of progress.

DRY SPRING SET UP BUSHFIRE CONDITIONS Spring was Australia’s seventh consecutive season of extreme dryness and laid the foundation for this summer’s tragic bushfire crisis, the latest Australian Actuaries Climate Index says. And the combination of dry, hot, windy weather fuelled the devastating summer bushfires, the institute says. Every region except Tasmania recorded more consecutive dry days in spring than seen in the three decades to 2010, the reference period for the index. Particularly high numbers of consecutive dry days were seen in parts of New South Wales, Queensland and across large swathes of central Australia. The latest index also shows parts of west and southern Australia broke records for extreme high temperature, and higher than normal atmospheric pressure led to increased 0 wind gusts during spring, especially in the south-east.

Terry McMullan

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As we predicted in the December issue of Insurance News, the year started as the last one had finished – with natural catastrophes that will stretch the industry for at least the next six months. The lessons insurers, brokers and loss adjusters gained from the 2009 Victorian Black Saturday bushfires, and some of the lessons from the aftermath of the 2011 Brisbane floods, have been in evidence. Prompt and clear communications through the Insurance Council and input from leading insurers, plus rapid moves to get loss adjusters and claims personnel on the ground, have allowed the industry to control the narrative more thoroughly than in any previous mass catastrophe. By acting quickly to (wherever possible) reach the thousands of affected people who have been traumatised by the loss of their homes and businesses, insurers – and, indeed, brokers – performed a service that we don’t often think about. Soothing people’s fears about their claims and their ability to rebuild, and working out how we can support them through the process, proved invaluable in 2009. Another lesson from the Victorian bushfires was that dealing with people suffering the pain of loss inflicts considerable stress on claims staff. Hopefully they will receive appropriate support in the coming weeks and months. One issue that will come to the forefront soon is the amount of underinsurance experienced by people who live in bushfire-prone areas. Simple miscalculations and the uncomfortable fact that new homes have to be built to higher standards of fire-resilience will mean in many cases that new homes will have to be more modest than the buildings they replace or, alternatively, the householder will have to contribute. Our article looking at this issue features a victim of the 2013 Blue Mountains bushfire, who gives a personal perspective on an experience that so many people are coming to terms with right now. Of course, the impact of the catastrophes on insurers’ financial performance deserves attention, and our coverage of the latest assessment by JP Morgan and Taylor Fry will give you some idea not only of the immediate impacts, but also of how things are going overall. We’ve also interviewed some insurance leaders to get their assessment of how the industry is performing and the issues that keep them awake at night. Insurtech, an assessment of global risks and catastrophes, and new ways of dealing with old rehabilitation problems…you’ll find them, and more, here. Enjoy.

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Getting to work: Suncorp assessor Jonathan Robson inspects damage in Mallacoota

B

ushfires are as fickle as they are ferocious. Insurance specialists driving countless kilometres through bushfire-hit regions this summer have been amazed by the sheer extent of a razed landscape and the sometimes-random damage caused by fast-moving flames. “You would have a street of houses where there’s six properties, and five are burned to the ground while there’s one in the middle that doesn’t even have a scorch mark on it,” Suncorp National Event Assessing Advisor Jonathan Robson tells Insurance News. Residents have returned to properties not knowing if their home has been destroyed or has been one of those left largely unscathed. Other residents stayed to defend properties with varying results as wind-driven fires raced through dry forests and bushland. “You will have a customer that says ‘there are people worse off than me’, and you are looking at a pile of ash,” Mr Robson says. “It really puts into perspective the resilience that people have. “There was one couple who had been taken away on a boat out of Lake Conjola [south of Jervis Bay in New South Wales].

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He dropped off his wife and jumped back in the boat and tried to save their house. Unfortunately, he wasn’t able to do so.” AFAC, the national council for fire, emergency services and land management, estimates bushfires have burned almost 12 million hectares this season, compared to the 2009 Black Saturday disaster which covered less than half a million hectares. The Victorian disaster caused the loss of 173 lives, while 33 people have died this season. Insurance Council of Australia (ICA) bushfire catastrophe declarations have covered Queensland, NSW, South Australia and Victoria, and estimated insurance losses since September total around $1.9 billion. Insurance personnel have travelled through stark and blackened landscapes as soon as its safe to enter, assessing property damage, assisting with claims and listening to people’s stories of loss and survival. IAG Major Events Specialist Terry Cheng drove the area from Port Macquarie to Foster earlier in the bushfire season, before more recently travelling through the NSW South Coast region and into East Gippsland. “It is such a widespread area,” he says. “Driving through on the highway and seeing

the trees and the forest areas, and the impact on a large number of towns and small communities…it’s quite sobering.” Insurers are increasingly aiming to be on the ground as soon as possible after major events and provide training for staff on the scenarios they can expect and how to respond with empathy and in situations of customer vulnerability. IAG Executive Manager Major Events Craig Byfield says being at the scene to listen to people’s experiences and understand their requirements has been greatly appreciated by policyholders. The insurer is boosting its fleet of major event rapid response vehicles, which this season stopped in towns devastated by the fires. In Cobargo in NSW, he met an elderly couple who had stayed to defend their home as the bushfire approached. “They had defended their own property and they talked about their experience of working together to save their house,” Mr Byfield tells Insurance News. “They lost a shed on the property and things like that, but for them to be able to tell their story and have people sit down and listen was an asset to them. I see that a lot in


Following the flames How insurance specialists have swung into action in bushfire-stricken areas with a co-ordinated response program By Wendy Pugh

the communities when we visit.” Insurers have been able to quickly mobilise emergency payments and resources on the spot after meeting customers, making an immediate difference, particularly in more remote areas. “For us to get out there and actually organise generators and different things like that is vital for our customers for them to be able to remain on their property,” Mr Byfield says. “A lot of them have livestock and will remain there with their animals to be able to support and feed them. That is the sort of thing we see when we are out there.” Access to disaster areas has been hampered by poor communications, blocked roads and smouldering fires that may suddenly flare up. The insurance industry liaises with emergency services and government authorities before trying to enter an affected region. In the case of Mallacoota, in Victoria’s east, a team led by the ICA and including representatives from Suncorp, IAG and loss adjuster Crawford & Co was airlifted into the town on a Royal Australian Air Force C-27 Spartan transport plane to start damage assessments before roads to the town

were opened. Flames threatened to engulf Mallacoota on New Year’s Eve, and the town became isolated as the Princes Highway was blocked in both directions. Holidaymakers and residents were evacuated by sea on a Royal Australian Navy ship and supplies were flown in by military aircraft. ICA says 110 total-loss properties were assessed in less than a day by the team that flew in, using new experimental software that allows rapid collection of the data needed to verify total losses. After positive feedback, ICA will explore a co-ordinated protocol to provide a rapid assessment capability in future when access to communities is difficult. Mr Robson, one of the participants, says the group divided up to assess properties in the worst-affected areas after a quick reconnaissance drive. “We just went street by street and went through all of the total losses,” he says. “We kept going until the sun went down. We wanted to get to as many as we could.” The team arrived as the town was still very much in the middle of an emergency situation. Helicopters and other aircraft

were flying in and out delivering supplies and anxieties were clear at a community meeting convened by authorities to update residents on the situation. The experience provided a deeper understanding for the insurance industry participants of what their customers go through when a small community is completely cut off after a disaster, Mr Robson says. “They had only just got fuel and food deliveries and those things that you need on a day-to-day basis that you might take for granted,” he says. “There was a little bit of tension around when they were going to finally open up the road.” Insurance industry support after the Mallacoota disaster included establishing a welcome centre in Melbourne with the assistance of Emergency Management Victoria to help some 1200 residents and holidaymakers evacuated aboard HMAS Choules. ICA set up “insurance hubs” in numerous towns in Gippsland and southern NSW in January, including Bega, Ulladulla, Batemans Bay, Mallacoota, Cann River and Cobargo. The hubs operate independently from government so can open as soon as insurers

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Pulling together: insurance staff at Mallacoota evacuation centre

can access a community. They can open in locations that don’t have formal recovery centres. Having a number of insurers gathered at one central point can also make it easier for people who may have multiple claims with different companies. IAG says it complements participation in the hubs with use of its major event rapid response vehicles, which act as a mobile office for claims and assessing staff. The vehicles have their own power generators and backup satellite communications. Priorities in the first instance when meeting policyholders include ensuring they are safe and have somewhere to stay, and seeing if they need emergency funds or temporary accommodation. Claims are lodged, building and contents assessed, and people are taken through the claims management and settlement process. “With the bushfires, there are total losses and large losses, but even being in these centres where our customers have lost power for days and food has been spoiled but their property is OK – for a lot of these customers payments for food spoilage for two or three hundred dollars means the world,” Mr Cheng says. Insurers say ongoing support and counselling is offered to customers as well as their own company personnel during and after events like this. Sometimes staff are working from locations where representatives from other agencies and charities such as the Red Cross are on hand to provide additional assistance for policyholders. “Some customers are quite emotional,”

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Mr Cheng says. “It is the loss of some memories, it might be a multi-generational family home that has been lost, or it is the loss of a business, so customers can be quite upset about the experience. “But for some, it is an opportunity as well. One couple came up to me in Batemans Bay and thanked us for the speedy settlement of their claim. They had acreage and they were getting on in years and they were able to use that money to downsize.” Getting into remote areas to assess properties can be difficult even after the all-clear has been given by authorities and roads have reopened. Staff safety is a top priority. Mr Robson says trees falling across roads are a common problem and may require a visit to be rescheduled, while unexpected changes in conditions may require alternative roads to be found. “You will find access is not what you thought it was and you will need to find another route. But the community always wants to support us to get in,” Mr Robson says. “If you get a bit lost, you can always pull up at a local property and they are more than happy to give you some additional directions.” Assessors mostly meet clients at their properties, often with a builder or engineer, he says. The policyholder may prefer not to attend. Those who do have mostly already visited the site and have seen the damage. MGA Insurance Brokers’ Kelly Commins, who is working in both Bega and in southeast Queensland, says the scale and scope of this year’s catastrophe has been far greater

than other events to hit the region, which have included flooding and the Tathra bushfires. “It is the combination of large losses and large numbers that are really making the difference with this event,” he says. “The impact is through rural properties and also on to the commercial sector with regards to interruption to business and restrictions to access and those sort of things.” Mr Commins was working from Toowong in Brisbane when the bushfires happened, and liaised with the local team as the situation evolved. “Areas were being evacuated or on standby, so we were co-ordinating with staff and making sure they were okay,” he says. “It was just a catastrophe all over the place and a fluid environment that was moving all the time.” Clients have been getting in touch by phone and visiting the office, with claims continuing to come in this month, and brokers have been attending on site with assessors as required. Mr Commins says insurers, brokers and loss adjusters have pulled together to deal with the major catastrophic events of the summer. “Everybody is just motivated to deliver a really good result and, working together, those three different parties I think are achieving that,” he says. “We are seeing payments flowing, we are seeing claims being managed extremely well and extremely quickly.” Events in January have affected the


whole of the South Coast region as road closures and evacuation warnings have also hit businesses physically unscathed by the bushfires but which rely on the peak summer trade. “The authorities did the right thing; there was no food on the shelves, no petrol, no diesel. But it is a huge loss to our community,” Insurance Advisernet Merimbula Managing Director Kristy Martin tells Insurance News. “The profits are gone. A lot of businesses rely on the four weeks over Christmas to keep them going for the rest of the year.” The insurance industry’s response to this summer’s catastrophes has included large donations to emergency and relief agencies, support for community organisations and other measures to help local groups and those volunteering. The National Insurance Brokers

Association provided a bushfire community support initiative to advise people who wouldn’t normally use a broker but who would welcome assistance with the claim process. ICA opened an online register to help local tradespeople and builders play a “significant role” in rebuilding their regional communities. Insurers have learned from previous catastrophes the value of being on the spot quickly and responsive to immediate needs. They review their performance after catastrophes and have stepped up efforts to better understand the best ways to support customers. There is also the sense this time of a united industry approach in responding to catastrophes. ICA has developed an “Industry Claims Dashboard” for governments and other

agencies to use this season. It involves member firms contributing de-identified information around claims activity. Head of Risk & Operations Karl Sullivan says the data is intended to assist governments in providing targeted support to victims where it is most needed, and is recognition by insurance companies that they are part of a wider recovery effort for Australians after disasters, That’s never been more evident than on-the-ground this season as recovery processes have started in far-flung communities affected by bushfires that have rolled on for months across the country. “Our role is so vital in assisting local communities and customers in rebuilding their lives,” Mr Robson says. “There is definitely a sense of accomplishment and a sense 0 of satisfaction in doing what we do.”

Summer of catastrophes The Insurance Council of Australia has declared six catastrophes this season, starting with the early outbreak of fires in Queensland and NSW in September. Here’s a list of the disasters listed by the value of losses as of February 14. Bushfires (NSW, Qld, SA, VIC): Losses reached $1.9 billion from 23,362 claims lodged for a catastrophe that rolled on through the summer after it was declared on November 8. At least 2890 buildings have been destroyed in dozens of fires.

January hailstorms: Canberra suffered the majority of damage from hailstorms that also severely affected parts of Melbourne and Sydney. Losses have reached $638 million with more than 69,850 claims received. Southeast Queensland hailstorm: A severe hailstorm particularly affected the Sunshine Coast region on November 17 leading to 22,000 claims for estimated losses of $166 million. East coast storms and flooding: Torrential rain fell across southeast Queensland and

NSW in early February, with Sydney recording its wettest four-day period since 1990. Losses of $100 million from 21,000 claims were estimated a few days after the catastrophe was declared on February 10. October bushfires: A severe bushfire affected dwellings in Rappville NSW leading to losses of $19 million. September bushfires: Up to 70 bushfires across southern Queensland and 70 in NSW, fanned by high winds, led to multiple property losses, with claims valued at $37 million.

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Angry summer: this season’s fires left a trail of destruction

Fire season FAQs The same questions cropped up time and time again as the nation faced up to this horror fire season. Bushfire and Natural Hazards CRC Chief Executive Richard Thornton helps us provide some answers.

Is the current bushfire season unprecedented? “Unprecedented” is a word that gets thrown around a lot, but is it accurate? Much more land burned in 1974 (more than 100 million hectares), there were larger insured losses in 1983’s Ash Wednesday ($2.5 billion in normalised dollars), and more deaths in 2009’s Black Saturday (173 people killed). On the flip side, we’ve never seen so much land burned so early in the season, or so much fire damage in Queensland. Dr Thornton says that “in some ways yes, it has been an extreme season. And what has been different this time to previous fire seasons is the geographical extent of the fires – multiple states affected severely at a similar time, and vast areas of land burned. “And at various times Brisbane, Sydney, Canberra, Melbourne, Adelaide and many regional areas have had prolonged exposure to smoke, reducing the air quality, affecting health. “In some parts, particularly in spring, the severity of the fires we saw for that time of the year was unusual.”

Is it caused by climate change? Your own view on this might be set, depending on which newspaper you read, but the truth is more nuanced. It’s not a yes or no answer.

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“Fire seasons are lengthening worldwide, and we know that in Australia our fire seasons are starting earlier and finishing later, with more dangerous fire days occurring earlier in the season than they have previously,” Dr Thornton says. “Climate change plays a role in this – Australia is now one degree Celsius warmer than average compared to the long-term average, which means that the variability of ‘normal’ events sits on top of that. “This means our extremes are more extreme – hotter and windier – and when it does rain, it rains more intensely. “It is extremely difficult to attribute any one bushfire, flood or cyclone to climate change, but climate change is changing our underlying weather conditions. “We know, for example, that the timeframes are shortening between our very worst fire days. Weather conditions that may have occurred every few decades will now occur more frequently than that.”

Are other weather phenomena more crucial? It seems like there’s a never-ending stream of ominous acronyms – whether it’s ENSO, IOD or SAM, the wrong set of circumstances can spell disaster for Australia. An extremely strong positive Indian Ocean Dipole (IOD) combined with a negative Southern Annular Mode (SAM) encouraged this season’s devastating conditions. But notably the El Nino Southern Oscillation (ENSO) remained neutral. “Traditionally Australia’s very worst fire seasons have occurred in El Nino years, so it is extremely concerning that we’ve had the fires we’ve had this season without the El Nino driver,” Dr Thornton says.

How big a part do arsonists play? This has been one of the most-debated issues of the fire season. The reality? Arson happens, and it’s a problem we should do everything possible to prevent – but it’s not the major driver of this year’s fires. “Arson is one of many human-caused bushfire ignitions, but it is also very specific in its definition, and refers to deliberate acts to cause damage,” Dr Thornton says. “There are many accidental ignitions from people that cause more fires, and what we’ve seen this season is widespread dry lightning storms starting many of the fires in mountainous and hard-to-access areas. “There have been many false and misleading comments regarding the role of arson in these fires.”

When will it all be over? Recent heavy rain has brought huge relief, particularly across New South Wales, but is this season the start of a new normal? Will it all happen again next summer? “Mid to late January saw some rain across parts of southern Australia, which was a welcome relief for many of the areas that have seen devastating bushfires over the last few months,” Dr Thornton says. “While the rain is important, the fire season has many months to go in southern Australia. It will be a long season. We’ll see bushfires throughout February and March and, without widespread rain, potentially into April. “Our underlying conditions have been so dry for such a long period of time that it doesn’t take much to dry out after rain. “The weather conditions we see between now and the beginning of the next fire season will determine what sort of risk we will experience in 2020/21.”


History repeating Early indications suggest large numbers of bushfire victims will once again be underinsured By John Deex

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hen Susan Templeman’s beloved Blue Mountains home was razed to the ground by 2013’s bushfires, her initial shock turned to relief, because she was insured. But that relief was quickly blown apart when Ms Templeman, the Federal MP for Macquarie, found out her cover was way below what she needed to rebuild. “I was shattered to find out that we underinsured by about 50%,” she tells Insurance News. Ms Templeman had arranged her insurance years before, based on the market value of her home, and had no idea there was a huge gap between her sum insured – the maximum an insurer will pay – and the cost of a rebuild. The primary cause of the issue was the enforcement of new bushfire building standards, brought in following previous severe fire seasons. Bushfire Attack Level (BAL) ratings dictate how a home should be rebuilt, often resulting a much higher cost of materials. But many consumers just don’t know about them. It’s a devastating problem. Many homeowners are left with little option but to take a cash settlement, and leave homes and communities behind. Worst of all, it’s still happening today, years after the new rules were brought in. It’s estimated that 80% of this season’s bushfire victims will be underinsured. University of Wollongong experts Christine Eriksen and Eliza de Vet

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highlighted some of the key issues in a recent paper, titled When Insurance and Goodwill are not enough: BAL Ratings, Risk Calculations and Disaster Resilience in Australia. Their findings were informed by interviews with victims of the 2013 fires, but they say the problems haven’t gone away. “There is no indication as to why it would be any different this time around compared to the Blue Mountains event,” Dr Eriksen told Insurance News. The insurance industry argues that selecting a sum-insured is ultimately a decision for the customer, and that it provides online calculators to help them. But the researchers don’t agree, accusing the industry of failing to keep consumers properly informed. “We know from our Blue Mountains research that some people had used online calculators and still ended up being significantly underinsured,” Dr Eriksen tells Insurance News. “The conversation doesn’t seem to be happening with insurers. It seems like it would be quite simple to say ‘you are in this BAL level, it could impact on your rebuild in this way’. “I can’t speak to why insurance companies don’t have that conversation.” The research paper says all homeowners in bushfire-prone areas need to be aware of BAL ratings, and their implications. But it says access to information about costs, responsibilities and liability “has been scant”.

“At the bare minimum, insurers should, as part of their ‘duty of care’, provide consumers with BAL information when advising on sum-insured costs and policy renewals,” the paper says. “This includes incorporating a question into online calculators and sales advice transcripts, which provides BAL advice and access to resources, as well as requiring consumers to acknowledge that they have been made aware of BAL ratings and associated standards and costs.” Ms Templeman says she checked insurance calculators repeatedly after finding out she was underinsured, and for years they were still providing incorrect assessments. She accepts that improvements have been made since 2013, with some calculators asking specific questions about bushfire – but it’s not enough. “The education piece is missing,” she says. “If you try to have a conversation about BAL ratings with an insurance salesperson, it is not on their script. “They are asking consumers to take all the risk when they have no real information.” Of course, encouraging people to increase their premium is not usually a successful sales strategy, and insurers also worry about straying into personal advice. The research paper says local councils should also use “existing communication avenues” to advise residents in bushfire-prone locations about BAL ratings and insurance. “Without such initiatives by insurers and councils, it may take more tragic disasters to incite change.”


Exposed: Susan Templeman next to the ruins of her Blue Mountains home

The researchers suggest a move from sum-insured to full-replacement policies could provide more certainty for customers. “There is no doubt that the people in the Blue Mountains that had full-replacement policies were the best off, both financially and emotionally,” Dr Eriksen tells Insurance News. But such policies are the exception rather than the rule in Australia, and a largescale shift could lead to significant increases in premium. IAG Executive General Manager Short Tail Claims Luke Gallagher says the industry is “always concerned” about underinsurance. He says IAG’s home buildings calculator does help bushfire-threatened customers estimate the cost of a rebuild. “A key question we ask customers in our calculator is the proximity of their home to bushland, highlighting that new regulations require home construction to meet specific standards for certain Bushfire Attack Level (BAL) zones, so that their sum-insured takes into account these costs if they are unfortunately impacted by a bushfire. “We also provide advice on our websites for our customers to help them prepare for the potential impacts of bushfires, including actions they can take to reduce risks to help protect themselves, their family and their home and property.” IAG doesn’t offer full-replacement policies. But it says it does give underinsured customers the option of sitting down with a partner builder to discuss designing a new home from the sum insured available.

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Pushing for action: Ms Templeman says insurers must work with governments to prevent underinsurance

“It is going to keep happening unless we take a collaborative approach.”

“There’s also flexibility for the customer to modify their new home and, importantly, this helps them to begin rebuilding their lives within their local community,” Mr Gallagher says. Suncorp says providing more information to customers during the quoting process might not result in improved levels of cover. “Many customers are focused on how much we will charge without wanting to dive into details about cover adequacy,” a spokesman says. However, Suncorp says its calculator remains “a useful tool” and adds that it has previously run “major awareness campaigns” aimed at educating customers about the risks of underinsurance, including the impact of BAL ratings and building codes. The AAMI brand does offer full-replacement cover, and Suncorp also offers policies including a “safety net feature” which boosts the sum insured by up to 30% in the event of a shortfall. “To further reduce the cost impact of new building standards, including BAL ratings, our home insurance policies include an

additional benefit, of between 10 and 20% on top of the sum insured, for other costs related to rebuilding to current regulations and laws,” it says. Despite all these efforts, there is general acceptance, even among the insurance industry, that the issue of underinsurance will again surface as this season’s bushfire claims are settled. The Australian Financial Complaints Authority says it is too early to estimate how many complaints it will receive related to underinsurance following the fires. The Insurance Law Service, which is part of the Financial Rights Legal Centre, says it “tends to get a big run of calls” six to nine months after a major event, and it expects the same this time. “There is still a lot of misunderstanding about the risk,” Director of Casework Alexandra Kelly tells Insurance News. “Sometimes insurers know more than the consumer, but they are worried about giving personal advice.” The researchers’ view of the future is bleak. “In the absence of clear, informed public

discussions around BAL and its insurance implications, bushfire survivors will continue to be confronted by unexpected costs when seeking to rebuild burned-out properties,” the paper says. And Ms Templeman won’t be a bit surprised if underinsurance flares into a major issue again and again. It’s a depressing example of failing to learn the lessons of history, but she doesn’t lay all the blame at the insurance industry’s door. “There is a role for governments to work with the industry to get this sorted,” she says. “It is going to keep happening unless we take a collaborative approach.” In some ways, Ms Templeman was one of the lucky ones. She was able to free up funds from another property to finance a rebuild on the same block. But she estimates two-thirds of those who lost their homes were unable to rebuild. “About one-third bought an older home nearby, while another third moved away completely,” she says. “I still have empty plots either side of 0 me.”

The industry believes any inquiries in the wake of this bushfire season offer a chance to reassess taxes and the levy, as was done in Victoria following Black Saturday in 2009. “There is real concern in the community about the level of underinsurance and non-insurance,” National Insurance Brokers Association Chief Executive Dallas Booth says. Mr Booth believes it will be “critically important” for any official inquiry to examine the impact of taxes and charges on insurance, “and the extent to which these taxes and charges are adding to the affordability problems of

insurance cover”. “The Emergency Services Levy in NSW is a major burden being carried by policyholders,” he says. “NSW must follow Victoria and make these long overdue reforms.” NSW, Victoria and South Australia have already announced state-level inquiries into the bushfire season. ICA says inquiries should address levels of underinsurance and non-insurance, “including the effect that state taxes and levies have had on the cost and purchase of household and business policies”.

A taxing issue BAL ratings aren’t the only cause of underinsurance; many people are forced into it by affordability issues. In New South Wales these problems are exacerbated by high levels of tax on insurance and the Emergency Services Levy (ESL). NSW is the only mainland state that still funds emergency services through a levy on insurance. The Insurance Council of Australia (ICA) estimates that taxes account for more than 50% of premiums in the state, and that as a result it’s the worst area in the country for underinsurance and non-insurance.

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A nose for arsonists Australia could follow a US example and train bloodhounds to track down – and deter – people who start fires By Bernice Han

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hile arson hasn’t been a major problem in Australia this fire season, in the US state of West Virginia deliberately lit wildfires in forested areas used to be a very serious issue. Up until 1994, arson-caused fires made up more than half the blazes that broke out every year during the peak wildfire seasons – March to May and October to December. The numbers have since steadily declined to less than half, thanks to the recruitment of bloodhounds, a breed of dog with a legendary reputation for following days-old human scent trails over long distances. Under a novel program started in 1994 by the West Virginia Division of Forestry, its Special Operations and Enforcement Unit has been deploying bloodhounds to hunt down firebugs. A bloodhound has about 300 million scent receptors, making it a million times more sensitive than a human’s nose and also more than any other dog breed. “The reason we utilise bloodhounds is their ability to track and discriminate scents over long and very old distances,” John Bird tells Insurance News. He is West Virginia’s Assistant State Forester, investigator and bloodhound handler, based in Charleston with

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the Division of Forestry. “Our Appalachian demographic is very rural, so it’s hard to find witnesses to arson,” he says. “They won’t tell anyone for fear of getting burnt out, so we had to have something to actually take us to the person behind the fire. “The bloodhounds are such a vital tool in how we investigate – plus it’s a deterrent.” Richard Woods, director of an international wildfire investigation company based in Canberra, believes a similar arson-tracking bloodhound program could work in Australia. He spent a week with Mr Bird in May last year studying the program, and came away hugely impressed. Mr Woods, who is also an adjunct associate lecturer in wildfire investigation with Charles Sturt University in Adelaide, has prepared a paper on the West Virginia program that is about to be published. He attended a testing day where several teams and their bloodhounds were given wildfire case scenarios requiring them to track “suspects” through the scent trails in rural and urban areas. Each bloodhound correctly identified the targets,


Sniffing out trouble: arson experts believe bloodhounds could be part of the solution

even with simulations that required them to work in public areas with heavy human traffic. In one exercise the bloodhound tracked down the right “suspect” who was many miles away in a building located in an industrial area. “The dog knew the specific scent it was after,” Mr Woods tells Insurance News. On another occasion, he was driven to a remote area that had been previously targeted by an arsonist who was tracked down by one of the bloodhounds and later convicted in court. The bloodhound had trekked many miles, following the scent trail, to find the suspect who was at home when he was apprehended. “I think the lesson for Australia is the program should be considered because it gives another opportunity for prevention and detection of arsonists, and it’s been very successful,” Mr Woods says. “The program has been going for more than 20 years. They used to suffer wildfires in the thousands per year and now it’s down to the hundreds. “When it comes to preventing arson there isn’t a silver bullet solution, and this program is not a silver bullet. There is a whole range of strategies that are used to

detect bushfire arsonists and this program is an opportunity to look at a further option.” About 13% of bushfires in Australia are deliberately lit and 37% suspicious, according to the Australian Institute of Criminology. The numbers are based on data collected from 1995 to 2006. A spokesman for the institute tells Insurance News recent statistics are not available. In New South Wales, police say the 2019/2020 bushfire season has so far seen 24 people in the state facing arson charges. In many cases, information from the public has proved crucial in the apprehension of suspects. New technologies have also become assets for fire investigators. Mr Woods says the bloodhound handlers in West Virginia are also experienced fire investigators. “Their ability to interpret a wildfire scene is essential to tracking the arsonists responsible. “As we have seen this summer in Australia, the damage and loss caused through uncontrolled bushfires has had a devastating impact on lives and communities. Any initiatives to reduce bushfire igni0 tions should be considered.”

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Temperature up, profits down Profitability in property classes is set to take a big hit from catastrophes, the latest Barometer research shows By Wendy Pugh

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nsurers’ steady recovery back to underwriting profitability via premium rises wasn’t based on the expectation that the industry would encounter several months of natural catastrophes – hailstorms, bushfires, floods and possibly a cyclone or two before this summer is over. The long list of catastrophes has led to a hasty recalibration of industry profitability and premium rise expectations. The annual JP Morgan and Taylor Fry General Insurance Barometer collected views from underwriters, reinsurers and brokers last year as early bushfires in Queensland and New South Wales were sounding alarm bells for the catastrophe season ahead. Bushfire losses later escalated across the country and insurance losses also rose as large hailstorms pelted Canberra and storms hit parts of Melbourne and Sydney. The Barometer researchers subsequently calculated the catastrophes could have a 15% negative impact on the combined operating ratios of commercial and personal property classes, before reinsurance. For motor the impact could be 3%. Premiums are also likely to rise more than expected as adjustments are made, but for this financial year the greater impact will come from the extent of the losses,

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Taylor Fry Principal and Senior Actuary Kevin Gomes told a briefing on the Barometer. “So 2020 is going to be a very poor year, even though we expect premium rate increases,” he said. Before the disasters, the trend in commercial line premium hardening was set to continue, while improvements were more muted in the personal lines home and motor side of the market. And the report still doesn’t envisage insurers imposing huge rises on consumers – not yet, anyway, and not across the board. JP Morgan Insurance Analyst Siddharth Parameswaran says while commercial lines are likely to post further increases as insurers seek to improve their returns, the catastrophes are unlikely to trigger the sort of personal line price hikes triggered by the cyclone and flooding disasters in 2011. “The pressures are strongest in commercial because we have significant underperformance in property classes,” he says. “This is just another bad event for a class that has been unprofitable for many years.” The scenario in personal lines is more nuanced, with major insurers like IAG and Suncorp being forced to balance their ambitions for greater volumes with the risk of pushing consumers away with price increases, Mr Parameswaran says. The Barometer shows the recent catastrophes in


Australia are part of an upward trend in natural disasters that’s been happening since 2003. Insurers have already been looking at pricing strategies as they adapt to impacts from climate change-induced rising temperatures. Mr Gomes says its unlikely personal lines will escalate across the board following this season’s experience, but with bushfires and other threats there is the prospect of more targeted price rises for specific locations. “There is just a greater need to understand those properties that could be in harm’s way, and those ones would, I suspect, cop the greatest increases.” The potential for price hikes may also be muted by the abundance of reinsurance capacity, with global disaster costs last year well down on 2018 levels and lower than the 10-year trailing average. But there is still likely to be a cost for insurers come reinsurance renewal time. Mr Parameswaran says it has been a good period for reinsurers and they tend to take more than a oneyear view, but aggregate covers designed to protect profit and loss statements are likely to rise quite sharply and natural catastrophe covers will see some gains. “My expectation is that prices will go up for the industry,” he says.

The geographic spread of the bushfires and the rolling nature of outbreaks over several months raises other reinsurance questions that may affect the recovery levels. “It is difficult sometimes to define what is an actual event,” Mr Gomes says. “It is a very real problem that insurers have to face when they are trying to claim against their reinsurance cover, to say ‘how much have I actually lost in this one event, and is it one event or is it many events’.” From a macro-economic perspective the insurance industry has faced pressure from a subdued environment, with unemployment ticking up and gross domestic product growth weaker than normal. JP Morgan economists forecast improvements in growth this calendar year, driven by the housing market, but expect the Reserve Bank of Australia will further cut interest rates to new lows. “A stronger economy should help drive demand for insurance, although low yields will add considerable pressures to products such as workers’ compensation,” Mr Parameswaran says. For the global economy, a “sub-par” start to the year is likely to be followed by a later improvement, and a turn in the insurance cycle is set to become more evident.

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US commercial premiums are rising, European rates are starting to gain and the pace of increases overall is likely to pick up. The Barometer shows that in Australia the overall domestic classes’ combined operating ratio improved significantly between 2016 and 2019, dropping from 90% to 83%. Before the bushfire and hail catastrophes, the ratio was forecast to be 84% this year, with motor expected to improve, home to remain static and compulsory third party to move backwards to more normal levels. For commercial classes, the combined operating ratio increased to 102% last year but was forecast to post a modest improvement to 100% this year, with some improvement in most classes. Survey participants expected premium rate increases over the forecast period to rise strongly for commercial classes, with gains of 10% tracking similar increases last year. A rise of 11% was expected for commercial property, while professional indemnity was expected to increase 14%. Commercial rate gains have accelerated since averaging 2% in 2017 and 2018, but the Barometer says profitability has been “stubbornly poor”

despite the improvements. Domestic class premium rates were expected to increase 2% overall, compared to 4% last year, with compulsory third party dragging down the weighted average. Motor and householders rates were expected to increase 4%. The tougher financial reporting scenario caused by the catastrophes comes as insurers are less able to release reserves built up from previous over-estimations of claims. In recent years that has allowed them to absorb disaster costs without sharp reductions in profitability. “That situation, in our view, has completely changed,” Mr Parameswaran says. In NSW, compulsory third party reforms are likely to limit releases going forward, while changes have also been underway in Queensland. Professional indemnity and public and product liability insurance had significant reserve releases a few years ago, in contrast to little movement more recently. “A noticeable feature of past years is that long-tail classes have been particularly good at hiding overall weaker trends in short tail business, but we think the days of those large releases are nearing an end,” the 0 report says.

Climate change action becomes the industry’s problem Respondents to the latest JP Morgan Taylor Fry General Insurance Barometer have ranked climate change, along with regulation, as their highest priority issue. Other top concerns include customer expectations, with the Hayne royal commission said to be creating a “trust deficit” that needs to be overcome. Technology and cyber, the claims environment and emerging risks are also key issues. Taylor Fry Principal Scott Duncan says survey responses indicate “significant pressure” is being placed on the industry in dealing with climate change, while insurers are also in a unique position when it comes to understanding and communicating the impacts. “Respondents said that politicians are reluctant to address the politically sensitive issue of climate change and the three-year election cycle really doesn’t support longterm action,” he says. “Participants are really calling for a need to consider climate change when it comes to regional and state planning, certainly in terms of land use and construction standards.” A breakdown of natural peril risks since 1967, adjusted for inflation and exposure, shows that cyclones have

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accounted for 30% of costs, hail 21% and bushfires 13%. Typically, heavy rainfall years and those with increased cyclone activity represent the greatest challenge to insurers and are more likely to threaten densely populated areas. But this year’s bushfires will rank with exceptional years that include the Black Saturday and Ash Wednesday catastrophes, which affected some more populous areas, and show the heightened risks from prolonged drought. “It could have been worse from an insured losses perspective, given how dry it has been,” Mr Parameswaran says. IAG research cited in the report suggests three degrees of warming will trigger a 52% increase in Australian natural perils costs. Bushfires are forecast to be more intense and extreme cyclones and thunderstorms to pick up. Mr Parameswaran notes catastrophe costs accelerate in a steepening curve as temperatures rise, and the industry is continuing to look at how to manage the risks over the long term. Insurers are increasing natural perils allowances, and have time to adapt their pricing signals over future years to account for specific loss risks, he says. “All the messages are, the costs are rising.”


New decade, new challenges We surveyed 12 industry leaders for their assessments of the future for insurance in Australia. The result: many hurdles ahead, but also opportunities By Bernice Han

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ore than a year has passed since Commissioner Kenneth Hayne handed his final report to the Federal Government, but anxiety over the impact of his proposals on the industry continues to run deep. An Insurance News 2020 Vision survey has secured detailed responses from a dozen of the most prominent and influential general insurance chief executives in Australia. Respondents were asked to rank key challenges and opportunities, and identify the five most significant changes set to impact the industry, as well as explaining what keeps them awake at night. Regulatory reform and compliance topped the list as the most pressing challenge, with nearly 92% of respondents naming it as the biggest hurdle their businesses must work to overcome this year. Climate change and extreme weather events placed a distant second, with just one respondent listing it as the most worrying issue on his agenda. The prevailing low interest rates environment, competition, staff retention and recruitment, and the state of the global economy were less of a concern, according to the survey. Not a single chief executive viewed

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any of the four potential business risks as their number one or second challenge. That insurance leaders continue to be overwhelmingly consumed with whether their businesses are ready for a Haynescripted regulatory regime should come as no surprise. In the months after receiving the royal commission’s report, the office of Federal Treasurer Josh Frydenberg has been running at a dizzying pace to adopt all 76 of Commissioner Hayne’s proposals to reform the financial services sector, including insurance. The political pressure was ignited the moment the royal commission heard directly from consumers who recounted their experiences of being on the receiving end of unjust, deceptive financial practices. Very few of the travesties that came to light had anything to do with general insurance. Nevertheless, a number of the royal commission’s suggestions, once implemented, will discard long-established rules that have governed the way the industry operates. Insurance contracts, for instance, will have to comply with unfair contract terms laws after Federal Parliament recently

passed the Financial Sector Reform Bill 2019. Claims-handling is another area facing a significant overhaul. It will become a financial service overseen by the Australian Securities and Investments Commission from July, with draft legislation already tabled by Treasury. Suncorp Insurance Chief Executive – and Insurance Council of Australia President – Gary Dransfield sums up what the industry could be in for as the regulatory reforms kick in. “The post-Hayne world is seeking to define what ‘fairness’ for customers looks like in an insurance context, but runs the risk of tilting the scales towards excessive benefits for some individual claimants at the cost of more expensive insurance for everyone,” Mr Dransfield says in his survey response. “The view of what is fair held in certain regulatory and quasi-regulatory domains may be at odds with what the bulk of the insurance-buying public think is fair to all policyholders.” So vexing is the regulatory challenge that a number of respondents believe it will continue to shape the industry in the next five years. A few even admit the matter is giving them sleepless nights.


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“The role of technology and people and the interplay between them will be instrumental.”

Significantly, eight out of the 12 respondents listed increased government involvement in insurance markets as a significant agent of change over the next five years. “The interaction between the different regulatory changes has not been well thought through,” Hollard Insurance Chief Executive Richard Enthoven says. He is one of the respondents who admits to constantly thinking about the challenge of “carefully managing the affordability and availability of insurance given all the regulatory and technical changes the industry is experiencing”. The same goes for Simon Lightbody, the Chief Executive of Steadfast Underwriting Agencies. Allianz Australia Managing Director Richard Feledy says the wellbeing of his staff who are dealing with the regulatory changes is one of several issues causing him concern. PSC Insurance Group’s Chief Executive, Rohan Stewart, also sees no let-up in the regulatory pressure on the industry in the next five years. “Overall governance and compliance framework will continue to tighten around doing the right thing by the client in everything we do,” he predicts. As a result, he says, “ensuring the culture of the business and what makes us different permeates throughout all levels of the organisations” as the business grows at home and abroad. For IAG Chief Executive Australia Mark

Milliner, ensuring the insurer is exceeding customer expectations each and every day is his major concern. He lists regulatory reform and compliance as the leading challenge this year, and believes the industry needs to find a way to manage it alongside other existing tasks. He says that “balancing the triple challenge of business transformation, unprecedented levels of regulatory scrutiny and responding to recent large-scale events” is something the industry needs to address. Insurance House Group Managing Director Jay Fereday highlights positioning his business to stay attuned to customer needs. “Clients have always had the ability to choose who they want to deal with, but how they buy has historically been reasonably limited,” he says. “This will continue to change and so will expectations on the ability to be able to self-serve, research and buy anytime, anywhere.” But it is not entirely gloomy for the industry, despite concerns over how the regulatory reforms will play out eventually. Despite the pressure of regulatory change, the survey findings reveal insurance leaders do see opportunities to strengthen their businesses. About 42% ranked regaining consumer trust as the leading opportunity, and 33% of the respondents, including QBE Australia Pacific Chief Executive Vivek Bhatia, believe

using technology to increase efficiency offers the best prospect. “The role of technology and people and the interplay between them will be instrumental,” Mr Bhatia says. “Our focus is on product simplification with a design centred around customer needs, ensuring it’s delivering value for them and combined with an ease of transacting with us during sales, service and claims.” Bobby Lehane, Chief Executive of strata insurer CHU, also agrees the biggest opportunity will come from using technology to lift productivity. “Artificial intelligence and technologies will continue to transform our business as they have been doing gradually over the past 5-10 years. The rate of that change will continue to accelerate and those who get it right will prosper.” Willis Towers Watson Australia Chief Executive Simon Weaver says moving into new specialist markets will offer the biggest opportunity for his company. It’s an assessment shared by Kurt Nilsen, the Chairman of the Underwriting Agencies Council and Managing Director of Lion Underwriting. While the Hayne reforms offer the greatest challenge, they may also bring huge opportunities as companies rethink the way they deal with their customers. But only time will tell how clear our 0 2020 vision proves to be.

Survey results at a glance Insurance News surveyed 12 leading members of the Australian insurance industry in January. Following is their collated responses.

The biggest challenges for the industry:

The biggest opportunities for companies:

The most significant upcoming changes:

1. Regulatory reform and compliance 2. Climate change and extreme weather events 3. Staff retention and recruitment 4. Competition 5. Global economic environment 6. Low interest rates

1. Increased efficiencies through technology 2. Regaining consumer trust 3. Increased profitability 4. Mergers and acquisitions 5. Moving into specialist new markets 6. Overseas expansion

1. Increased use of artificial intelligence 2. Increased government involvement in insurance markets 3. Increasing levels of risk-rated premiums 4. Brokers more important 5. Simpler policies 6. Reinsurers withdrawing support or imposing tougher conditions

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No quick fix Sloppy work and complacent governments may have caused the construction industry crisis, but Bronwyn Weir says insurers have a big role to play in the renovation job By Bernice Han

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eetings of the Building Ministers’ Forum – which brings together Federal Industry Minister Karen Andrews and her state counterparts – have traditionally been low-key affairs. But the meeting in December was different. The construction industry is in crisis, thanks to insurers’ decision last year to get tough with a sector that many see as having been allowed to operate for far too long in a low-touch regulatory environment. It has resulted in a long list of buildings with serious defects, the most obvious of which is the use of non-compliant flammable cladding on thousands of buildings across the country. The whole sorry mess came to a head in July when UK-based insurer Landmark Underwriting, which had been providing Australia’s certifiers, surveyors and other building practitioners with restriction-free indemnity policies, bailed out of the market. The Landmark withdrawal brought to the forefront the scale of the defect issues in the construction industry. So serious are the problems that the remaining insurers offering professional indemnity (PI) cover for building professionals have taken a tough line. They have applied broad exclusions along with huge excesses and higher premiums, in

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many cases up more than 500%. In recent months they have also declined to provide indemnity cover for many types of commercial buildings, domestic swimming pools, wind farms and solar farms. The insurers’ actions caught the construction industry – and the Building Ministers Forum – napping. Having sat for a year on a report, Building Confidence, which was compiled by former senior bureaucrat Peter Shergold and industry regulation expert Bronwyn Weir, the ministers hastily dusted it off and agreed to support its key recommendations (see panel page 30). They also agreed to pursue further talks to remedy the crisis brought on by the insurers’ refusal to provide construction professionals with exemption-free PI cover, despite such policies being a requirement of their operating licences. The insurers’ stand is significant, because it has brought to the surface the many failings of the construction industry, the country’s third-biggest sector with an 8% share of GDP and annual revenues in excess of $350 billion. The ministers will meet with insurers soon to sort out the PI imbroglio. They said after the December meeting that their consultations with the Insurance Council of Australia (ICA) will “discuss a suite of

measures to reduce the cost and improve the availability” of PI to building practitioners. Their communique also acknowledged “there is more to be done” on top of what has already been promised over the course of last year as the building crisis deepened, when worsening wall cracks in the 132-unit Mascot Towers complex in Sydney forced residents out. Six months earlier, safety fears over structural defects in another Sydney building, Opal Towers, triggered a similar evacuation on Christmas Eve. Predictably, the idea of more talks and pledges to press on with the task of repairing the problem-plagued construction industry have not gone down well with the stakeholders, many of whom have voiced frustrations with the governments’ approach to the insurance issue. But Ms Weir sees it differently. She says it’s time to stop the cycle of negative talking and instead to be encouraged by what she believes is an “awful lot of momentum at the moment” to reform the industry. That the ministers plan to continue engaging with the insurers and other industry groups down the road should be seen as a positive, she tells Insurance News. “It’s good to keep talking about it and working through the issues,” she says in reference to the December communique


Systemic problem: Bronwyn Weir says the building defects blame game must stop

from the ministers. “I expect the communique reflects a much deeper discussion that was had by the ministers, so they must have particular things they want to raise [with the insurers] that they think can advance the discussion. I think they do need to keep talking.” Ms Weir, a lawyer who now runs her own consultancy specialising in regulatory matters, prefers not to comment on the scale of the defects problem or give her views on what interim measures should be taken to deal with the fallout of the insurance restrictions. She says the tendency to put the blame on governments for the building industry crisis is not at all constructive, and warns that the torrent of criticism being directed at governments by construction industry bodies is counter-productive. She says the criticism suggests that many practitioners may be intent on clinging to ways of doing things that have, directly or indirectly, contributed to the crisis. “It makes me very cross,” she tells Insurance News. “It’s one thing to blame others and often it’s governments. There has been a systemic failure, and that means failures right through the system, including failures by industry and the insurance market. “A lot of the problems have arisen from

common practices that have been palpably wrong. There needs to be an acceptance of responsibility and the need to change. It’s everyone’s fault. “I think a lot of the blame game and ‘we did nothing wrong’ claims have to swiftly end. All it does is weigh us down into conversations that are backward-looking. “It’s really hard to accept that people are committed to solutions and change if they are busy saying they haven’t done anything wrong. I’d like to see a lot more positive and constructive solutions-based discussions.” The Australian Institute of Building Surveyors (AIBS) and New South Wales peak body, the Association of Accredited Certifiers, are among the trade groups that have been vigorously pushing for more action and less talking. In particular, they want immediate government measures to end the PI chaos that has left their members reeling and staring at the prospect of financial ruin. The AIBS, for example, has flagged the idea of some sort of government intervention in the form of a support program or package to ensure PI insurance is available and viable for its members. Ms Weir says the “incredibly distressing” insurance situation has been extremely challenging for surveyors and other

practitioners in the building industry chain. Fixing the insurance crisis will “to some extent” require a degree of regulatory reform, but she warns that alone will not be enough. It will not deliver the kind of sustainable changes that will hopefully avoid a repeat of the PI saga. She says the insurance industry has “a huge influence” over the eventual outcome of the crisis. And the way insurers have chosen to respond to the building industry crisis by restricting cover leaves her unimpressed. “The impact insurers are having on the industry is profound,” she says. The massive premium increases, reduced maximum cover amounts, broad exclusion clauses and huge excesses forced on building consultants have left them with a “PI product that is severely compromised and unaffordable”. Many surveyors and other industry specialists Insurance News has spoken to say that having a clean claims record didn’t matter during renewal negotiations. “I’m not sure what else the insurers could throw at the problem,” Ms Weir says. “If the prices had gone up but the cover remained broad it might be worth paying for, but that’s not what has happened. “So I think they are whacking this industry in every way possible without leaving

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the market. I’m not sure that that is helpful, as it will lead to increased insolvencies and good people leaving the sector, which will increase skills shortages.” The insurance industry’s usual response to such situations is that it is at the end of the risk management process. They provide insurance cover at a price that is tied to the level of risk being transferred to them, and the building industry has to shoulder much of the responsibility for what has happened. But Ms Weir is not persuaded by this argument. She says the under-pricing of PI products in the years before the insurance crisis blew up is an example of insurers not doing their job to properly understand the risks. “I would hate to have any sort of suggestion that I’m saying they’re responsible for this situation in its entirety, but I do think that they certainly had a role in all of this. “If they haven’t been pricing correctly or haven’t been aware of the risk and they’re now saying that they are not carrying enough money to meet these claims, then that is not something that the building industry should have to now shoulder.” ICA has outlined an action list that could be implemented by governments

to break the PI impasse. The list includes implementation of all 24 proposals made in the Building Confidence report co-written by Ms Weir and a national approach to tackle the presence of dangerous cladding materials in high-rise blocks. Even so, these reforms will take time to deliver the intended outcomes, Ms Weir says. The Building Ministers’ Forum meeting in July last year agreed to a national approach to adopt the 24 suggestions that are aimed at improving compliance and enforcement nationally. “Developing legislative reforms and having them passed by governments is not a five-minute job. Even if it were, shifting the industry is not an overnight thing. It’s almost like the insurance industry is saying ‘go off and do that’, but at what point will they consider that has been done? Because it’s not going to be anytime soon.” The report presented in 2018 called for a three-year period for the reforms to be rolled out. “Insurers need to be part of the solution. I’d like to see them willing to find ways to assess the risk of practitioners and price accordingly rather than having an indiscriminate and crippling effect on the

industry.” Contrary to the widespread perception that governments are taking too long to reform the building sector, Ms Weir believes otherwise. “Several jurisdictions have been making reforms related to cladding audits and consumer protection issues. “While these reforms were not within the terms of reference for the Building Confidence report, they are important responses to address public safety and financial impact. “I believe there has also been an increase in regulatory activity by some governments, so my sense is that some governments are using their existing laws to regulate more effectively and oversee the industry. “A lot more needs to be done, and it would be ambitious to say that the problems have gone away. “However, while regulatory reform is an essential part of the solution and this has not fully occurred yet, the messages have been heard and I believe parts of the industry and governments are reacting to improve outcomes.” In the meantime, she says, the engagement process has to continue. “We need to 0 help keep the momentum going.”

The blueprint for improving building standards In 2017 the Building Ministers’ Forum commissioned experienced lawyer Bronwyn Weir and former senior public servant Peter Shergold to independently assess the broader compliance and enforcement problems in the construction industry. The following year they presented the Building Confidence report to the ministers, tabling 24 recommendations to strengthen the National Construction Code. The proposals cover such areas as registration and training of practitioners, roles and responsibilities of regulators, role of fire authorities, integrity of private building surveyors and the importance of inspection regimes.

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Some of the key proposals: • Registration of building practitioners involved in the design, construction and maintenance of buildings. Practitioners include surveyors, site managers, architects, engineers, plumbers and draftspersons • Practitioners must undertake compulsory continuing professional development on the National Construction Code • Regulators be given a broad suite of powers to monitor buildings and building work, and if necessary take strong compliance and enforcement action • Developers, architects, builders, engineers and building surveyors must engage with fire authorities as part of the design process

• •

Minimum statutory controls to mitigate conflicts of interest and increase transparency of the engagement and responsibilities of private building surveyors Jurisdictions have in place a code of conduct for building surveyors Establishment of a compulsory product certification system for high-risk building products Building approval documentation for practitioners to demonstrate the proposed structure complies with the National Construction Code Set up a building information database that provides a centralised source of building design and construction documentation.


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An answer in the archives A buried proposal to solve flood cover problems could provide a cyclone region blueprint as the Government looks again at a reinsurance pool By Wendy Pugh

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ssistant Treasurer Michael Sukkar may find it useful to look into the filing cabinet for inspiration after reviving a discussion about a reinsurance pool to solve north Queensland’s insurance affordability problems. In 2011 rainfall of Biblical proportions and water releases from the Wivenhoe and Somerset dams inundated homes near the Brisbane River, highlighting the fact that most people did not have flood insurance in their policies and were confused about the cover they did have. The Federal Government launched an inquiry, chaired by John Trowbridge and panel members Jim Minto and John Berrill. The resulting Natural Disaster Insurance Review report was delivered to then-Assistant Treasurer Bill Shorten in September 2011. The report recommended establishing an agency to “for the first time bring together flood risk management and insurance in a manner designed to ensure the availability and affordability of flood insurance to all insured Australians”. The agency was envisaged as a driver of mitigation and affordability measures and would oversee a system of premium discounts linked to a government-backed reinsurance pool. “Our report was pretty ground-breaking,” Mr Berrill tells Insurance News. “It was the first time that it had been run up the flagpole that there should be anything like a

reinsurance facility in Australia for anything other than terrorism.” Various report recommendations were adopted, but the pool and discount proposal was resisted by the insurance industry and, like so many government studies and reports, left to gather dust. Much has changed since the 2011 report, while some familiar insurance issues persist. Flood cover is now widely available and a definition was agreed to ease confusion. But that didn’t really do much to ease insurance affordability frustrations in cyclone-prone parts of the country. “As much as the Government didn’t accept our reinsurance premium pool idea, periodically the issue of affordability gets raised, and it gets ramped up as premiums get higher and higher,” Mr Berrill says. “The idea of a reinsurance pool is getting some oxygen again, and interestingly it is coming from the Government.” The issue came to the fore early last year after devastating monsoonal flooding hit Townsville and was still generating political heat when Mr Sukkar met insurers and community representatives in November. The Insurance Council of Australia (ICA), which has long been opposed to the pool concept, agreed to support a Treasury-led effort to again explore the feasibility of a government-underwritten cyclone reinsurance facility. ICA members have mostly been united against a pool, with the exception of Allianz.

But IAG Managing Director Peter Harmer agreed at the November meeting that there’s merit in the idea and it deserves a further look. Mr Berrill says the 2011 Natural Disaster Insurance Review Inquiry into Flood Insurance and Related Matters remains relevant to the discussion. Flood was the front and centre issue in that report, but it touched on rising premiums in cyclone-prone areas and flagged the possible extension of its solutions for availability and affordability problems. The panel wanted all home building policies to include flood cover, but realised that if premiums then soared in high-risk areas, the people most exposed might drop insurance altogether. Any solution needed to keep people insured, while retaining price signals for risky areas and ensuring incentives for mitigation and building in safer locations remained. As a result, the review proposed a model of discounts assessed with reference to an “affordability threshold” for the flood component of the premium. Insurers would retain and price a portion of the risk, with the remainder to be ceded to the pool at a discounted reinsurance premium. Rates should still reflect relative risk exposures, only existing properties would be eligible for discounts, and assistance limits would apply for high-value homes where property owners have greater financial resources. Homes without risk would not pay

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a flood premium and there would be no cross-subsidisation. The reinsurance pool would enable insurers to deliver discounts without compromising underwriting commercial soundness and would preserve relationships with customers for writing and renewing policies and managing claims. Losses from smaller events would be completely covered by the private sector, limiting the need to call on the reinsurance pool to larger incidents. “Delivering discounts through this mechanism would effectively subsidise claims rather than premiums,” the report says. The premium charged to the policyholder would be the sum of the insurer’s own price for the portion of the risk it retained and the premium the insurer paid to the pool, plus taxes and charges. “The premium charged by the pool to the insurer would be transparent to the policyholder and, where the premium the insurer pays to the pool is discounted, the policyholder would be informed of the level of the discount,” the report says. Insurers could also use the pool for policies that weren’t eligible for a flood affordability discount. “Insurers would use it whenever they liked its prices, but would not use it for good risks that they could underwrite themselves at lower prices. In this way it would enable insurers to limit their own exposure to flood risks and thereby provide capacity to the insurance market,” the report says.

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The review panel proposed the discounts could be phased out gradually, with people adjusting to their risk exposure and pricing signals, although that could take up to 20 years in the case of the larger premium discounts. Some homeowners would be able to reduce their risk through property improvements or relocating; while others would have time to make financial adjustments. The report also envisaged separate mitigation and government action for homes at extreme risk to avoid unnecessarily exposing the reinsurance facility. The Federal Government would stand as guarantor for the pool, and in the case of any shortfall the state or territory where an event occurred would be called upon to contribute. “The relevant state would still be on the hook to some extent, providing incentives for that state to be heavily involved in mitigation works and so on,” Mr Berrill says. Overall, the report aimed for an integrated approach to availability, affordability, mitigation and planning, with the whole overseen by the proposed new agency. Various pool approaches have been examined several times since then as the focus has shifted to affordability in cyclone-battered north Queensland, but the various reports commissioned by the Government have been at best lukewarm about introducing a new element of government backing. The 2015 Northern Australia Insurance

Premiums Taskforce report says mitigation is the only way to reduce premiums on a sustainable basis, while the shortcomings of a reinsurance pool include the cost to government and the difficulty of ever weaning a community off subsidised insurance arrangements. Last year’s Australian Competition and Consumer Commission’s (ACCC) Northern Australia Insurance Inquiry second interim report also rejected the concept of a pool. Other countries have introduced pools after the private market baulked at risks, whereas insurance and reinsurance is still available for north Queensland, the ACCC says. The regulator also maintains there are better options to address affordability in a targeted way, while the costs of a government pool are difficult to estimate with a high level of certainty. Mr Berrill says people worrying about government involvement tend to overlook the fact that taxpayers are already footing hefty bills for disasters. “I think everyone is a bit spooked by the idea of the Government underwriting the risk, but when you get a disaster, the Government sets up emergency programs anyway, and it costs a motza,” he tells Insurance News. “That is why our review was set up in the first place. The Government said, ‘this is not good public policy for us to be simply handing out big wads of money every time there is a disaster. We need to see whether this can be dealt with in the


insurance market’.” The flood insurance review touched on problems in Far North Queensland, noting premiums gains following Cyclone Yasi and accepting “prima facie” an affordability issue. The panel did not have the means or the time to investigate fully the causes of cyclone-zone price increases, but recommended an investigation to see whether affordability discounts, along the lines of the proposed flood insurance plan, should be granted for homes and units in northern Australia. “When we went to Cairns to interview people, they said the market was shrinking – and that was in 2011,” Mr Berrill says. “It has gone south, not north since then, I would have thought. “The market hasn’t completely collapsed, in that there are still some insurers. But as insurers flee – and it is a shrinking group – the price pressure is not there and it affects affordability.” In November Mr Sukkar told reporters after meeting with the insurers in Townsville that the number one goal was to reduce premiums and increase availability of coverage in the region. “People are sick of reviews and committees and reports – this sort of endless cycle of navel-gazing at the issue.” Nevertheless, another review of reinsurance pools is underway, and the 2011 report’s proposals are still 0 there for consideration.

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Allianz: a pool is the best way to fix affordability By Nicholas Scofield, Chief Corporate Affairs Officer, Allianz Australia If large numbers of Australian homeowners cannot afford property insurance due to their exposure to natural peril risk, not only do they have problems, so does the insurance industry. Apart from our inability to offer affordable protection to the whole community (which it can reasonably expect), one of those problems is the risk of ill-considered government intervention. In Allianz’s view the insurance affordability issues faced by some homeowners in north Queensland, which materialised after 2011’s Cyclone Yasi makes government intervention inevitable, more so after further premium increases and restrictions on cover following the February 2019 Townsville flood. Allianz strongly supports intervention to reduce premiums in the form of government-funded mitigation, both public (for example flood levies) and private (that is, at the property level). However, mitigation alone cannot address all North Queensland homeowners’ insurance affordability issues, at least

in the short to medium term. Queensland Government stamp duty on property insurance should be abolished, but that would only provide relief of around 10% and inflationary premium increases would wipe out any benefit in a few years. Only intervention that directly reduces those home insurance premiums that the community regards as unacceptably high can solve the affordability problem. There are different measures a federal government could use to address affordability concerns. These include mandated community rating and direct premium subsidies (for example, income tax rebates) as occurs in CTP and/or private health insurance. However, Allianz believes the consequential regulation of property insurance covers and premiums that would inevitably follow would be highly disruptive and detrimental to insurance markets. Of the different forms intervention could take to address affordability issues driven by cyclone risk, Allianz’s view is that a

government-backed reinsurance facility, funded out of consolidated revenue, would be the least worst, as well as the most effective, efficient and least disruptive to insurance markets. In terms of effectiveness, the cost of cyclone reinsurance can comprise more than one-third of the pre-tax home insurance premium for a house located in coastal north Queensland. Reducing or eliminating this cost could reduce some policyholders’ premiums by up to 50%. To reduce the impact on commercial property insurance premiums from the lack of access to and/or the high cost of terrorism reinsurance, the Australian Reinsurance Pool Corporation (ARPC) has proved to be an efficient and effective mechanism, and has had no discernible disruptive impacts on the commercial property insurance market. A cyclone reinsurance pool established under the ARPC architecture could be expected to work just as effectively and efficiently.

Suncorp: why mitigation is the best answer By Darren O’Connell, Executive General Manager, Insurance Portfolio and Products, Suncorp It’s important to start by acknowledging that insurance in northern Australia is expensive and a significant cost of living pressure. However, unless we change the underlying risks that drive the high prices, anything else will be a band-aid solution. Put simply, insurers, government and individual homeowners all have a role to play in lowering the risks so that insurers can lower the price. Instead of investing in practical solutions that can make a difference right now, we continue to investigate, again and again, a reinsurance pool. The ACCC and APRA have both recently explored if this is the right solution, and have landed on the same answer – no. As northern Australia’s largest insurer, we’ve spent the past 100 years understanding insurance in the region and supporting countless people and communities recovering from devastating natural disasters. We are acutely aware and uniquely placed to understand the

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importance of insurance for individuals, businesses and communities in the north. While we remain unconvinced that a reinsurance pool will work, we have committed to constructively working with the Government and industry on this. It would be complex and difficult to design, and potentially very costly for all Australian taxpayers without a clear exit strategy. Let’s not forget a reinsurance pool can only achieve a significant reduction in premiums by providing a subsidy, which will dilute the price signal. It does nothing to reduce the emotional and physical toll on people and communities that will be affected by the inevitable cyclones, floods and fires. A reinsurance pool does nothing for this heartbreak. Any action must address the main driver of high home and contents insurance premiums in the region – the physical impact on homes due to the increasing severity of natural disasters both now and in a changing climate.

We can build a more resilient northern Australia by improving building standards for all natural hazards, limiting the construction of new homes in floodplains and high-risk bushfire zones, vegetation management and building flood levees where needed. We also need to encourage and reward homeowners for protecting themselves, including with cyclone resilience measures like window shutters, reinforcing garage doors, and re-roofing non-cyclone rated homes. These are proven to go a long way to reducing the risk, and in turn lowering insurance premiums. Suncorp may sound like a broken record on the need for more focus on mitigation and resilience, but that’s because it works. This has been proven in Roma and other towns following the construction of flood levees, and for homeowners in north Queensland who have strengthened their homes against cyclone impacts through our Cyclone Resilience Benefit. Lower the risk, lower the price.


Regional smarts Adroit has spread its wings after starting as a small country brokerage, and Fabian Pasquini sees plenty of opportunity ahead By Wendy Pugh

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abian Pasquini has traded in the corporate frequent flyer commute between Australia’s largest cities for a role where the rubber hits the road in regional communities. Executive positions at AUB Group over two decades meant countless trips between his Melbourne home, the Sydney head office and member companies around the country. But time spent as regional operations manager representing Austbrokers on the boards of partner firms, including Geelong-based Adroit, also opened the doorway to his current role. Mr Pasquini became Adroit Insurance & Risk Managing Director in December 2018 after putting up his hand to lead a business he was familiar with from an arms-length perspective. “There was a change in shareholding at Adroit and it required a new MD and I got challenged by the guy in the mirror, at the tender age of mid-50s,” he tells Insurance News. “I’d had many years working as a non-executive director and, I believe, adding value to a number of businesses, but I had never had the coal-face opportunity to be part of the leadership of a business like this.” Mr Pasquini has worked in insurance since he was 18, after following his brother into the industry. He was a motor claims clerk for Federation Insurance, worked as a broker and held management positions with NZI Insurance, which became part of CGU. Recent roles at Austbrokers and AUB have included chief distribution officer and acquisitions and mergers general manager. Since joining Adroit he has focused on understanding the business, its clients and their local communities at a deeper level as he moves to set priorities for the future. “In my previous role, there I was, QF410, seven o’clock, up to the big smoke in Sydney three days a week, and I think at times we lose sight of the real Australia. One of the attractions for me was that Adroit was regionally based. “This business is steeped in the strong DNA of

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community involvement, is strongly values-based and is a little bit different to a normal broking business in many ways.” Adroit’s roots date back to 1978 when it started as Verrell Insurance Brokers in Geelong. AUB took up a shareholding during the 1990s and the brokerage has expanded its regional footprint to include branches in Albury, Ballarat, Bendigo, Maryborough, Drouin, Hawthorn (Melbourne), Traralgon (Gippsland) and Torquay. Geelong Mayor Bruce Harwood cut the ribbon on a new head office in the city last September and Adroit is this year celebrating the 20th anniversary of its formation. The owner-driver strategy AUB favours for its broker network is reflected within the Adroit group as it has partnered with principals, while avoiding a “cookie-cutter” template to arrangements. “AUB is a majority shareholder in the business, and it works in partnership with us to ensure we maintain that ‘skin in the game’ structure, because our experience shows us that structure provides the best results,” Mr Pasquini says. Adroit has more than 25,000 clients, transacts close to 60,000 policies annually and handles some $120 million in gross written premium. The group’s scale allows it to have business services teams in human resources, marketing, finance, IT and learning and development, and it has a claims handling joint venture arrangement with Austbrokers Countrywide. Mr Pasquini says Adroit has expertise in such areas as professional indemnity and trade credit that can be tapped by advisers, giving them an advantage relative to competitors as they work with a diverse client base. The business assists firms with workers’ compensation and has a strong income stream in life insurance. Looking ahead, the focus is on ensuring Adroit maintains and builds strong relationships with clients as a trusted risk adviser, while the group will also expand and offer additional value through further partnerships and joint ventures.


Identifying opportunities: Adroit’s Fabian Pasquini

Mr Pasquini says opportunities could emerge from interstate and from various sectors, industries or specialisations. Adroit has a track record in joint ventures, including with a national rural products distributor, and he sees advantages in potentially working with accountants, credit unions and other groups that may also be looking to maximise their services. Adroit’s portfolio ranges from retail customers to listed companies. It has a specialty in bus lines, is an associate member of Bus Association Victoria, and an adviser for other associations including hardware and retailing groups. “We have to be trusted insurance advisers to the local business in Ballarat, to the farmer at the farm gate and then the home owner who comes to the counter at our businesses,” Mr Pasquini says. “It amazes me that people still love coming into the office and seeing us face-to-face and paying cash.” Financial firms in general are facing greater scrutiny over their responsibilities to customers following the Hayne royal commission. Regulators, stung by criticism during the inquiry, are escalating their activity and new legislation is coming into effect. Mr Pasquini says Adroit has the resources to effectively manage changes in regulatory regimes and can access expertise within AUB without needing to reinvent the wheel. “We are often in contact with the subject matter experts at AUB on compliance changes and regulatory changes,” he says. And he says that more generally, there is much to welcome for Adroit in the royal commission’s focus on customers, because brokers are well placed to show their worth through relationships with clients. “I think it will ensure that we need to tangibly demonstrate our value, and that’s good,” he says. “Our change from transactional commoditised broker to actual insurance and risk adviser dovetails into that philosophy extremely well.” Nevertheless, the broking sector has been caught up in some less welcome royal commission fallout.

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Building relationships: Adroit has a community culture

Insurers have been focused on tidying up internal operations, and Mr Pasquini says some of the findings have been used as a justification for unwarranted proposals to force change on the insurer-broker relationship. “Maybe some of the players in the industry need to remember that the findings of the royal commission had nothing to do with brokers,” he says. “I think the broking industry is super-professional.” The Hayne inquiry recommendations have also seen brokers caught up in a follow-up review of remuneration arrangements, sparked by concerns over intermediary commissions in other areas of financial services. The review is proposed for the second half of next year. “We do a lot of work for the insurers,” Mr Pasquini says. “If we weren’t doing the work at the coal-face, insurers would have to invest substantial dollars, far more than they are paying in commissions, to provide an infrastructure to service the client to the degree that the broking fraternity does. “We shouldn’t be embarrassed, and we’re not, to sit in front of a client and say we earn a commission out of this process, and here is the fee that we charge as an administration fee on top.” Currently, the firming market is also front of mind in relationships between clients, brokers and insurers, with brokers sometimes having to work much harder to ensure the best result, whether through a renewal or with a different underwriter. “The hardening market and the increased rates don’t faze us. If it’s fair and reasonable we will work no differently to the way we always have in the past, in terms of ensuring our clients’ best interests are front of mind and foremost. “I think the difficulty comes into play if there’s no commerciality, or illogical thinking around the process.” Nevertheless, Adroit’s expertise, partnerships with

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insurers and the gravitas it holds more broadly, gives it an advantage over some competitors, he says. Disasters such as the summer bushfires highlight the ability of the industry to collectively respond to client needs and help businesses recover, and Mr Pasquini says the contribution from insurance in providing capital to help communities recover is often under-recognised by the broader public and mass media. Adroit’s aim after any loss is to ensure clients are returned to a position that is either the same as or better than before, and the groundwork for achieving successful outcomes is underpinned by the strength of relationships with clients and insurers. “We immerse ourselves in our clients’ businesses in partnership with them to really understand where they have come from, where they are at today and where they are going to in the future,” Mr Pasquini says. “One of our biggest discussions with our clients is, ‘where are you heading in this next three to five years?’ It’s not just a cursory two sentences, it’s ‘let me really understand’.” Examples of going the extra mile have included development of a piggeries infectious diseases cover, placed in the London market after much hard work. Mr Pasquini says the depth of expertise, talent and “smarts” in regional businesses is often overlooked in the office towers of Sydney and Melbourne, but there are many examples, and working with such clients is a rewarding part of his role at Adroit. “We have got one of the biggest tourism operators in Australia as a client, and if you want to talk about processes, systems, risk management business continuity, just go and sit with them. They would show up many Collins Street professionals. “There is real richness and depth and genuineness in people, clients and businesses in regional cen0 tres in Australia.”


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Mind the gap Australia’s terrorism reinsurance pool still excludes cyber, leaving the nation potentially exposed By John Deex

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ext month the Australian Reinsurance Pool Corporation (ARPC) will publish a major piece of research on cyber terrorism. Developed in conjunction with the Organisation for Economic Cooperation and Development (OECD) and the University of Cambridge’s Centre for Risk Studies at the Judge Business School, the study aims to identify current and prospective threats. It also explores the practicalities of extending insurance coverage in Australia to include cyber terrorism – because currently the ARPC scheme wouldn’t respond. The way the scheme works today is relatively simple. Following the events of September 11, 2001, commercial insurers in Australia and around the world introduced terrorism exclusions. But, under Australia’s Terrorism Insurance Act 2003, when a terrorism event is declared these exclusions are removed and insurers must pay the claims. Insurers can self-insure for this eventuality, arrange their own reinsurance, or

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transfer their liability to the ARPC scheme. The vast majority – about 99% – use the ARPC. The scheme covers biological and chemical terror attacks, but – in line with global industry practice – not nuclear. And, currently, not cyber either. “If there was a cyber terrorism incident, we have an exclusion in our scheme for computer crime which we believe would exclude the cover,” ARPC Chief Executive Christopher Wallace tells Insurance News. “An example would be a building control system that has been interfered with, which causes a fire, and the fire damages the building. In that scenario the cause of the loss is computer crime, which would result in the scheme not responding.” Other schemes around the world do include cyber cover, and the ARPC has consistently flagged the potential gap. But the most recent review by the Federal Treasury, carried out every three years, declined to expand the scheme. “Treasury looked at this issue as part

of the 2018 review and recommended that more time was needed to understand whether the market would develop to cover the risk,” Dr Wallace says. “We’ve been doing some research on what the possible scenarios are, how big losses could be, and how are they covered in insurance policies. “Many of the cyber policies that are emerging in the market do provide a small amount of cover for physical damage but often it has a very small sub-limit. “That means there is only a very small percentage of cover available for those large commercial assets.” ARPC is hosting a cyber terrorism stakeholder seminar on March 18 at NSW Parliament House, and the study’s findings will be published at this event. Dr Wallace hopes the research will ensure that the issue is considered again. “I’m hoping that the research we have done on cyber terrorism will help inform the next triennial review, so we can look again at how insurance policies are


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developing, and how this risk is being covered internationally. “It’s a real issue for business. We need to modernise the scheme to reflect the current risk environment and the way policies currently operate in the market.” The cyber research is not the only major piece of work ARPC has undertaken recently. It’s working with Standards Australia to develop a handbook for business on physical protective security for buildings. The handbook covers malicious attacks, criminal attacks, and also terrorism. It’s at an advanced stage and should be published in draft early next year. “It will be the first in the world in terms of a codified set of guidelines around risk mitigation for malicious physical attacks.” Dr Wallace was recently appointed President of the International Forum for Terrorism Risk (Re)Insurance Pools. It’s a role that will provide increased insights into similar schemes and industry challenges across the globe. As the forum’s President, Dr Wallace will

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“The most likely attack is an unsophisticated attack causing injury or harm. But a large, complex asset-based event is still a possibility.”

Pushing for cyber cover: ARPC’s Christopher Wallace

take a leading role in preparing for the annual conference, set for June 3 in Washington DC. “ARPC already participates in the forum and it’s a real privilege to be asked to chair it,” he says. “There are many issues around the nature of the risk that are quite global, including use of drones, biochemical risks, defining war, terror and crime. There is a lack of clear definitions internationally around the difference between war, terrorism and crime. “In the cyber space, we are seeing a trend emerging of hybrid attacks where it is unclear whether it is a nation state, or a criminal group, or a terrorist group. There is work going on at the moment trying to clarify the definitions at an international level.”

ARPC is a world leader in modelling, and regularly revisits what a maximum loss event in Australia could look like. “We are confident that we can cover two significant loss events, which we think is adequate,” Dr Wallace says. “Nuclear and radiological has always been excluded from our scheme. Most policies exclude it straight up, anyway. If there was an event of that magnitude it would be society-changing, and the community would have to decide at the time how it might respond.” ARPC keeps a close eye on the evolving terrorist threat, from which Australia is far from immune. Since 2014 there have been seven terrorism incidents in this country, with one declared for the purposes of the legislation governing the scheme. There have been 17

attacks foiled during the same period. “We get a daily feed from public sources and we do connect with government on the risk as well,” Dr Wallace says. “There is a lot of mitigation going on to keep the community safe, and the risk is real. “The most likely attack is an unsophisticated attack causing injury or harm. But a large, complex asset-based event is still a possibility. “If you look at the long-term global experience you do see big events over 10-15 year cycles. They can be anywhere in the world, and Australia is not immune from that. “I’m very grateful that we have not had a significant event. It is good for us as a community and I hope that we don’t ever have to confront that. 0 “But it could happen.”

that transfer of risk. We wrote $204 million in premium income last year, with more than 220 ceding insurers in the pool.” ARPC’s retrocession program is in the process of being renewed, and it hopes to reduce its deductible and increase coverage by $100 million. “That will mean that the reinsurance program which is being placed back into the private market will provide capacity of $3.45 billion as part of our whole funding ability.” Dr Wallace says the last Treasury review, plus a performance audit by the Australian National Audit Office, have shown ARPC to be “efficient and effective” and also necessary.

“[Treasury] spent quite a bit of time talking to stakeholders. That review confirmed that there was a need for the scheme to continue,” he says. “Insurers and reinsurers provided feedback that if the scheme didn’t exist then [the potential for] market failure would be exacerbated. The report shows really strong stakeholder support for what the scheme is trying to do. “These two external reviews have been very thorough, and shown us to be in a strong position. I’m very proud of the ARPC team for the outcomes that the organisation has achieved.”

Necessary backstop The ARPC was never intended to be a permanent solution, but there’s no doubt that it’s role remains a crucial one. Under Dr Wallace’s leadership the scheme remains strong, with net assets of $461 million, a retrocession reinsurance program, and also the Commonwealth Guarantee. Added together these give the ability to fund up to $13.6 billion of losses. “The Terrorism Insurance Act specifies in the legislation that an insurer that is insuring with ARPC transfers their full liability to us above their deductible,” Dr Wallace says. “For insurers it is a very strong financial support. There is complete certainty in terms of

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Crawford embraces change The insurance sector is changing — we interviewed Tim Jarman, President of Crawford Australia, to gain an insight into how Crawford is adapting to the change. He opened by saying “We must both lead it and be agile enough to adapt and respond to this change. Meeting the challenges associated with this evolutionary phase requires an unwavering commitment to the execution of our strategy”. “On an annual basis, Crawford leaders from around the globe come together to analyse and refine the corporate strategy. This year the theme was “Own it, Do it,” which embodies our commitment to total accountability as we execute on our strategy. Attendees worked collaboratively to brainstorm solutions to anticipated challenges. We determined that attracting and retaining the best people and using innovative technology as a vehicle to lift the overall value proposition for our clients are two key pillars of that strategy.” “For me, the event was hugely motivating. I felt proud to be amongst other leaders who share my passion to reach the next level of client centricity and develop an obsession in everything we do — customer service, technical excellence, training, digital development, fiscal responsibility and building an engaged, diverse and motivated workforce. I would like to share some of the detail with you.”

THE DIGITAL CLAIMS ROUTE The customer journey through the claims

management lifecycle is ripe for innovation. A multi-phase process from first notification of loss through to final settlement, the multiple human touchpoints and considerable administration demands would suggest the potential for disruption is significant. Yet it is not as simple as inserting technology to relieve pressure on overloaded segments or targeting innovation at specific bottlenecks. As Jarman explains. “Fundamentally, it’s about understanding how technology changes the claims process for the customer,” he says. “You can’t simply force a customer to go down a particular technological route; you have to work out how that innovation best enables their ideal claims experience – and that means giving them choice.”

MAPPING THE DIGITAL ROAD AHEAD For Crawford, ensuring that level of choice and offering the range of technologies to ensure no customer has to adopt a ‘one-size-fits-all’ solution, has required an approach that goes far beyond simply bolting new tools and systems onto existing platforms. “To ensure we deliver that diversity of claims experience,” Jarman states, “I want my team to first take a step back from the frontline to examine the operating platforms that support the claims process. By advancing the underlying architecture, we are evolving our infrastructure to support the integration of more agile field tools, enabling the collection of claims data in

a structured and consistent manner for improved analysis and allowing for greater self-service options for the customer.” A core component of this is creating an infrastructure across Crawford which enables us to respond effectively to the ever-changing and rapidly expanding needs of our clients and the broader market. “By harnessing data effectively, analysing it quickly and delivering that insight direct to our clients, we’re establishing a much more strategic relationship where we can use loss data and wider market trend information to support broader risk appetite decisions.”

ON THE GROUND TECHNOLOGY At a more granular level, innovative technologies are helping Crawford enhance efficiency, boost productivity and deliver a more effective claims response for both the client and customer. “We’re using a range of technologies to enhance multiple aspects of our claims response,” Jarman continues. “For example, we have robotic process automation (RPA) to speed up the claims process, reducing the administrative burden while increasing data accuracy for more standard claims, and freeing up our adjusters to devote more attention to larger, more complex claims” At the individual loss site, electronic site and scoping tools, virtual reality, 3D imag-


ing cameras and livestreaming capabilities are creating a much more interactive experience that can greatly reduce the time to restoration. “Our teams across Australia are using these tools,” he says, “to give our clients a 360-degree interactive view of the loss site. That means that they can remotely walk through the scene, zoom in on specific aspects of the damage, and make judgements based on what they are seeing on how to respond.” “And with the scoping and pricing tools, by working with our building and restoration colleagues at Crawford Contractor Connection, we are working to establish the scope and price of the project whilst the builder is on site. That means that the builder can immediately start talking to the customer about when they can start the work. That’s a real game-changer in our ability to help restore lives, businesses and communities.” Crawford is also using technology to bring the customer into the claims process, either through self-service loss notification through its Alexa first notification loss capability, self-service apps or enhanced customer portals. “By downloading apps, such as our YouGoLook app, customers can upload their own images or videos of the particular loss which are then assessed by our adjusters and triaged accordingly. Further, our integrated customer portals mean they can get an instant update on how their claim is progressing.” Jarman also highlights how the company is implementing new sensor-based technology that is repositioning the loss adjuster in the risk process, capitalizing on the latest monitoring tech to reduce the potential scale of a loss or even prevent it. “Colleagues around the world are currently using water sensor tools, for example, fitted to the water systems in insured properties to monitor for potential leaks – one of the biggest causes of property-related losses,” he explains. “If any spike in water usage is detected Crawford Contractor Connection is immediately alerted and dispatches a plumber to the property to check for a leak and prevent further damage. We are currently working to introduce this sensor technology in Australia.”

TAKING THE BEST ROUTE Bringing this diversity of new technologies into the claims arena will undoubtedly

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bring much greater fluidity to the claims process, reducing settlement times and lowering claims costs. “Ultimately these new capabilities enable us to deliver the right experience to the client and customer,” Jarman concludes, “giving them the ability to choose the path that works best for them.”

our customers and clients.

DEVELOPING OUR PEOPLE

This is a critical time for the insurance industry and for Crawford. We have some great opportunities ahead that will flow directly from our drive to evolve claims technology, improve quality and deliver an exceptional customer experience.

“Alongside the development of our technology roadmap, I am fiercely committed to the continual growth and development of our people. Significant investment in building a more robust and structured learning and development program is pivotal to our global and local strategy. The program aims to enhance both the technical skills and knowledge of our adjusters and claims specialists but equally importantly, enhance those vital soft skills that are fundamental to the delivery of an experience that meets the expectations of

Well-equipped and confident people who can see that their employer is invested in their personal career journey will always be more engaged and we know that increased employee engagement leads to increased success.” Jarman says.

Our job is to ensure that Crawford thrives in this changing world and is viewed by industry colleagues as the partner of choice. I feel both excited and privileged to have the opportunity to navigate Crawford through the journey. Tim Jarman President, Australia Crawford & Company


SPECIAL FEATURE: INSURTECH

8 insurtech trends for 2020 This year will see the insurtech revolution accelerate, but in what directions?

Looking ahead: Insurtech Australia’s Rita Yates

By Rita Yates, Chief Executive Insurtech Australia

L

ast year was a good one for insurtech in Australia. We’ve seen strong growth in the number of insurtechs operating in Australia, along with a realisation of the impact that insurtech can have on the industry. We’re also seeing established insurers starting to embrace insurtech as part of their digital strategies. We expect this progress to continue through 2020, with several key trends to emerge. 1. Evolution of partnerships: Partnerships between insurtechs and incumbents will become more abundant across many areas of the value chain, and those that are in the early stages will start to mature. We know the insurtech ecosystem is somewhat unique, in that the majority of insurtech organisations are looking to partner with insurers, while many of these incumbents don’t want to do everything internally and are now looking to find insurtechs to work with that can solve some of their pain points. These partnerships will also likely lead to more innovative ways to distribute insurance, including non-traditional avenues such as the recent partnership between Evari and Bunnings to offer insurance to tradies. 2. The continued rise of AI and machine learning: Artificial intelligence (AI) is likely to become the leading piece of technology used by insurtechs and continues to be implemented or explored by insurers. AI and machine learning have the potential to impact every aspect of the way insurance businesses are run, making almost every process more efficient. AI will likely have a particular impact on underwriting and pricing, as well as helping to automate processes and enhance personalisation of insurance products. The 2019 Insurtech Ecosystem Report showed 24% of insurtech propositions are underpinned by AI and machine learning. Expect this percentage will grow. 3. Asian potential for Australian insurtechs: Australian insurtechs will look globally for both

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SPECIAL FEATURE: INSURTECH

partners and investors. To date some Australian insurtechs have found more success breaking into the US or UK markets for funding or partnerships compared to Asian countries. In 2020, InsureTech Connect, globally one of the biggest insurtech gatherings, will be held for the first time in Singapore along with other major global insurtech conferences looking to be hosted in Asia. This holds great potential for Australian insurtechs to start exploring and hopefully growing connections within Asia into something more substantial. Blue Zebra is one insurtech considering expansion into insurance centres like Singapore and Hong Kong. In light of this, in 2020 Insurtech Australia’s annual delegation will be developed around the Singapore gathering in June. 4. International entrants to Australia: Last year saw a number of international insurance technology startups joining Insurtech Australia as members, including Socotra, Montoux, Merlynn and JRNY. Some are looking to scale into the Australian market, and we’re expecting this trend to continue. Australia is seen as a very attractive insurance landscape to work in when considering the size of the Australian market and the regulatory environment. 5. Health insurance exploration: Traditionally insurtechs have focused more on opportunities to impact general and life insurance, but we now expect them to start exploring how they can influence and impact the health insurance industry as well. Those that work within data, wearables and prevention in particular will look at the opportunities in health. Government policy will be key here, and there’s a question mark around whether attempts at innovation will be hampered by the regulation and complex structure around Australia’s healthcare industry. 6. Ethical and legal issues: The ethics discussion in insurance and insurtech will become more important and prevalent. In particular this will focus on the use of AI technology and how consumer data is used by the insurance industry. Insurers have access to an abundance of customer data and external data sources, and will need to

navigate if and how they can ethically and legally use this information. Increasing privacy and consumer data regulation around the world will also be key to this discussion. 7. Prevention and mitigation: There will be an increased focus on prevention and how this can become a value-add for insurance customers. Insurtechs such as FloodMapp are developing propositions in using predictive modelling to determine the risk of natural disasters and helping support the prevention of loss. This type of technology will be explored more commonly, particularly as the effects of climate change become more apparent. Other examples include the prevention of fraud through predictive modelling and data analytics and insurtechs focusing on prevention in the health insurance industry. 8. Payment tech developments: Payments and data analysis tools will become more important. So far insurance innovation has focused more on the key value chain areas of claims, underwriting and distribution more broadly, but it will be interesting to see the area of payments in insurance take more focus. This will revolve around the opportunities of using tech to increase the efficiency and speed of payments to enhance customer experience in the event of a claim such as Cover Genius offers in certain situations. Parametric measures will play a part in this process to understand and manage the triggers for efficient claims payouts. In summary: We’re definitely optimistic about the outlook for Australia’s insurtech sector in 2020 and believe our ecosystem punches above its weight. There is still much work to do, but we’re looking forward to seeing what the year ahead will bring, with more openness and interest among incumbents in exploring the opportunities that insurtech holds for them alongside growing and developing insurtech propositions. • Rita Yates is Chief Executive of Insurtech Australia, Australia’s leading not-for-profit industry associa0 tion for insurtech and insurance innovation.

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SPECIAL FEATURE: INSURTECH

More than just money Meet an investment company that helps insurtechs by providing them with the support they need to succeed in insurance By John Deex

I

nsurtech pioneers may be poised to revolutionise the general insurance industry, but in most cases good ideas won’t be enough. Start-ups need capital to survive and thrive, certainly. But they also need access to the market and established industry expertise. That’s why specialist insurance investor Envest has unveiled a renewed focus on the insurtech sector, with the launch of joint-venture incubator Insurtech Gateway Australia. Envest was formed in 2016, but the foundations were laid much earlier when Managing Director Greg Mullins, who hails originally from South Africa, was working at South African insurer Hollard. He built up a “substantial private equity piece” within the insurer’s Australian operation before private investors provided him with backing he needed to set up his own company. Envest was born, and it has gone from strength to strength. Its current 25-business portfolio includes brokers, underwriting agencies and other insurance investments. Its first investment was an insurtech – Claim Central – and it has also backed technology-driven underwriting agency Blue Zebra and drone insurance specialist Precision Autonomy. Each has been successful, so when Envest was approached by former Insurtech Australia chief executive Simon O’Dell about a new project, Mr Mullins was keen to get involved. “He asked if we’d heard of the Insurtech Gateway in London,” he tells Insurance News. “We went and met with them and the three of us then formed a joint venture to start the Gateway in Australia. “It is a genuine insurtech incubator play. We find

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people with great technology, solutions or ideas. Maybe the idea is not fully formed, but we help them through that process with a very structured four to six month program. “We put some capital into the business and behind the founders, we get it through that incubation and then if we think it is a go, we put more significant capital behind it and power it into the market.” But as previously noted, providing the capital is just the start of the story. The Gateway gives access to the mentoring and industry connections that can be decisive factors in securing success. “That is why I was really excited about the Gateway concept,” Mr Mullins says. “Partnerships are absolutely critical. It’s not just about the cheque any more, it’s about ‘can they help me get from A to B?’ “That only happens through partnership, not people just writing out a cheque and hoping for the best.” Engaging with the established industry is also vital. Mr Mullins believes insurtechs can do well on their own up to a point, but may never achieve “meaningful market share”. The incumbents – as established insurance companies are designated by the insurtechs – are way too entrenched and experienced to just disappear overnight. Mr Mullins says industry outsiders who see insurance as “easy pickings” are mistaken. “There is a perception that this must be an industry that is behind the times, and technology could come in and change things,” he says. “What a lot of these people don’t understand is that this is an industry which has been dominated for a long time by a few players with big market share, strong balance sheets and clever people working there. “I’m looking for technology that is actually going to enable, not disrupt. I don’t like that word disruption,

Investing in the future: Greg Mullins


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SPECIAL FEATURE: INSURTECH

and I think it is a difficult thing to do in an industry that is as established as ours.” Mr Mullins says the traditional players are “very open” to working with the insurtech community. “For them sometimes it’s an easier and cheaper way to get to a better solution for their customers, which is now finally where the real focus is. “If you take a really experienced insurance executive and you partner them with an innovative young entrepreneurial technologist, you should be able to crack it.” Mr Mullins says the Gateway will enable Envest to “make smaller bets on more things” and cast its eye over a much broader range of insurtechs. The project aims to put two or three insurtechs through the program every year, and is in the final stages of negotiating the first two. “[Insurtech Gateway Australia Chief Executive] Simon O’Dell is building a great team,” Mr Mullins says. “The London gateway has had nine fantastic success stories in the UK so far, and we are leveraging on that team’s experience. “We don’t have the volume that London does, but there is a lot of good stuff being done here.” So what should insurtechs be doing to attract the kind of support that Envest has to offer? Mr Mullins says there are some key factors that are always considered – the first of which is the people. “Do they have the relevant experience in the areas that they say they do? Are they backable? Do you want to spend a lot of time with these people, and believe in them and help them? That’s the first tick. “The next thing is how commercial the idea is. Do we think that there is a genuine differentiator, is it going to help solve a problem? “And if that’s a tick then we ask, how easy is this thing going to be to distribute? What’s the revenue model? Financially, is it going to stack up for everybody? That’s the journey we go through when we are looking at these things.”

Unfortunately, this formula highlights a very real problem for insurtech start-ups. Mr Mullins says there simply aren’t enough investors doing what Envest does in supporting genuine ground-level projects. “A lot of guys in the insurtech ecosystem talk it up; they say they invest in insurtech but actually what they invest in is ideas that are far more along in the process – ideas that have already raised some money and got some runs on the board. “What would be very, very helpful is more people doing what we do – backing some of these ideas from the beginning.” On the insurtech side, some businesses don’t help themselves by “over-hyping” their proposition. “This is a big challenge,” Mr Mullins says. “You hear stories of people raising enormous amounts of money on enormous valuations for businesses that haven’t turned a dollar of revenue. “We often see an over-inflated opinion on valuation for a business that hasn’t even entered the market yet.” Regardless of these challenges, Mr Mullins believes the insurtech revolution will march on, and change the industry for the better. It may, however, be a gradual process “rather than a seminal moment”. “Insurtech will continue to have an impact, and it needs to, because this is an industry that needs to improve from a customer perspective and a lot of this stuff can happen through technology. “Claim Central is doing a set percentage of their assessing live now, in real time with the customer, and it’s reducing the lifecycle of that claim by a third and cutting the cost to the insurer substantially. “That is a sustainable long-term fix to a very old, established problem. And that’s what I love about insurtech. “I’d love it to all happen faster but it will take time. And if it does take a little more time to come up with 0 sustainable solutions, then that’s better.”

Minority support Envest started in July 2016 after acquiring nine broker and 11 underwriting agency interests from Hollard. Six of those have been divested in the three-and-ahalf years since, but the current portfolio has grown to 25 businesses across three pillars: general insurance brokers, underwriting agencies and insurance-related investment. The third section includes claims, life and financial planning, premium funding and, most recently, the Insurtech Gateway. Envest always takes a minority stake, and Mr Mullins believes this is a key differentiator. “If you sell out a majority, it really isn’t your business

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any more, and we are not in the business of running these things day-to-day,” he says. “We want to help with capital, we bring a lot of market opportunities to our businesses, we help attract the right people and then fund those people into the businesses.” The other big differentiator, Mr Mullins says, is Envest’s dedication to start-ups. “That could be a start-up broker, start-up agency, or start-up insurtech,” he says. “Because we are private we can take a long-term view and be a little bit more patient. “The listed guys would struggle with that. The payback experience is sometimes long, or never. “But we can afford to take that risk.”


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SPECIAL FEATURE: INSURTECH

It’s all about how you use the data If you wait too long to adopt an idea, you may never catch up. Acord’s Bill Pieroni advocates a less risk-averse approach for insurance in the age of innovation By Terry McMullan

I

t’s a little ironic that the revolutionary world of electronic innovation in insurance is underpinned by an organisation that traces its roots way back to 1970, when computers whistled and beeped and used magnetic tape to deal with simple tasks. The Association for Co-operative Operations Research and Development, a non-profit known throughout the industry simply as Acord, was established 50 years ago this year to provide the insurance industry with data standards and implementation solutions for all that newfangled computer stuff. Its founders in the United States were far-sighted enough to see the need for standardised forms to ensure different systems could “speak” to each other. Today Acord can supply standardised forms for more than 1200 types of insurance transactions for users around the world. Standard-bearer: Bill Pieroni

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“Are [insurers] all innovative? Absolutely not. Are they all luddites, not thinking about technology at all? Absolutely not. What is important is having strategic intent.”

And as digitalisation becomes more complex, it keeps right on building new solutions. One of its most recent major projects was the development of new software to improve integration between legacy data systems and the new wave of automated data processing systems. Acord sees itself as sitting at the intersection of insurance, technology and research, bringing together the disparate parts of insurance distribution with technology solutions that make efficiency possible. But there’s more about Acord that doesn’t immediately meet the eye. Suffice to say its position in the industry gives it unique ability to share ideas, shed light on new innovations and help define the technological future for insurance. For President and Chief Executive Bill Pieroni, Acord is a very exciting place to be. A former global Chief Operating Officer of Marsh, he sees the organisation as a facilitator. “I don’t think there is enough commercial motive out there for companies to build the sort of solutions we develop, and that’s why we are building software and providing services,” he told Insurance News during a visit to Australia last year. “We are not for profit, we are owned by the industry and our solutions really are cutting-edge,” Mr Pieroni says. “They are priced at cost and we have a significant backlog of solutions around the world. We are helping carriers, brokers and third-party vendors.” While the rate of technology-driven change in 1970 was glacial by comparison with the 2020 experience, Mr Pieroni is relaxed about his organisation’s ability to keep pace. While Acord is there to support, is there a danger that it might accidentally leave the industry behind? No way, he says. “We are driven by our members.” Acord’s job isn’t to innovate – it’s to always ensure its members have the support they need to make use of innovations. Blockchain, for example. “I can’t tell you which blockchain initiative will be

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successful – I can’t tell you if any of them will be successful,” he says. “However, they are all using Acord’s standards, regardless. “I try not to lead or push now when I see key stakeholders being somewhat reluctant around new technologies. But if we believe it’s a future inevitability, that the technology is going to take off, then I need to advocate for it. “But we have more than 36,000 participating organisations globally, and with that kind of sample size I always have some members saying ‘how about AI, deep learning, the Internet of Things, blockchain…’ “With that kind of sample across more than 100 countries, half of the world’s insurance premiums, they’re very vocal. When they say we need you to do this, it helps us.” Mr Pieroni says insurers are, in all, heavy spenders on technology. But he finds every insurance company’s approach is unique. “The global average on general insurance spend is 3.5% globally,” he tells Insurance News. “I have some general insurers who spend less than 1%, and I have others who spend 6.5%. So that 3.5% is a very wide standard deviation about that mean, so we have everything that you can imagine. “You can be tech-heavy and process-light. You can be process and IT-heavy and organisation-light. You can be heavy on the organisation and be light on process and IT. We have every permutation and combination out there. “Are they all innovative? Absolutely not. Are they all luddites, not thinking about technology at all? Absolutely not. What is important is having strategic intent. “If it’s to provide superior value propositions to emerging customer segments in a 24x7 online way, then you better be tech-heavy. If on the other hand you sell very few insurance policies with very high premium


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SPECIAL FEATURE: INSURTECH

“If everything you’re doing works out 100% of the time, you’re not trying hard enough. I think being overly conservative really hurts this industry.”

levels, and your claims are very low severity in frequency, then perhaps you can be less tech-heavy. “And we do have a few carriers like that who may sell a dozen insurance policies a year because they are so large and so complex.” While Mr Pieroni sees technology across the insurance industry as a “future inevitability”, he points to a recent Acord study that looked at the top 100 insurers over the past 10 years and classified them into five categories. “At the bottom of the pyramid were the digital laggards, and at the top were the digital competitors. What we found is that if you are a true digital competitor at the top of the pyramid – and we measured it across a number of attributes – it wasn’t just about IT spend. “It was about strategic intent and culture and consumerisation and how open you were to source and distribute products.” He says the survey revealed “a very strong positive correlation” between such attributes and premium and share price growth. An associated study looked at a number of other technologies, and found the pace of change is accelerating, and sitting still is increasingly dangerous. “Lastgeneration technologies like internal combustion engines, automobiles and television took 20 to 30 years before you could really see an uptake. Today it takes less than five years before technologies become pervasive and critical. “Historically you could wait out the uncertainty in the marketplace, not be an early adopter and wait to see if this newfangled combustion engine or whatever worked out. “But today, when you think about things like Big Data, the Internet of Things or artificial intelligence, you can’t necessarily wait out that uncertainty, because it happens within five years. By the time you realise this

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is successful technology, you’ve waited too long to transform your organisation and to learn how to use the new tools. Then no amount of money is going to accelerate that.” Mr Pieroni agrees insurance companies are cautious adopters of new technologies – sometimes to their disadvantage. “I strongly encourage our members to look critically at technologies, to review their strategic intent and try to understand where it can be applied.” He says they have to be willing to invest early, learn by doing and “become better at being willing to make mistakes”. “Despite the fact that we are in the risk business, we don’t like risks. We like to manage it, quantify it, transfer it, price for it.” He also says we are change-averse, and have to be more willing to make a mistake or completely fail. “If everything you’re doing works out 100% of the time, you’re not trying hard enough; you’re not being innovative enough. I think being overly conservative really hurts this industry.” So does the future belong to the insurers who have the most high-quality data? No, says Mr Pieroni, it’s all about how you use it. “You will compete based on the accumulation, the insight, the veracity and the velocity in which you use that data.” Quoting Victor Hugo, he says there is nothing as powerful as an idea whose time has come. “Perhaps finally we are reaching a point where it’s about understanding the power of what data can do and using it for competitive advantage – not some unique standard but how you use it with your brand position, how you develop products and how you place them. “I think that Acord is in a good position to help the industry and to serve it, and we are very fortunate to have such a rich global membership that can keep 0 pushing us.”


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Still flying Sportscover’s owner Wild Goose Holdings had a turbulent 2019, but its founder says the future remains bright By John Deex

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ild Goose Holdings (WGH) sent tremors through the market in July when it announced it was heading into voluntary administration. Although not many people knew much about the company, they were quickly made aware that it owns Australia’s largest sports insurer, Sportscover Australia. WGH and its administrators immediately emphasised the issue was nothing to do with Sportscover, and would not affect the operations of the specialist underwriting agency. WGH Founder and Chairman Peter Nash could only say at the time that the administration related to “the dim and distant past” of its Lloyd’s managing general agency, Syndicate 3334, which Sportscover sold to Hamilton Insurance in 2014. Now, following agreement with creditors on a deed of company arrangement, Mr Nash is able to explain the issue in greater detail. The administration came about as a result of one debt, he tells Insurance News, owed to a large reinsurer – not for the purpose of reinsurance but for capital provision in Syndicate 3334. How it came about was “a little unusual”. “Back in 2012 I signed a document that had a guarantee in it, that in the event that the capital of this particular provider was drawn down in a certain way, then WGH would make good the amount of that drawdown,” Mr Nash says. “Subsequently we sold the syndicate, and a little unusually the business that bought the syndicate [Hamilton] determined to close three years at the one time, rather than one year. “As a consequence Lloyd’s drew down on this capital slightly more than the capital the syndicate was due to pay, which triggered the guarantee.” It is quite rare for these guarantees to be triggered, Mr Nash says. “It is generally an unusual set of circumstances.”

As the guarantee was attached to WGH, not Sportscover or the syndicate, WGH was left facing a £4 million bill. “We needed time and the only way we could get it was to go through the administration,” Mr Nash tells Insurance News. “There wasn’t another alternative, really.” He says the deed of company arrangement is a way for the company to trade forward and work its way through the debt involved. While WGH is now out of administration, there are still a number of issues to resolve. “There’s a range of things the company will be doing to procure the payment of the debt,” Mr Nash says. “We have two years to come up with a way in which that can be done. “It may well be that when the final amount as to what is owed is agreed that the money is borrowed. We are certainly looking at selling some of the other businesses that WGH owns. “It’s all very straightforward and contractual.” The episode has left Mr Nash wondering if and how things could have been better handled. “I have asked myself 100 times whether I could have done it differently and the answer is probably no. The likelihood of this actually being activated was very low. “It’s like Lotto, but in reverse. We had a ticket, and it came up.” The fact that WGH owns Sportscover caused some concerns in the local market, and Mr Nash is quick to stress that the issue never had, and will not have, any impact on Sportscover Australia’s operations. “The only relationship between WGH and Sportscover is the ownership of the shares,” he says. “In the worst case scenario WGH would have to divest itself of the shares in Sportscover, but that’s not what is going to happen.” Mr Nash says Sportscover Australia has always

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Team effort: from left, Sportscover Chief Executive Simon Allatson, Sportscover Director Cheryl McCormack, Olympic beach volleyball gold medallist Kerri Pottharst, WGH Chairman Peter Nash, and WGH Managing Director Chris Nash.

“It is nowhere near a catastrophe. It is a simple consequence of being in the insurance industry. We will deal with it. It will pass.” been profitable since it was formed 33 years ago. “We suffered a little bit from what was reported about the WGH matter, as you’d expect, and we suffered in the beginnings of the market upheaval back in January [2019]. But we’ve come through that so well it’s unbelievable.” Sportscover is now looking to expand, but Mr Nash says recruitment is proving a major stumbling block. “We are currently desperate to hire some new underwriters. One of the issues we have in this country is you just can’t get good people easily. Hardly anybody is training people any more. “They are going through university and they are doing the diploma, but they come out knowing little about insurance or underwriting, and they really don’t understand the nuances and the intricacies of the market the way they would have done 20 years ago. “It is a massive problem and I can see it becoming a huge issue for all insurers, particularly in Australia. “We offer good conditions, better than market in all sorts of different ways, but it doesn’t get you anywhere. It is becoming very difficult to run an insurance business here with people who understand insurance. “We’re desperate to expand at the moment. The people working for us are at capacity.” While there is solid growth in Australia, Mr Nash sees huge opportunity in the sports sector in Asia.

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He says the growing middle classes in Asia are increasingly turning their minds to sports, and sport insurance. “We have representatives in Singapore and China. I think Asia will account for about 10% of our business fairly quickly and will continue to grow from there.” Lloyd’s tightening of capacity has had an impact, but it hasn’t created major problems for Sportscover. Mr Nash says Lloyd’s new rules are “good and sound” and such readjustments are not a significant concern for experienced operators like Sportscover. “You know and understand these things because you’ve seen it before,” he says. “We went through the market tightening around 9/11. We’ve been through the challenges of 1987. We’ve seen all those different ups and downs in the market so this is nothing new. “The opportunities now in the current hard market are fantastic for businesses that have a sound basis like we do. That’s the reason we are talking about hiring people.” Mr Nash is confident any market uncertainty about WGH’s debt and the administration process will not have any lasting effect on Sportscover. “It is nowhere near a catastrophe,” he says. “It is a simple consequence of being in the insurance industry. We will deal with it. It will pass. “Sportscover will still be around in another 0 30 years.”


Japanese police search a flooded area near the Chikuma River in the aftermath of Typhoon Hagibis

Reuters

Stormy season Japan topped last year’s global loss records thanks to super-typhoon Hagibis By Bernice Han

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yphoon Hagibis was not just the most powerful storm to pummel Japan in decades when it made landfall last October. It was also the most costly natural disaster globally last year for the insurance industry. The category 5-equivalent super-typhoon, packing winds of 180 kmh near its centre, exacted $US10 billion in insured losses, Munich Re says in its annual natural catastrophe roundup. Economic losses from the storm cost $US17 billion. Another typhoon, Faxai, which struck the same greater Tokyo region a month earlier in September, ranked second, with insured claims of $US7 billion and $US9.1 billion in economic damages. It was the second consecutive year of record windstorm losses for the host nation

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of the 2020 Summer Olympics, which will be held in July. Numbers crunched by Aon are somewhat lower than Munich Re’s assessment, with Hagibis estimated to have racked up about $US9 billion in insurance payouts and Faxai $US6 billion. The preliminary numbers from Munich Re put the total economic bill from natural catastrophes last year at $US150 billion from 820 loss events. About 35% of the losses, or $US52 billion, were borne by insurers. In both economic and insured loss terms, the financial toll was well below that of the previous three years. The $US150 billion in economic damages is lower than the 10-year average of $US187 billion. A number of large events with losses in the low billions combined to push overall

losses over the $US100 billion mark. Hurricane Dorian, which lashed the Bahamas in August, ranked as the third most costly event for insurers, with $US4 billion in claims lodged. It was also one of the strongest Atlantic storms ever recorded and the most powerful to ever hit the Bahamas. By the time Dorian moved towards the US east coast, it had weakened considerably but still caused significant flooding. Munich Re says two separate storms in the US placed fourth and fifth with losses of $US3.6 billion and $US2 billion respectively. Cyclone Idai was the deadliest event last year, with more than 1000 lives lost when it hit Mozambique and neighbouring countries in south-east Africa in March. Globally, natural disasters killed 9000 people, down sharply from 15,000 in 2018.


What stood out last year, according to Munich Re, was the violence of the windstorms that hammered Japan, the US and other parts of the world. Whether it’s overall economic damages, insured losses or fatalities, the top five natural disasters last year were all windstorms, the reinsurer says. Of the 33 events that caused at least $US1 billion or more in insured losses, nine were tropical cyclones, storms with flooding, or tornadoes. Floods, flash floods and landslides made up 45% of natural disasters last year. Another 38% were the result of storms. “The main events of the 2019 natural disaster year were enormous losses from tropical cyclones in Asia, widespread flooding in India and China, and severe storms in the US,” Munich Re Head of NatCatService Climate and Public Sector Business Petra Low says. “Generally speaking, the distribution follows the long-term trend towards a greater number of storms and floods.” In particular, the extreme precipitation of Hagibis further affirms how weather systems are, to a large degree, feeling the effects of climate change. Hagibis, which means speed or velocity in Tagalog, the national language of the Philippines, dumped record rain across huge areas in Japan. Some places saw as much as a metre of rain fall within two days. “The typhoon season shows that we

must consider short-term natural climate variations as well as long-term trends due to climate change,” Munich Re Chief Climate and Geoscientist Ernst Rauch said. “In particular, cyclones are becoming more frequently associated with extreme precipitation, as with Hagibis in Japan in 2019 and Hurricane Harvey in the US in 2017. Recognising these changes can form the basis for further preventive measures to reduce losses.” Aon says the loss trends suggest larger and costlier events on a global scale can be expected this decade. “Much of this increase will be directly tied to further population migration and exposure growth patterns to coastal and inland areas which have long been identified as highly vulnerable to natural peril risk. “Scientific research continues to indicate that climate change effects will grow more obvious as sea level rise persists at an accelerated rate and more individual weather events will show signs of climate change influence. “Climate change event attribution will remain one of the biggest questions to be answered.” Swiss Re says the typhoons that struck Japan have again illustrated the country’s vulnerability. The reinsurer says the typhoons of 2019 “further underscore the high exposure of urban regions in Japan to both typhoon wind

and flood risks, in spite of the presence of mitigation infrastructure”. “While climate change cannot be ruled out as an amplifying risk factor, it is certain that the last three events confirm the historical pattern of devastating Japanese typhoons in the middle of the 20th century.” Swiss Re says its analysis of last year’s natural catastrophes further confirms the growing threat of climate change-fuelled secondary perils – a trend it has previously pointed to. Floods, torrential rains, wildfires, prolonged droughts and other secondary natural catastrophes made up over half of last year’s insured losses. Usually moderately severe and fairly regular, secondary peril events as defined by Swiss Re are a side-effect of larger primary natural catastrophes such as cyclones and earthquakes. “There is more scientific evidence that climate change impacts the frequency and severity of secondary peril events today, warranting more focus for research. For primary perils like typhoons, science is far less conclusive,” Swiss Re Institute Head of Catastrophe Perils Martin Bertogg says. “In addition, macro-risk factors like rapidly growing populations and property values in exposed areas contribute to the increase in losses resulting from natural catastrophes globally, making past experience a less defi0 nite predictor for future losses.”

For Australia, it’s fire and flood Australia experienced one of its “most notable years” for weather disasters including a few that were “enhanced” by increased climate change influences, according to Aon. The Townsville floods in February, with insured losses of nearly $1.27 billion, and the bushfires in November were among the biggest loss events last year. Aon predicts the bushfires, which started in the second half of last year, are likely to become the costliest for local

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insurers since Black Saturday razed several Victorian townships in 2009. Black Saturday cost insurers about $1.76 billion. Figures from the Insurance Council of Australia put insured losses from the current bushfire disaster at $1.9 billion from more than 23,000 claims. The bill is still rising as claims assessments continue. The threat of more fires has not abated, with temperatures not expected to ease significantly this summer. Munich Re describes Australia as having

the “most extreme contrasts” in weather-linked events last year. “At the start of the year, its northeast struggled with exceptionally heavy rainfall, which triggered extensive floods and landslides,” the reinsurer’s Head of NatCatService Climate and Public Sector Business Petra Low says. “In the south-east…extreme heatwaves and drought over the course of the year led to devastating wildfires that are unprecedented in the country’s history.”


Global problem: the sun rises over a smouldering landscape in the hills of Santa Barbara, California, in November

Going up in smoke It’s not just Australia – severe wildfires are a rising risk factor for the global economy By Wendy Pugh

Reuters

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ushfires burning across Australia since spring have destroyed homes and cast a smoky haze across the country in a stark example of a rising economic threat flagged in a Cambridge University report. The Cambridge Centre for Risk Studies estimates in an annual assessment that $US584 billion could be wiped off global gross domestic product (GDP) by catastrophic events this year, and natural disasters are the largest overall threat, with a potential toll of $US179 billion. The Global Risk Outlook 2020 is based on an index that quantifies the impact of future catastrophe shocks on the world’s economy, as represented by 279 cities that account for 41% of the world’s GDP. A market crash, interstate conflict and tropical windstorms are the top three individual threats in the index, while geophysical hazards including earthquake, tsunamis and volcanoes have the potential to cause the most devastating impacts across large regions. But the report says that in the context of climate change, wildfire is a growing risk, notably in populated areas of California, eastern Australia and southern Europe. The fires which broke out across Australian states this summer, generating more than $1.9 billion in claims, escalated after the report’s release. “In addition to the tragic human and environmental loss caused by the fires, a significant economic impact can be expected,” Centre for Risk Studies Environment Risk Research Lead Oliver Carpenter tells Insurance News. Apart from direct losses through property damage and destruction, the fires have

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caused economic disruption in urban areas, with the smoky haze in cities such as Canberra, Sydney and Melbourne affecting everyone. “In such events, productivity decreases, consumer confidence drops and air pollution causes direct harm to industries such as agriculture and tourism,” Mr Carpenter says. California has experienced successive record-breaking wildfire seasons, causing insurance responses and unprecedented economic losses that are at magnitudes historically associated with other hazard types. Utility company Pacific Gas & Electric was found responsible for the California Camp Fire in late 2018, when electrical transmission lines ignited the blaze, causing it to alleviate its risk last year by cutting off supply to 2.4 million residents. Estimates suggested the economic impact of the outages could range from $US65 million to $US2.5 billion, depending on the duration of the cuts. The decision to use forced blackouts prompted outrage, but questions about how to live with more frequent and severe wildfires will become more critical as the value of exposed assets continues to grow in the state. “Regions of the world exposed to wildfire risk are likely approaching a ‘new normal’ as global temperatures continue to increase and we must learn to live with more frequent and severe wildfires,” Mr Carpenter says. The Cambridge analysis of 22 threats estimates that overall global GDP at risk this year is up 3%, partly reflecting economic expansion, emerging threats such as cyber attack, and shifts in the pattern of potential loss to threaten higher-growth regions.

Value at risk increased from commodity price shocks, extreme weather, power outages and pandemics, while it declined for terrorism and solar storm. A more detailed analysis of coastal cities resulted in an increase in the flood risk assessment. Wildfire is not named as one of the 22 threats, but the report says it is a key factor in the increased risk from power outages. “Corporate risk is escalating along with the cadence and ferocity of climate-related catastrophes,” Chief Scientist Andrew Coburn says. “While reinsurers saw a year of below-average insurance losses in 2019, they remain wary of events that could generate record losses like the 2017 hurricanes and an increasing number of wildfires.” When it comes to the cities exposed, Tokyo has the most GDP under threat, with interstate conflict representing its largest risk. Istanbul, New York, Manila and Taipei round out the top five cities. In Australia and New Zealand, a market crash is the top threat to GDP for the eight cities included. The threat’s contribution ranges from 52% in the case of Sydney to 30% for Wellington. Sydney is ranked 76th in the overall index, with $US2.33 billion at risk, followed by Melbourne with $US2.31 billion. Auckland has $US740 million GDP at risk, while Wellington has $US280 million. Dr Coburn says the time it takes cities to rebound after an event depends on access to funding, including insurance and aid. “Better access enables faster recovery and therefore higher resilience to shocks to the global economy,” he says. “The insurance 0 world is central to global recovery.”


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The cure: innovation and empathy Science, artificial intelligence and a fresh approach are helping QBE make a difference for injured customers By Bernice Han

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irefighters had to cut Jane Black (not her real name) out of the wreckage of her car after a road accident, but just hours later she was discharged from hospital. She thought she’d been lucky to get off so lightly, but that changed when the extent of her whiplash injury made itself clear. What followed was a long period of constant severe pain that called an end to her favourite outdoor activities, long walks and cycling. The pain and discomfort meant she could only dream of taking up those pursuits again. All Jane wanted was for her nightmare to end. Thanks to a project QBE started two years ago, the nightmare did end. The Sydney resident has recently resumed walking and riding her bike, free from pain. Jane’s recovery is an example of the ways science and technology can be used by insurers to achieve dramatic results for injured customers. The case manager at QBE who was handling Jane’s compulsory third party (CTP) claim referred her for treatment with Active Recovery Clinics, an injury rehabilitation specialist. At her first consultation a clinical team – which included an orthopaedic surgeon, a psychologist and a physiotherapist – ran medical checks and recommended her for the company’s whiplash treatment plan. Patients in the recovery program engage in customised home-based exercises, which are supervised remotely via a computer program that tracks their progress using motion sensors and tablets. David Bacon, QBE’s General Manager for People

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Risk Claims, tells Insurance News Jane’s program was “a combination of bio-sensors to monitor her exercise program and a psychological monitoring program to ensure that she was recovering well”. The whiplash program is part of the QBE project that Mr Bacon has been overseeing since its launch two years ago. Improving innovation in claims practices through the application of science, artificial intelligence (AI), analytics and other hi-tech variants is the over-arching aim of the exercise. Its development stems from the “Brilliant Basics” program that QBE Group Chief Executive Pat Regan introduced when he took up the role at the start of 2018. Underwriting, pricing and claims, the three pillars of an insurer’s business, form the focus of the Brilliant Basics program. In People Risk Claims, it was clear to Mr Bacon and his team where they should be directing their efforts. “The approach we chose to take was to significantly enhance the application of the science and analytics in our business to be able to work towards helping people get their lives back together,” he says. The initiative wasn’t just about cost savings for QBE, but also about working more closely with the injured customer. “We observed that a lot of the academic work around injury recovery was very well established and very well researched, but really there was no effectively practical application of that in workers’ compensation or CTP.”


Pain points: new technology is helping QBE claimants recover

There also was also a motivation to add something Mr Bacon believes was missing from the handling of personal injury claims: empathy. “One of the things we observe often in the industry is a very strong focus on process compliance rather than finding scalable ways to work with injured people – to actually help them recover while using science and analytics to guide us on that path,” he says. “Empathy is really, really important. “So we set out to change that. We arranged a series of partnerships with different healthcare organisations and academic organisations, as well as data analytics partners to help us work towards taking the science of injury recovery forward.” One strength of the approach his team took is fundamental. If a pilot program produces less than satisfactory results, walk away from it. James Hay, Head of People Risk Claims Strategy and Performance at the insurer, says this principle “has really served to guide us in what we implement and what we don’t”. “We wanted to really understand the problems that we saw in workers’ comp and CTP schemes and test different things. So it wasn’t just about coming up with solutions and forcing them through. “This is really about ‘test and learn’. We’re trying things, implementing them into our business, seeing how they work, determining the results and deciding if they are positive or neutral or not having the effects that we expected.”

The results from the project, which applies nationwide to CTP and workers’ compensation claimants, have so far have been very positive. The whiplash recovery program, for example, has resulted in recovery rates for QBE-funded patients that are about 20% better than traditional rehabilitation treatment achievement rates. QBE has so far paid about $10 million to put claimants through various injury recovery programs with external partners. Apart from Active Recovery Clinics, the project’s other partners include US-based artificial intelligence specialist Clara Analytics and BehaviourWorks Australia, a research group affiliated with Monash University in Victoria. QBE first worked with Clara Analytics in 2017. The insurer at that time was keen to apply artificial intelligence to help its workers’ compensation frontline staff manage claims. Buoyed by the results, the insurer announced in December 2018 that it will adopt the California company’s knowhow for its CTP business. Jayant Lakshmikanthan, founder and Chief Product Officer of Clara Analytics, tells Insurance News his company strongly believes “the best way for an insurance company to compete is by providing a highly differentiated, claimant-centric service”. “QBE leads the charge on that front with a clear and unwavering focus on providing a compassionate service at scale to each injured employee.

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“We absolutely will continue to work with different types of healthcare organisations to bring in solutions that enable people to make a better recovery.” Innovators: James Hay, left, and David Bacon

“They are doing this by having a culture of doing the right thing for the injured person, coupled with AIpowered systems that help focus the team on the right claims.” BehaviourWorks Australia trained four handpicked QBE employees over 18 months in the field of behavioural insights and ways to apply it in the claims process. The initial results have been encouraging. The response times from treating doctors have improved 26%, with more important claims information provided. During the trial period, employers saved about $400,000 as claimants returned to work one week earlier through better engagement. Liam Smith, director and co-founder of BehaviourWorks Australia, tells Insurance News that what has pleased him most about the collaboration with QBE was the team’s “ability to understand problems in new ways, focus on target behaviours, make

better decisions about behaviour change interventions and test them”. Looking ahead, QBE intends to continue with the project. The insurer believes that more good work could still be mined from the initiative. “We certainly see this whole thing as being a continuous improvement program,” Mr Bacon tells Insurance News. “We are not intending at all to get to the end and say, ‘well congratulations, we did well’. It’s really about what are the further types of services that we can bring for injured people to enable them to get better healthcare and recovery outcomes. “We see that concept as being very broad – far more broad than has traditionally been the case – so we absolutely will continue to work with different types of healthcare organisations to bring in solutions that enable people to make a better 0 recovery.”

Project partners For now, the QBE initiative applies to the compulsory third party and workers’ compensation business lines nationally. Here are some of the program partners and what they bring to the table. Active Recovery Clinic and the whiplash recovery program The program uses advanced rehabilitation technology such as wearable bio-mechanic sensors to help injured people through their customised recovery programs. The technology allows medical professionals to remotely monitor, support and guide patients through exercises at home.

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Clara Analytics and artificial intelligence QBE has an exclusive partnership in Australia with Californian company Clara Analytics to use its AI and machine learning models throughout the claims journey. The end results are improved risk identification, claims allocation and understanding the impact stakeholders have in the recovery and claims outcomes. BehaviourWorks Australia and behavioural insights QBE has teamed up with the research arm of Monash University to develop a behavioural insights unit in people risk claims. The behavioural insights team is charged with understanding how stakeholders interact in the insurance journey to deliver a better experience for injured people.


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War of the clauses Double insurance containing escape and excess exclusions remains a grey area, even as an appeal court tries to clear the air By Bernice Han

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decision by the New South Wales Court of Appeal in November has again highlighted just how murky the waters can get when it comes to interpreting competing clauses in disputes sparked by double insurance. By a 2 to 1 vote, the court decided Allianz has the right to seek an equal contribution from Lloyd’s for the $1.025 million injury payout it made to a road worker who was hit by a vehicle while on duty. The ruling overturned an earlier verdict in the NSW Supreme Court last April. In that trial Justice Kelly Rees dismissed the Allianz case and awarded costs against it. At the heart of the dispute was the varied interpretation of the “other insurance clauses” that were contained in the liability policies that Allianz and Lloyd’s had issued separately to cover contracting company Baulderstone Hornibrook when the incident occurred in 2009. Baulderstone Hornibrook is the insured party in the Allianz policy that had been arranged by the Roads and Traffic Authority of NSW to cover construction risks for its contractors. The worker, a subcontractor of Baulderstone Hornibrook, sustained serious injuries from the accident and commenced proceedings against the company. Allianz indemnified the claim made by the worker and subsequently tried to recover half of what it had paid from the

Lloyd’s-issued public and products/contract works liability cover that the parent company of Baulderstone Hornibrook had arranged for its subsidiary. Here is where the complications arose: the Allianz policy contained an “excess” clause and the Lloyd’s policy carried a general exclusion – commonly referred to as an “escape” clause. The Lloyd’s policy clause says it “does not cover liability which forms the subject of insurance by any other policy and this policy shall not be drawn into contribution with other insurance”. Justice Rees determined the simple escape clause in the Lloyd’s policy meant there was no “underlying insurance” as defined by the Allianz cover. “It is not a case where the Allianz policy would respond but does not by reason of the existence of the Lloyd’s policy. “Rather, the Allianz policy specifically contemplates a scenario where there is another policy… which [also] provides cover for a risk but does not ultimately result in an indemnity for the insured because of the precise wording of that other policy.” Allianz had maintained the Lloyd’s policy was “underlying insurance” within the meaning of its policy. Its policy provided that it would not respond to any loss “until such times as the limit of liability under… other primary and valid insurance has been totally exhausted”.

According to Allianz, the exclusions cancelled each other out, in which case both insurers would be liable and “the one who pays can claim contribution from the other”. The Allianz position was supported by two of the three appeal judges, who ruled the clauses had the effect “of cancelling each other out,” meaning Allianz was entitled to seek an equitable contribution from Lloyd’s. The overturning of the Supreme Court decision demonstrates the importance of using “clear language” in policy wordings, according to a commentary on the case by law firm Clyde and Co. “The difference in opinion among the four judges shows that the issue of competing ‘other insurance’ clauses and double insurance remains a grey area open to interpretation,” it says. “For underwriters and brokers, the case highlights the importance to carefully consider how specific definitions are used and to ensure that clear language is used with definitions to convey the parties’ intentions.” According to Barry.Nilsson law firm, this is the first occasion when an appellant court has considered in detail the application of competing escape and excess clauses. It says the case is significant because “it highlights the potential complexities arising from cases involving double insurance and the practical difficulties parties may face in giving effect to competing oth0 er insurance clauses”.

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Eye on tech: IAG sharpens digital vision IAG has created a new Strategy & Innovation division as the leading personal lines insurer looks to strengthen its digital capabilities. Julie Batch will oversee the new setup as Chief Strategy & Innovation Officer. She was most recently Chief Customer Officer in charge of the insurer’s Customer Labs. The new division “combines IAG’s existing strategy function” with Customer Labs, which was created in 2015 to deepen the insurer’s customer insights through deployment of digital knowhow such as analytics and artificial intelligence. Group Executive Technology Neil Morgan will oversee an expanded Technology and Digital division. The move will bring together the digital teams from Australia and New Zealand, including staff from Customer Labs and the existing Group Technology team. According to IAG Chief Executive and Managing Director Peter Harmer, the changes are a “logical step” as the business builds on its core insurance portfolios and taps into adjacent opportunities. “We continue to evolve our operating model to

better align our customer and corporate strategies and further foster a culture of innovation as we consider and create new and different services for our customers,” Mr Harmer said. An IAG spokesman told Insurance News the aligned operating model will “ensure we have accountability in the right places across the business” and there will be “no major change to resources”. Ms Batch and Mr Morgan formally took up their new roles on February 24, reporting directly to Mr Harmer. They are part of the Group Leadership Team that includes Chief Executive Australia Mark Milliner, Chief Executive New Zealand Craig Olsen and Chief Financial Officer Nick Hawkins. In its annual report for the 2019 financial year, IAG flagged to investors the business would be stepping up its technology focus, encouraged by the results of Customer Labs since its creation. “Investments made through Customer Labs over the last three years, in data, artificial intelligence and innovation have encouraged IAG to accelerate its spend on these technologies and the associated businesses it is 0 developing,” the annual report says.

Targeting growth: HDI moves into accident and health HDI Global has expanded into the accident and health (A&H) market in Australia and New Zealand as the specialty insurer continues to grow its business, building on gains achieved last year. Chris McDowell will oversee the new portfolio, joining the company in January as Underwriting Manager A&H. He has 17 years’ experience in the sector and was formerly underwriting manager at Accident and Health International Underwriting. “It is a market segment that we believe we can do well in given the strength that we have globally in this area already,” HDI Global Regional Market Manager ASEAN and Australasia Willem van Wyk tells Insurance News. “I can definitely see it will grow substantially in years to come.” HDI Global Managing Director Stefan Feldmann is confident of making headway in the A&H line under Mr McDowell’s stewardship. “I am looking forward to entering the accident and health market in Australasia,” Mr Feldmann said.

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“With [Mr McDowell], we have been able to attract a well-recognised and highly experienced A&H Underwriting Manager. I am confident [he] has the skillset to launch and successfully lead this new product line for HDI Global.” In another sign of the insurer’s ambitions for the Australian market, HDI announced it is partnering with insurtech Precision Autonomy to target the fast-growing commercial drone market. As part of the partnership, the Texas-based digital outfit will underwrite both traditional and pay-perminute policies on individual drone pilot usage in Australia and New Zealand. “Precision Autonomy’s platform, rating and pricing models are dynamic and highly sophisticated,” Mark Fleiser, HDI Global Specialty SE Australia’s General Manager and Head of Branch, says. “I look forward to seeing this partnership realise its potential in offering brokers and their clients truly differentiated autonomous aviation risk 0 solutions.”


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Rugby stars take on AIG brokers New Zealand rugby players competed with brokers at an AIG event – in a game of mini golf. Kurt Baker, Vilimoni Koroi and Tone Ng Shiu from the All Blacks Sevens, and Niall Williams, Jazmin Hotham and Alena Saili from the Black Ferns Sevens attended the event at the end of January. AIG NSW & ACT General Manager Scott Bunting reported that the day was “a great success and lots of fun”. As a thank you for attending, AIG presented the players with a koala adoption certificate from the Port Macquarie Koala Hospital.

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Insurance House Advance inspires partners “Inspire, imagine, believe” was the theme for last year’s Insurance House Advance Authorised Partner Conference. More than 100 people attended the three-day event held at the RACV Club Melbourne. Speakers included National Insurance Brokers Association Chief Executive Dallas Booth, Steadfast’s Nick Cook, and Insurance House Group director Paul Batchelor, and the event featured an insurer marketplace for the first time.

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Steadfast Re turns five in style Steadfast Re went all out to celebrate its 5th year in operation with festivities featuring feather boas, glitter, and drag queen performances. A live band kept about 100 guests dancing into the evening in celebration of the important trading milestone for the company. Steadfast Re was formed after Chief Executive Simon

Cloney completed a management buyout of Beach and Associates Sydney in 2014, and then entered the reinsurance broking joint venture with Steadfast. The Steadfast Re team hosted the event at the Imperial Hotel in Erskineville to thank their clients, trading partners and colleagues from the broader Steadfast group for their ongoing support.

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CGU entertains brokers at polo event About 90 invited brokers and other guests turned up for the annual CGU Melbourne City Polo event at Albert Park. Victoria/Tasmania State Manager Jacinta Chisholm hosted the guests at the CGU marquee. Champagne and canapÊs were served as they networked and watched some of Australia’s best professional polo players slug it out in November. CGU held similar polo events in the other capital cities, with about 90 guests invited in Sydney, Brisbane, Perth and Adelaide. CGU has been hosting brokers at the Land Rover Polo in the City events annually. 84

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McLardy McShane raises $105,000 Drenching rain and winds above 80kmh were not enough to deter golfers at brokerage McLardy McShane’s FightMND charity day in Portsea on January 10. The 128 attendees raised more than $105,000 for the organisation, which works to find a cure for Motor Neurone Disease (MND) and is headed by AFL legend Neale Daniher, who suffers from the disease. The star-studded field included comedy duo Mick Molloy and Sam Pang. The Gruen Transfer panellist Russel Howcroft hosted a dinner at the Portsea Golf Club, introducing journalists Mike Sheahan and Caro Wilson who interviewed AFL chief Gil McLachlan and Demon legend Max Gawn.

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NTI hosts broker partners at annual Christmas party About 130 invited brokers joined NTI Chief Executive Tony Clark for the specialist transport and logistics insurer’s annual business partners function in Melbourne. Mr Clark and members of his team including General Manager of Commercial Mike Edmonds took the opportunity to thank the guests for

their support over the year. The function was held in December at Encore in St Kilda. NTI is a major player in the transport and logistics market, offering a variety of specialised covers through four brands: National Transport Insurance, Yellow Cover, Truck Assist and Marine Protect.

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n the June 2018 edition of Insurance News I wrote an article entitled “Beware the regulatory pendulum”, an (accidentally) prophetic piece that summed up what the insurance industry is experiencing 19 months later. In brief, it warned that regulatory change doesn’t come in a steady and orderly progression, but all at once. The article noted that regulation is governed by a wide range of factors – among them perceptions of the need for community protection and benefit, a desire for greater efficiency, changing public perceptions and, inevitably, political pressure. The last wave of massive change came in the early years of this century after the collapse of HIH, a giant insurer with a huge appetite for business that literally bit off more than it could chew, leaving a $5.3 billion (in 2001 dollars) hole. That was a catalyst for the formation of the Financial Services Reform Act (FSRA), which imposed measurable standards of professionalism and controls on all financial services providers. It involved major changes in financial services laws and policies, and threw a regulatory net over financial service providers who previously hadn’t been regulated under the Corporations Act. It also ended the highly regarded Insurance Agents & Brokers Act of 1984, a neat piece of legislation designed specifically for general insurance that defined the relationships and responsibilities of insurers and intermediaries. Since 2002 the general insurance industry has been placed alongside its financial services cousins in one big family. No more legislation specially for us – hence the removal of the exemption from unfair contract terms. The FSRA came hot on the heels of the 1997 Wallis Inquiry into the Financial System, which led to the formation of the “twin peaks” model of regulation – the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). The Insurance News article of June 2018 pointed to the ASIC actions that year to end the add-on insurance issue, in which car salesmen and others, acting as agents of insurers, were selling extended warranty policies that paid out little but reaped massive commissions. Customer compensation paid by insurers totalled more than $130 million. As Insurance News commented: “Insurers should count themselves lucky that the ASIC action was focused on righting wrongs rather than meting out penalties.

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By Terry McMullan Publisher

“Had this been the UK, for example, there’s little doubt the Financial Conduct Authority – formed in the dark days after the Global Financial Crisis – would have imposed multi-million dollar fines on top of the compensation, just to make the point clear.” What the article couldn’t predict was the Hayne Royal Commission into Misconduct in the Financial Services Sector, which followed a series of scandals involving the major banks. The Federal Government resisted calls for a royal commission until the media and community pressure became irresistible, and then lumped in the entire financial services family. Brokers weren’t even called to give evidence, while the mainstream general insurers emerged from the inquiry with some embarrassment but, compared with the major banks and investment giants, unscathed. That hasn’t saved general insurance from now facing a reinvigorated ASIC, which has moved away from its former soft-touch emphasis on “enforceable undertakings”. Shortly after the royal commission wound up, it introduced a new enforcement policy called, ominously, Why Not Litigate? Shades of the UK’s Financial Conduct Authority. which last year imposed 21 fines totalling £392,303,087 ($755.64 million) on financial services companies and individuals. (While UK life insurance companies copped several fines for mishandling pensions, it’s worth noting that not one fine was imposed on a general insurer or insurance broker.) The avalanche of legislation beginning to make its way through Parliament in response to the royal commission’s 76 recommendations (some good, some confusing, but all to become law) will keep lawyers and insurers’ company secretaries engaged for much of this year, and possibly the next. Most are not aimed primarily at general insurance, but some that are obviously intended to curb the ravenous greed of bank executives and investment companies will rebound on this industry. While the Government’s aim is to end up with a responsible, consumer-friendly and honourable financial services sector, some measures may well result in a disruptive compliance bureaucracy within insurance companies and compromises that mar progressive programs such as the industry’s codes of practice. But the legislative pendulum is swinging low right now so, as they’re fond of saying in Star 0 Trek, resistance is futile.


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Profile for Insurance News (the magazine)

Feb/Mar 2020 Insurance News (magazine)