ALLIANZ FIRST TO JOIN POOL

Allianz Australia has become the first insurer to announce that it’s joining the cyclone reinsurance pool, advising that it will transition its householder portfolio into the Federal Government-backed scheme by the start of January.

The transition of residential strata and small business property will take place during next year, Allianz says in a submission to the Federal Parliament Joint Select Committee on Northern Australia.

“During 2023, Allianz also expects to look at options to grow market share in Northern Queensland and Western Australia, which will inject greater competition into these markets,” the insurer says.

Large insurers are required to place their cyclone-related risks into the pool by the end of next year, while smaller firms have an additional 12 months. The pool, run by the Australian Reinsurance Pool Corporation (ARPC), was launched at the start of July, but no insurers have joined to date.

Queensland-based RACQ says it is concerned that the pool will fail to meet the expectations of its 300,000 members in the north, even after examining more specific information released by the ARPC in recent months, and the pool needs a redesign if there is a serious intent for it to work properly.

Meanwhile, estimated premium savings set to be delivered to consumers by the pool have dropped after recalculations based on new data.

As insuranceNEWS.com.au has reported, the previous Coalition government flagged projected savings of up to 46% in home, 34% for SMEs and 58% for strata.

Following the federal election the Labor Government released different figures based on analysis by Finity. This showed average savings in the highest risk areas of 38% for home, 28% for SMEs and 18% for strata.

In October, however, the analysis was updated after insurers provided more data.
Finity’s report now shows average savings in the highest risk areas of 32% for home and 13% for SMEs. There is insufficient data to show an equivalent figure for strata.

COMMISSIONS ‘CAN STAY’

The Quality of Advice Review has proposed keeping general insurance commissions exempt from the ban on conflicted remuneration, with an additional layer of protection for consumers requiring brokers to first obtain written consent from retail clients for commissions.

The Review acknowledges the existing commission model in some cases does lead to a “conflict” for brokers and that this “conflict creates a real risk” that the quality of the advice provided is not as good as it would be if a client had paid directly for the advice.

But the Review says the risk that consumers may not be getting quality advice from brokers who are paid commissions has been “diminished” by a number of recent changes to the law.

The changes – made after the Hayne royal commission’s final report in 2019 – include measures in relation to anti-hawking, deferred sales of add-on insurance, design and distribution obligations, and the commission caps on consumer credit insurance.

“The general insurance industry is changing, voluntarily and in response to recent changes to the law,” the Review says in its newly published Conflicted Remuneration Paper.

“We have been told that, as a result of these changes, many of the key contributors to the misalignment between industry incentives and consumer interests such as volume bonuses and junk products have ceased or will shortly cease.”

The Paper says requiring brokers who provide personal advice in relation to general insurance products to have approval from clients that they can be paid a commission will help consumers make “informed” decisions.

The consent – which applies only to retail clients – must be in writing, stating the insured is aware the broker is getting a commission and other benefits from the product issuer for arranging the insurance.

Reviewer Michelle Levy will provide a final report to government by December 16.

RACQ APPOINTS INSURANCE LEADER

RACQ has appointed Trent Sayers, pictured, as Group Executive Insurance after he took up the position in an acting capacity mid-year following the departure of Tracy Green.

Mr Sayers, who joined RACQ in January as GM Claims, has more than 25 years’ experience in the financial services and general insurance industries. Previously he was RACT Insurance CEO and held various positions at AAMI.

“Trent brings a wealth of experience from across multiple insurance functions including claims, product, pricing and distribution,” RACQ CEO David Carter said.

“His passion and commitment for our members is clear, having supported many of them during one of the worst natural disasters in our club’s history earlier this year.”

Mr Carter says Queensland continues to face an increasing threat of more frequent and severe natural disasters and ensuring insurance remains affordable and accessible is a core focus for RACQ.

ASIC WARNING ON SUMMER CLAIMS

The Australian Securities and Investments Commission (ASIC) has written to insurers warning they should be prepared, proactive, transparent, consumer-centric and responsive in dealing with claims as they face a summer that’s likely to continue the recent heightened pattern of severe weather events.

The letter to directors says this summer is set for a continuation of La Nina conditions, with severe weather increasing in severity and frequency.

“As these events are expected to lead to increased claim numbers, it is an appropriate time for ASIC to restate our expectations in this area,” Senior Executive Leader, Insurers Rhys Bollen writes.

Expectations include that insurers will have adequately resourced and trained teams of claims handlers, complaints managers, assessors and other service providers.

Insurers should inform consumers about their policy coverage, including exclusions or optional benefits, when they lodge a claim or make an inquiry, explain the process, provide realistic expectations about progress, facilitate communication between consumers, experts and tradespeople and provide regular updates, it says.

ASIC expects insurers will review and refine response processes, continue to invest in systems to accurately record claims information and continue to invest in increased capacity and resources to deal with severe weather events.

The regulator says significant pressures in claims handling and dispute resolution appear to be a widespread and ongoing issue following a series of natural catastrophes and insurers should consider whether “a permanent uplift” in
resourcing is needed.

REINSURANCE RENEWALS ‘CHALLENGE’ AHEAD

Reinsurance prices are set to continue to rise and retention levels will also increase in upcoming renewals following more challenging market conditions in the wake of Hurricane Ian and Australian flooding, Swiss Re says.

The majority of Australian insurers renew reinsurance programs at the start of July but Head of Property & Casualty Underwriting, Asia, Australia and New Zealand Mark Senkevics says market drivers affecting pricing and retentions will be felt at both the January renewals and into the next mid-year period.

“It’s often been said that Australia’s in the eye of the storm when it comes to climate change and we’re seeing that play through,” Mr Senkevics tells insuranceNEWS.com.au. “I would sense that the reinsurance market will see some significant change in the coming year.”

Since the reinsurance rendezvous event in Monte-Carlo in September, the global reinsurance market has experienced Hurricane Ian, while loss estimates for the Australian flooding earlier this year have continued to climb, he said while attending the Singapore International Reinsurance Conference (SIRC) this week.

“The people I’ve spoken to here at SIRC are suggesting that the structure of the market needs to change in order to make it sustainable,” he said.

Reinsurers are also affected by reduced retrocession availability, with Hurricane Ian contributing to trapped capital in collateralised markets, while inflation pressures remain a persistant factor across the insurance sector.

ICA RELEASES EMISSIONS ROADMAP

The Insurance Council of Australia (ICA) has released a roadmap for insurers to meet emissions reduction targets and says it will advocate on behalf of members and their customers for policy settings that accelerate Australia’s transition to net zero.

The roadmap, launched at the ICA annual conference in Sydney, outlines pathways for insurers to achieve net zero emissions for their operations by 2030 and across underwriting, claims supply chains and investment decisions by no later than 2050.

“Insurance is a foundational component of the Australian economy with billions of dollars invested in industries globally, and coverage of millions of Australian homes, businesses and assets,” ICA CEO Andrew Hall said.

“This roadmap will play a critical role in enabling our industry to do our part in reducing emissions and achieving the goals of a net zero economy.”

INVESTMENT LOSS KEEPS PROFITS LOW

The insurance industry has made its first loss on investments in at least two decades leading to another year of low profitability as strong claims inflation also impacted results, the annual Finity Optima report says.

After a pandemic-induced collapse in return on equity (ROE) in the past two years, the outcome in fiscal 2022 was only marginally better at 3%, the report says. The result marks the third year in a row of returns below 5%.

The investment loss of more than $2 billion is the first since the Australian Prudential Regulation Authority began keeping records and reflects an unexpectedly rapid rise in interest rates and resulting paper losses on bond values as well as volatility across financial markets.

“It’s been quite an extraordinary year for investments, with an assault on all sides and that’s affected insurers’ investment performance,” Optima lead author and Finity Director Andy Cohen told insuranceNEWS.com.au. “The good thing is we don’t expect a repeat of this investment performance next year.”

Finity says in the report released today that it anticipates ROE will improve to 7.5% with the investment result expected to swing to a $3 billion profit. Premiums will continue to increase as insurers respond to the inflationary pressures and further correct past under-pricing in some areas.

“We are forecasting a bit of a bounce back in return on equity, but it’s still below target, and it’s very contingent on those investment markets behaving themselves, and getting back to a more normal outcome without the wild swings we’ve seen,” Mr Cohen said.

2022 has been a year like no other. War in Europe, China’s increasing belligerence and lockdown mania, the threat of a global recession, inflation, restless cities, natural catastrophes worldwide…the list is long and in an interconnected world the impacts are vast.

Not least, of course, for Australia. Cracks are appearing in the wall of Australia’s insurance dam. Massive rainfall totals and resulting floods during 2022 have caused reinsurers to think twice about Australia’s place in the reinsurance sun as a small but stable and predictable market, where natural catastrophes occasionally happen in small pockets of the country. The sheer amount of territory consumed by these floods will inevitably result in property insurance premiums continuing to rise.

Our cover article in this edition of Insurance News features QBE Group Chief Executive Andrew Horton, who warns of an imminent crisis in the industry as reinsurance rates rise and availability falls. He sees capacity shortages intensifying as the reinsurers scramble to keep up with the rising cost of record wildfires, floods and windstorms around the world.

This is going to put brokers on their mettle, and we are quite likely to see some new approaches to transferring risk emerging to deal with the lack of local capacity. Necessity is the mother of invention, and this time around we certainly need innovation and more thinking outside the traditional box.

Out of adversity there is one glimmer of positivity: insurance and climate change-related issues and options are at last being openly discussed and debated.

The federal and state governments now appreciate the need for action to ensure Australians, their property and their businesses, are able to secure affordable insurance.

After so many years of blinkered conservative politicians and bureaucrats ordered to silence, the emergence of a new attitude to climate change is very positive. But it won’t bring back cheap property insurance; climate change means severe weather risks are here to stay.

While this has been the kind of year that the late Queen Elizabeth once so aptly dubbed an “annus horribilis”, we’re at the time of year where the sun should shine and many Australians can relax. Not so much in the insurance industry, however, where the scale of the disasters being handled are likely to keep many seated at a keyboard. To them and our thousands of readers, the team at Insurance News extends to you the compliments of the season. Enjoy, and stay safe.

— Terry McMullan