A NIBA Brokers' Guide - Issue 9

A NIBA Brokers’ Guide:

PHILIP KEWIN Chief Executive Officer, NIBA

PHUONG LY Chief General Manager, Allianz Commercial

Understanding sustainability’s extended scope

We’re accustomed to reading and talking about sustainability in the context of our environment – however, the benefits of sustainable practices extend far beyond our climate.

Of course, the environmental impact, and importance of sustainability is significant.

We, as a profession, strive to build resilient communities that are better prepared to withstand and recover from the impacts of natural disasters, we’ve got to approach sustainability from numerous perspectives, including people, technology, buildings, supply chains – as well as the environment.

In this edition of our Broker Guide, created in collaboration with NIBA, we’ve explored sustainability from three angles.

Firstly, and most pressing, is ensuring everyone can access the insurance they need. After every natural disaster, we read stories of underinsurance as well as those situations where people don’t have insurance at all. As a profession, where this is down to cost, or down to a lack of understanding about the value of insurance, we have a responsibility to address this.

Key to establishing more sustainable and equitable insurance is understanding the individual risks customers face in far greater detail. Out of necessity, the industry has long relied on assumptions – a customer’s postcode, for example.

However, today, we increasingly have the tools and data available to us to better understand those individual risks and help ensure affordability.

Another crucial element of creating more sustainable communities in the longer term, of course, is reducing the damage caused by extreme weather events.

While we can’t control the weather, as a society, we have control over how we construct new homes – and how we improve existing buildings.

The more resilient a home is, for example, the less damage weather events can cause. And, while we’re never going to eliminate property damage, we can reduce it by working towards building codes that exceed the minimum expectations.

Creating resilience in our buildings will not only keep people safer but reduce the damage and long-term impact of weather-related damage, too.

That’s damage that can last for a long, long time, and over recent times it’s been exacerbated by significant delays in builders and tradespeople being able to carry out rebuild work.

Ensuring those supply chains are sustainable, so people can quickly get help when they need it, is another hugely important issue.

We’ve got a responsibility to help people back onto their feet as quickly as realistically possible, and ensuring we have those sustainable supply chains to rely on is fundamental to that.

We cover all of these crucial topics in this guide, which is the first of a three-part series exploring how we need to redefine sustainability.

Data is key to achieving insurance equity

Knowledge is power, and we’ve never had greater access to information than today. Data and geographical propensity modelling provide consumers with the knowledge they need to make informed insurance decisions –and insurers with the ability to individualise policies.

Australia’s changing climate and increased threat of natural hazards is a prominent concern for those underwriting, brokering, and purchasing insurance. Indeed, the threat of natural hazards is a major reason why areas of Northern Queensland, the Northern Territory and Northern New South Wales are cited as the most vulnerable for home insurance affordability pressure.1

That increasing threat is an ongoing concern for the insurance industry, with the cost of extreme weather events expected to hit $35.24 billion annually by 2050. 2

This is why, according to a spokesperson from the Insurance Council of Australia (ICA), insurance affordability is the industry’s number one concern.

“That’s why the ICA and insurers have been advocating so strongly for measures that reduce risk and in doing so, moderate pressures on premiums,” says the spokesperson.

Underinsurance has been a post-disaster headline grabber for a number of years now, and, unsurprisingly, is also on the minds of brokers, says Debbie Pilling, Head of Risk & Analytics, Australasia at Willis Towers Watson.

“Underinsurance reduces the resilience of the country to bounce back from events, with knock-on effects such as reduced employment and lost production – including agriculture – impacting the nation.”

“There is a real possibility that entire towns or suburbs will have to relocate and abandon community resources if insurance becomes prohibitively more expensive or underinsurance becomes more widespread.”

Lack of affordability threatens equitable access

Where affordability is a concern, so too is equitable access –which is a problem, given equitable access to insurance is fundamental to building resilience in communities.

Allianz Australia’s General Manager of Commercial Products & Portfolio, Adam Lloyd, says an equitable insurance solution is finding the right level of customisation.

“‘Equitability is all about really understanding the needs of customers and effectively providing a fair solution,” he says.

“We can learn more about customers, particularly through geographical profiling, so ongoing improvements in modelling tools are essential to understand varying needs. As we know more, a challenge in being equitable is considering individual risk characteristics while maintaining the pooling of risk principle as the heart of insurance.”

Advancements in technology are helping insurers – and brokers – to individualise insurance policies, thus tackling the equity challenge.

Geographical propensity modelling – sometimes known as natural catastrophe (nat cat) modelling – leverages spatial data to make predictions about the likelihood of a weather event in a geographic area. This technique assists both consumers as well as brokers and insurance providers to determine key factors like high-risk fire areas and flood zones.

Risk Frontiers has been assisting the insurance industry since 1994 with a suite of nat cat loss models. Managing Director Ryan Crompton says the modelling has a range of insurer uses, including to help determine aggregate exposure management, purchasing or repurchasing of policies and pricing.

“For quite some time now, there’s been a push towards risk-based pricing, which is particularly important for flood and bushfire where you can differentiate risk at the address level,” he says.

“The tools exist to be able to then assess risk at a fine level, particularly for things like bushfire and flood, where you can differentiate the risk.”

Using data to better understand the risks we face

The use of data and modelling is helping insurers better understand customers and the risks they face at a granular level.

“As an insurer, we have to make assumptions about customers. We use intermediaries like brokers to inform us more intelligently, or more holistically, of what that customer profile looks like to return a more equitable type of insurance solution for that type of customer,” says Lloyd.

Pilling notes the use of data is helping brokers optimise insurance agreements through renewal negotiations.

“Brokers can also collaborate closely with insurers to suggest risk mitigation strategies based on nat cat modelling insights. These could include structural improvements, disaster preparedness plans, or relocation suggestions.”

The ICA spokesperson says such technological advancements in modelling will also play a critical role in the future of the insurance industry, helping to reduce administrative costs, provide customers with clear information about their coverage, and empower them to make informed decisions about the risks they face.

Greater data means greater capability

As insurers begin to work with more third-party management consultants and technology, insurers are reaping the benefits of greater access to data.

“That is where we are seeing the evolution, as opposed to just an insurance company solely relying on the information that they’ve gathered in the past,” says Lloyd.

“I think we’re certainly seeing a richer pool of information and insights coming into the decisions that insurers are making when it comes to catastrophe modelling.”

There are also risk management benefits for brokers using modelling, says Crompton.

“If a client has a number of assets, which assets are the ones that are driving the insurance premium? The type of work that we do can help identify the risk profile of a broker client’s individual,” he says.

“Another area of focus is future climate scenarios. That’s another evolution from our point of view, where the cat loss models are used to look at future loss scenarios, using the modelling framework to look at the correlation between the perils.”

Tips for brokers

1. Geographical or nat cat modelling can help brokers understand a client’s potential risk and help them make informed decisions about their insurance.

2.Modelling can provide insights to help clients explore reducing their total cost of risk through resilience measures.

3.Look for parametric solutions that make payments on a specific weather event, instead of damage sustained.

4.Parametric solutions can provide liquidity and certainty for defined risks.

Climate change requires investment

Risk Frontiers provided data to the ICA’s Insurance Catastrophe Resilience Report 22-23, showing more than $16.8 billion was paid by insurers in natural disaster claims since the 2019-20 Black Summer bushfires.

An ICA spokesperson says that to stabilise insurance premiums in the long term, there needs to be greater investment by governments in resilience measures that increase the protection of homes and communities from the impacts of extreme weather events. This is an addition to changing planning regulations to stop further development in flood-prone locations.

Brokers need to play a critical role in preparing clients for future climate-related events, and the impact on their future insurability.

Pilling says, “We also need to be mindful that climate change uncertainty will make standard insurance products harder to obtain in areas prone to weather events. Clients need to build their resilience now to a changing insurance market so that they can take control and be disaster-ready, if not disaster-proof.”

“Brokers should be working with their clients to understand their future exposure to the changing climate and consider this as part of the longer-term strategy.”

1. ICA Climate Change Roadmap: Towards a Net-Zero and Resilient Future (PDF, 4.7Mb)

2. ICA Insurance Catastrophe Resilience Report 2021–22 (PDF, 3.6Mb)

Building sustainable cities and homes

Insurance is a key piece in the puzzle of future sustainable communities. The risk of natural hazards has never been higher, and sustainable buildings need to be resilient enough to withstand such weather events.

The concept of sustainability has moved beyond the scope of helping the environment to a comprehensive approach of improving the world we live in, including the urban development of our future cities.

As Australia continues to weather the effects of a changing climate, the need for a societal shift towards constructing sustainable homes and buildings has never been greater. This provides both opportunities and challenges for the insurance industry.

A spokesperson for the Insurance Council of Australia (ICA) says the role of the industry is vital in making a change.

“Insurance plays a vital role in building future sustainable communities, and by providing financial resilience, promoting risk mitigation and supporting sustainable infrastructure, insurance can help create a more sustainable society.”

The ICA is advocating for strengthening the National Construction Code (NCC) to legislate the need for more resilient new homes. This move is thought to have a flowon savings of close to $4 billion annually for homeowners.³

As major weather events are becoming more frequent and more expensive to recover from, addressing sustainability becomes central to the debate.

“Addressing sustainability in our properties and communities is a very important and pressing issue, and one which takes the combined efforts of the insurance industry, government and the community together,” says General Manager of Sustainability at Allianz Australia, Sema Whittle.

“As an insurer, Allianz plays a dual role – firstly, we continue to put in place measures to support our own resilience as an organisation, and secondly, to support our customers and the community.”

More than the minimum required

Resilient and sustainable communities are far better equipped against the increasing threat of natural hazards. While the NCC in Australia establishes baseline standards for the construction of buildings to minimise risk, it may not comprehensively address all the unique challenges created by a catastrophic weather event.

Dr David Henderson is the Chief Engineer of the Cyclone Testing Station based out of the James Cook University Campus in Townsville. Although the NCC sets a minimum standard for natural hazard-resistant criteria like wind loading, experts like Dr Henderson warn the minimum is just that.

“Pretty much everybody focuses on the minimum criteria and thinks: that’s great. Well, it’s just a minimum. A fairly crude analogy is your car – it’s got crumple zones and 27 airbags and all these things, it’s just not a latched seatbelt anymore. And that may well have been the minimum criteria,” he says.

“We should be really pushing to go beyond the minimum and the benefits that’s giving us in terms of thinking about better window seals, fixing our flashings to our building, fixing our solar panels more correctly and all those other things to improve the resilience and functionality of our building.”

Dr Henderson also said there are differences across the codes at state and territory levels, such as the key difference in wind load design in Western Australia.

The geographic area of a building must be considered beyond the basic NCC requirements. The ICA has previously called for all states and territories to reform planning rules to prevent new homes from being built in high-risk areas of the floodplain.

It’s also worth noting that the NCC primarily applies to the design and construction of new buildings and, in some cases, the structures associated with buildings. It also applies to the plumbing and drainage systems in new and existing buildings.

In October 2023, NSW became the first state to implement enhanced sustainable building standards for new homes and commercial buildings.⁴ These new changes align with the NCC 2022, which, although all states and territories have agreed to, has a varying timeline for commencing changes.

The strive to meet the challenge

A spokesperson for the ICA says the insurance industry has a responsibility to lead the way in addressing climate change.

“By working to reduce greenhouse gas emissions and promote a more resilient economy, the insurance industry can contribute to a more sustainable future for all,” the spokesperson said.

Allianz is one insurer working to reduce emissions. Some examples of their initiatives include using more digital assessments, electronic documents and looking for opportunities to repair over replace in its motor portfolio.

Using Green Specs to make changes

“The Green Building Council of Australia has partnered with Allianz to encourage their customers to make small changes to contribute to a more sustainable future,” says Whittle.

“Green Specs offers homeowners practical ideas to boost the energy efficiently and resilience of people’s homes.

“There are a number of barriers that people face when it comes to sustainable improvements, including the associated high costs and complexity,” she says.

“What entails sustainable renovations is still unclear, with almost half of Australian homeowners saying there isn’t enough information available on how to make their home more sustainable and they don’t know where to start.”

Davina Rooney, CEO of the Green Building Council of Australia, says the insurance industry has an enormous opportunity to drive the sustainable building conversation forward in Australia.

“In many aspects, insurers are the first to be aware of the full scale of damage and so there’s an enormous opportunity to take that key insight that they have and use that to drive strategic change across all of the industry,” says Rooney.

“The thing that we all want to see is a better-built form, which is more responsive to shocks and stresses in the built environment. There are real challenges otherwise – there is an enormous impact on everyone involved, and sadly, the most vulnerable suffer.”

Technology facilitating sustainably managed supply chains

A customer’s perceived value of insurance is often impacted by the claims resolution process. As Australia faces more natural hazards than ever before, advancements in technology and AI are helping the industry to meet increasing demand.

In the wake of a natural disaster, timely and fair claims handling is crucial. As of February 2023, the Australian Financial Complaints Authority (AFCA) found delays to be the leading cause for complaints in the 2022 floods in New South Wales and South East Queensland.

“In the past, the summer was our CAT season – however, today, the CAT season is essentially 12 months a year,” says Danny Adams, General Manager, General Insurance Claims at Allianz.

“As an industry, we’re now specialising in disaster response. We let the government and the emergency services play their roles at the beginning, and then it’s over to insurers to continue the recovery.”

Scott Cooper, National Manager, Disaster & Recovery at Allianz, agrees the frequency of natural disaster claims is increasing.

“As an insurer, we’re starting to see event frequency and therefore claims volume for CAT claims rival our BAU books. There are times where I think the two books are almost neck and neck,” he says.

How insurers can help improve outcomes

Considered to be the risk managers of society, insurers have a key role in establishing sustainable and purpose-driven solutions for the many facets of the claims process. When insurers and underwriters work closely with brokers, better customer outcomes are reached.

“In the first instance, I think that there’s a much better customer outcome where broker, insurer, builder-repairer all work together for the common good,” says Cooper.

Allianz use a rigorous Request for Proposal (RFP) process that includes regularly reviewing panels every three years to both minimise the environmental impact and ensure it partners with expert professionals with the ability to scale their efforts after a disaster.

This includes forming relationships with large, multifaceted trade professionals that can act as a ‘one-stop shop’ to help improve timelines from assessment to reconstruction and claims resolution.

“Understanding what supply chains we use on these types of claims ensures the right capabilities put on those claims from the beginning – not at week one, week two, week three,” says Adams. “We can fast track the assessment phase especially, but also ensure that our customers are looked after from A to B.”

Working in partnership with communities

Post-catastrophe, Allianz is working in communities with targeted efforts focused on streamlining partners to work efficiently in the same community.

“It gives us the ability to also drive and direct builder A for street number one, builder B for street number two and so on, so that we just haven’t got builders and or loss adjusters crisscrossing all over the place,” says Cooper.

“Ultimately, the goal is for Allianz customers to have the same builder, the same assessor, the same person that they know and who can work within our business through the whole claims process”.

The use of technology and data is also helping insurers learn about a customer’s loss, potentially even before the customer themselves know.

“The technology also provides value-adds that we’re trying to give to our brokers as well,” explains Adams. “Giving them the information to know that our joint customer essentially has suffered a loss. Brokers can also play a key role around communication.”

Aside from ensuring the claims resolution process is as smooth as possible, insurers – and brokers – must be part of rebuilding communities so that they’re more prepared and more resilient against future catastrophic events.

“I think that the re is a key role that insurer plays in the aftermath of a catastrophic loss in talking about what ‘building back better’ looks like,” says Cooper.

Against a backdrop of inflation and the rising cost of living, Cooper says a prudent and hard discussion between brokers and customers must be had around the true understanding of sums insured, and the realistic cost of repairing a home to a standard that can withstand a similar event.

“It’s a conversation that needs to be led by the insurance profession to help people understand what it’s going to be like to rebuild. It’s going to take a particularly delicate and targeted approach to work with customers around this area, and that’s the role an insurance professional like a broker will play.”

Why consistency is key

Data from ICA and finalisation rates are useful measures when insurance benchmarking. For Cooper, his main criteria are more subjective, particularly for regional areas.

“I think it’s how the customers are experiencing these things. If you’re a regional broker, for example, you’re living and working in that community,” he says.

“You’re going to see which insurers are active in your community because you’ve been through the event at the same time and you’re also going to have some corporate memory of the last event that took place in your community and who did well and who didn’t.”

Adams advises brokers to request a portfolio view of natural disasters from an insurer, to gauge the finalisation rates and speed they move at compared to ICA data.

How AI is changing the claims resolution process

The use of data and mapping gives insurers an insight into potentially impacted customers, who can then be contacted through outbound calls for welfare checks.

By partnering with data providers, insurers can use satellite images to see things like the depth of water in a flood zone every 12 hours, which can, in turn, help predict damage.

“We can identify and sometimes know of an impacted home before a customer themselves knows, particularly if they’ve been taken to an evacuation centre,” says Cooper.

“From our perspective, information is absolutely missioncritical to what we do, and it helps our partners. Being able to turn the data we get early into insights for our broking partners as well is so useful. We can get to the point where we can place an outbound call to a broker saying we think this is coming, you should contact our customer.”

Sustainability a key concern for insurers

Beyond the notion of efficiency, insurers in 2024 are looking for ways to minimise the impact on the environment.

“It’s a huge agenda for Allianz globally,” says Adams. “It underpins everything, every aspect of our business –from claims management to underwriting to supply chain, it goes right across our business and customers as well.”

“Really measuring their portfolio performance versus the rest of the industry will gain the broker some really key insights on insurance performance,” he says.

Research from ASIC shows the highest consumer satisfaction is from open communication and presentation of a map of the claims process, and it’s a sentiment that is backed by Cooper’s own experience in the sector.

“Natural hazard events are now so commonplace that it’s a real differentiator for insurers in terms of how we respond,” says Cooper.

“There will be differentiators around levels of cover, but there will also be differentiators around an insurer’s physical response to the event and how they are treating mutual customers. I think that’s been a real shift in the marketplace in the time that I’ve been doing this work and I genuinely believe its been for the better.”

The New Business Resilience – Part One

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