Conference Issue 2018


Utmost good faith 'protects insurance buyers'

Obey the law, “that’s a good starting point”, deliver on the promise, and treat customers fairly.

That’s National Insurance Brokers’ Association CEO Dallas Booth’s take on core themes likely to feature large in the financial services royal commission’s final report.

He told the AILA conference the interim report found “wholesale disregard for the law”, greed, and senior managers making decisions contrary to legal advice.

There was ample evidence of actions that contravened the Corporations Act requirement for organisations to act “efficiently, honestly, fairly”.

Mr Booth’s “state of the nation” ranged across broad issues affecting the industry, including:

• The Insurance Contracts Act (IC Act) amendments took a decade to move from the Nancy Milne and Alan Cameron review report’s recommendations to the 2013 amendments and, in that time, it was not demonstrated that the Act was “fundamentally broken”.
• He is “quite worried” about the Australian Financial Complaints Authority because there is no right of appeal.
• The industry is now funding ASIC “to the tune of about $260 million a year”.
• NIBA and ICA have “major concerns” about the proposed product intervention legislation because no one knows what it would look like. “Will it benefit consumers or not?”
• Massive new funds and penalties are proposed and similar legislation in the UK is costing the industry “millions of pounds”.
• Unfair contracts legislation for insurance is still with Treasury – “watch this space”.
• Banks are considering caveat emptor versus caveat venditor (buyer beware/seller beware) but "what is overlooked is that insurance law has a different starting place – uberrimae fides". "Few people look at current insurance law to see whether it is adequate. It's disappointing policy development does not start with a serious understanding of the IC Act. There is plenty of law that puts real strength behind utmost good faith.”
• Is it time to do something really effective on disclosure and standard cover contract provisions? Treasury is preparing a discussion paper and NIBA will take an active role in the discussion.
• Insurance lawyer Michael Gill’s report, Too long, didn't read on PDSs showed disclosure was “a waste of time” and there needs to be something better to ensure people get what they assume is in a policy. Informed consent is required if consumers receive something else.
• “Let’s not forget the industry has paid $1.8 billion to rebuild Qld again after Cyclone Debbie. Shareholders struggle because claims are being paid.”

For the general insurance (GI) industry, Mr Booth said the year to 30 June 2018 had been "reasonably good" with GWP of $46 billion and a 60% net loss ratio, which was "comfortable".

APRA stats for GI for the years to 30 June:

  2015 2016 2017 2018
GWP ($m) 42,194 43,880 45,381 45,699
U/W result ($m) 1,572 2,219 3,495 4,176
Net profit ($m) 2,603 2,866 3,081 3,816
Net loss ratio 69% 66% 68% 60%
Return on net assets 9.3% 10.4% 10.9% 13.4%

Statistics varied across product lines: Houseowners/householders @ 30 June

  2015 2016 2017 2018
GWP ($m) 7,598 7,836 8,140 8,552
U/W result ($m) 160 536 482 892
Net loss ratio 69% 62% 64% 59%
Net U/W combined ratio 97% 90% 92% 85%
% of total premium       19%

Domestic motor vehicle @ 30 June

  2015 2016 2017 2018
GWP ($m) 8,041 8,507 9,012 9,625
U/W result ($m) 204 143 -40 340
Net loss ratio 75% 76% 78% 75%
Net U/W combined ratio 97% 98% 101% 95%
% of total premium       21%

Fire and ISR @ 30 June

  2015 2016 2017 2018
GWP ($m) 3,744 3,648 3,971 4,169
U/W result ($m) -785 -383 -319 -132
Net loss ratio 89% 73% 71% 65%
Net U/W combined ratio 133% 117% 113% 105%

Public and product liability @ 30 June

  2015 2016 2017 2018
GWP ($m) 2,227 2,218 2,294 2,365
U/W result ($m) 97 290 342 347
Net loss ratio 63% 39% 49% 48%
Net U/W combined ratio 95% 79% 80% 80%

Professional indemnity @ 30 June

  2015 2016 2017 2018
GWP ($m) 1,562 1,577 1,697 1,847
U/W result ($m) 165 130 266 114
Net loss ratio 62% 66% 55% 71%
Net U/W combined ratio 85% 88% 76% 90%

Mr Booth said the results showed variations were marked in product areas, with two separate "industries" – personal lines and commercial. The lack of "nasty cyclones" in the year to 30 June 2018 contributed to better results in the homeowner class.

In motor, modern motor vehicles contributed to claims costs. For example, windscreens now contained "serious electronics" and front bumper bars had "massive amounts of radars and sensors", which drove up repair costs.

In fire/ISR, premiums were decreasing and pricing was "just not right". "There's been a lot of change at underwriting levels. Underwriting results can't be negative," Mr Booth said.

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