Travel Insurance Claims in the Current COVID Climate

Insurance Updates

As Australia’s vaccination rollout progresses and the availability of on-the-spot COVID testing grows, travel within certain parts of Australia is starting to become possible again. That said, developments over recent weeks highlight just how quickly the situation can change, meaning plans are put on hold or cancelled altogether. This article discusses how insurers are currently viewing COVID-related travel insurance claims and provides practical tips to help you reduce the chances of losing money in the event COVID throws your travel plans off course.

 

TRAVEL INSURANCE STATUS UPDATE

In general, most travel insurers are taking the stance that insurance is only available to cover sudden and unexpected events. Given the various travel restrictions and the high-level warnings which have been in place since mid-March of 2020, this generally means travel insurance for COVID-related impacts is not available.

Having said this, some travel insurance policies may provide cover for interruptions due to COVID. Some policies now cover medical expenses as well as cancellation costs caused by the virus. The catch? The Australian Government must allow travel to that destination* (for example, to New Zealand). However, there is still no insurer who is providing cover for sudden state border closures or travel bans. This is simply an impossible risk to price. 

 

WHAT YOU CAN DO: RISK MANAGEMENT

For now (restrictions permitting), the best option is to go local, and book accommodation which allows free cancellations up to the day before your booking.  When taking out travel insurance, read the Product Disclosure Statement carefully. Look out for specific COVID exclusions, and what the insurer considers acceptable means of reimbursement (such as travel credits). Even if travel credits are not your preferred format, some insurers may see that as adequate coverage for your loss. Other important considerations include whether travel requires you to be vaccinated, to receive a recent negative COVID test result, or to wear a face mask indoors and on public transport.

 

WHAT YOU CAN DO: IN THE EVENT OF A CLAIM

If a claim is necessary, request a refund from the provider first and foremost, and even ask your bank for assistance in retrieving the refund through the provider’s merchant. If this is unsuccessful, travel insurers will require evidence the trip was cancelled due to enforceable COVID restrictions and copies of all correspondence between you and the provider, so it is always best to correspond in writing.

 

A NOTE ON LOCAL TRAVEL BOOKINGS MADE PRIOR TO COVID-19

In a recent decision about pre-COVID travel plans which were not possible due to a lockdown, The Australian Financial Complaints Authority (AFCA) found it was unreasonable for the insurer to decide local travel booked before, or early during the pandemic was a foreseeable risk because lockdowns have only recently become a normalised response to outbreaks. AFCA advised that a year ago, it was unreasonable to assume anybody could have foreseen a return to lockdown, meaning travel booked prior to COVID-19 (or early in the pandemic) should not have the ‘foreseeability’ exclusion applied.

Most travel policies now have specific exclusions relating to COVID-19 cancellations, and if this is the case, the ‘foreseeability’ clause is irrelevant.  Therefore, prior to making any firm travel plans, be sure to check the travel policy for any general exclusions relating to COVID-19.

 

NEXT STEPS

If you believe you may have a travel insurance claim, please reach out to your Honan broker to discuss.

 

Claudia Pengly

Claims Executive

claudia.pengly@honan.com.au

 

*At the time of publication, aside from New Zealand, international travel is banned by the Australian Government, so no insurer will cover cancellation costs and accident/medical costs for overseas travel.

 

 

Discover the latest updates for COVID-related Business Interruption Claims.

CLAIMS SNAPSHOT: Q4 FY21

Insurance Updates

By Poppy Foxton – Head of Claims

 

KEY TAKEAWAYS FROM FY21: Q4?

We have been closely monitoring the outcomes of the two COVID-19 Business Interruption (BI) test cases underway in Australian courts. With two-thirds of Australian small businesses suffering loss of income related to COVID-19 outbreaks and one in ten ceasing to trade for a period, the outcome of these cases is paramount to the survival of many.

The first BI test case, which was run by the Insurance Council of Australia (ICA) and Australian Financial Complaints Authority (AFCA) argued that insurers could rely on the policy exclusion referring to the repealed Quarantine Act to deny COVID-19 claims. However, in November 2020, the NSW Court of Appeal ruled in favour of policyholders, citing that the Quarantine Act 1908 “and subsequent amendments” could not be read as also including the current Biosecurity Act 2015. As a result, insurers cannot rely on exclusions that only refer to the Quarantine Act to exclude COVID-19 BI claims.

As expected, the ICA appealed the outcome in the High Court of Australia, but on June 25, 2021, the appeal was rejected. While the outcome of the second BI test case (which examines issues of the definition of disease, proximity to an outbreak, and prevention of access due to government mandates) is still pending, policyholders are now being encouraged to lodge their claims with insurers.

The test cases have prompted insurers to review and revise their policy wordings and set aside millions in reserve to cover these losses.

KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q1): 

Preparing a BI claim can be time-consuming. Depending on the extent of the income loss, it may be worthwhile engaging a forensic accountant (loss preparer) to assist in quantifying and preparing sufficient supporting evidence of the loss. Many policies provide coverage for these types of loss preparation expenses (up to a limit), but it is important to note that until the insurer accepts the claim and confirms the loss is covered, there is no guarantee the loss preparer costs will be covered. Honan is ready to assist clients in preparing claims or engaging reputable and experienced loss preparers to support a claim submission.

 

ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN  FY22?

The last 12 months have seen a raft of regulatory changes related to claims handling and settling. As a result of the Haynes Royal Commission recommendations, claims handling and settling is now classified as a financial service, meaning as of December 31 this year, any business providing this service must hold an Australian financial services license (AFSL) for claims handling and settling. While there are some exemptions for brokers as intermediates, most insurers and claims third-party administrators will be required to hold the license. ASIC will work with AFSL applicants to determine the outcome of license requests between July 1 and December 31, 2021.

These changes, in addition to changes to the 2020 General Insurance Code of Practice and Dispute Resolution Processes Regulations, are designed to ensure an efficient, honest, and fair claims process. Claims Managers will need to demonstrate that all their representatives meet the standards in terms of claims progress timeframes, providing clear and regular communication, and adopting flexible and fair processes for claimants experiencing vulnerability or financial hardship. In FY22, Honan expects to see insurers providing significantly more communication around their claims services; from the provision of fact sheets when offering a cash settlement, to more streamlined dispute resolution processes.

 

 

 

Discover more market updates from this edition of HoneIn.

 

CORPORATE SNAPSHOT: Q4 FY21

Insurance Updates

By Travis Wendt – National Head of Corporate Insurance & Risk Solutions

 

KEY TAKEAWAYS FROM FY21: Q4?

The Property & Casualty market remains challenging overall, but we are starting to see a shift towards the end of the June quarter (Q4), especially around pricing and increased levels of competition. Whilst distressed risks (higher risk occupancies, catastrophe exposed, or those with a poor claims history) are seeing rate increases exceeding 25%, reduction in coverage (limits and sub-limits), and limited capacity.  We saw pricing increases for ‘good risks’ during the March quarter (Q3) of between 10% and 15%, however, this reduced to 5% and 7.5% in the June quarter (Q4).  In some instances, when further competition was introduced, clients were able to obtain a rollover of rating on expiring terms and conditions.  We expect this trend to continue for well-managed risks.

The Casualty segment continues to see further increases in rates (starting at +7.5%) as profitability remains poor and insurers are more conservative in the capacity they deploy.  This is coupled with the need for greater levels of Management approval.  Overall, limits and capacity remained stable during the last quarter, although bushfire, molestation, and sexual abuse cover, and construction risks with worker-to-worker exposures seeing pricing increases, again due to a contraction, re-deployment of market capacity, and continued remediation of portfolios.

Overseas markets such as Singapore continue to play a crucial role when marketing and placing certain risks.  Over Q3 and Q4, our use of the Singapore insurance market has increased due to interest from insurers who are more open to quoting Australian risks to diversify their portfolios.

 

 

 

KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q1): 

Insurers remain risk selective as they strive for a balanced and profitable portfolio.  We expect pricing increases to continue with insurers still looking to limit and, in some cases, exclude their sideways exposures, these include non-damage business interruption, prevention of access, and communicable disease for property risks, and worker-to-worker exposures in the liability segment.  For the larger Australian insurers that are based in Australia, June/July marks the anniversary of their treaty reinsurance, with any changes in underwriting appetite, pricing, and coverage to be better understood over the September quarter (Q1).

 

ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN  FY22?

Aside from ‘good risks’ where competition is driving down the cost of insurance, pricing increases are likely to continue until there is more consistent profitability in the insurance market. Opportunities for clients to restructure certain insurance programs or introduce co-insurers may also improve pricing.  While Q1 is considered a benign period for natural catastrophes in Australia, insurers will be hesitant to accumulate too much risk to offset the impacts of non-modelled catastrophe events such as hail, storms, and water damage.

 

 

Discover more market updates from this edition of HoneIn.

UPDATE: COVID-19 Business Interruption Test Case

Insurance Updates

Today (25 June 2021), the High Court rejected the application filed by the Insurance Council of Australia to appeal a NSW Court of Appeal decision in November 2020 that insurers could not rely on exclusion wordings citing the Quarantine Act 1908 (Cth) and subsequent amendments to reject claims for disruptions related to COVID-19.

 

Last year’s decision in November concerned a unanimous judgement by the NSW Court of Appeal (which included the Chief Justice of the Supreme Court) which determined that:

The Biosecurity Act 2015 (Cth) was not a subsequent amendment to the Quarantine Act; and

references to the Quarantine Act were not obvious mistakes that should be construed as if they were, or included, references to the Biosecurity Act.

 

It is important to note that the original decision is a NSW decision and other states are still able to prosecute test cases in their respective states, though this scenario is highly unlikely.

With this issue determined, we await the trial and decision of a second test case, which will clarify issues such as prevention of access to premises caused by Government mandate, the proximity of an outbreak to a business, as well as the definition of disease.

 

WITH YOU ALL THE WAY

We will keep you updated on developments arising from the second test case, which is expected to be heard in September 2021.

If you have any questions, or you believe you may have a claim, please contact your broker.

 

 

 

 

When Broker is Best: why medical indemnity insurance warrants informed advice

Insurance Updates

For registered medical professionals within Australia, medical indemnity insurance is mandatory. And so it should be – a doctor’s professional reputation is integral to their ability to practice. Unfortunately, however, not all medical indemnity policies are created equal. A sound policy takes careful consideration and close consultation to develop and must be ready to respond to the unique risk profile of its holder.

Right now, many policies held by Australian practitioners have been placed without adequate consideration or advice, which means in a time of need, the policyholder is often left uncovered and exposed to significant risk; financial and reputational. 

Many doctors deal directly with an MDO (Medical Defence Organisation) when securing their indemnity insurance, and it is common for them to retain the same provider throughout their career. Such loyalty is not simply attributed to policy satisfaction, but a perceived difficulty associated with changing providers. As we outline below, however, medical professionals should tread carefully when it comes to indemnity insurance, and quality advice plays a major role in this. 

 

WHY IS MEDICAL INDEMNITY INSURANCE ADVICE IMPORTANT? 

Each MDO has a unique approach to both appraising the risk of its customers (doctors) and servicing them during a claim. From our experience at Honan, it is not easy for doctors to access clear and transparent information relating to all policy options available to them. Partnering with a broker helps to ensure all key information has been disclosed, and the policy offers robust, truly purpose-fit coverage for their role. Sadly, when challenged with this request, direct providers will typically refer their clients to the terms and conditions of the policy.

At Honan, we partner with medical indemnity insurers to provide outstanding protection and service for specialists. They are all backed by Government schemes including the Department of Health’s Run-Off Cover Scheme, High-Cost Claims Scheme, and offer ‘first time in’ private practice discounts, which remain with the doctor in the instance of transferring policies or moving providers.

 

PREMIUMS FOR MEDICAL PROFESSIONALS – CHANGES AFOOT 

There are several upcoming industry changes set to impact premiums for doctors. As the Federal Government looks to reduce its support of certain schemes, our Honan team is here to provide clients with clear information, options, and advice.

Our clients in the Australian medical space have benefited greatly from our services which include:

  • Complimentary market analysis – often identifying areas for improvement
  • Advice on individual circumstances as a specialist
  • No additional charges on insurance premiums
  • Access to Honan Private Client team for personal insurance
  • Clarity around retroactive cover and ROCS
  • Yearly policy reviews on renewal
  • Obtaining group discounts on insurance
  • Free access to the EIDO Healthcare system which provides capabilities like information to be sent directly to patients pre-procedure, as well as digital consent functions. You can read more about the capabilities and benefits of this technology here.

 

WITH YOU ALL THE WAY

To find out more about Honan can support you with your individual or practice-wide medical insurance needs, please reach out at any time.

 

Trent Woodward

Head of Health & Medical

trent.woodward@honan.com.au

 

 

Discover the latest health and medical digital innovations delivering big wins 

UPDATE: Victoria’s residential rental laws have changed | What landlords & tenants need to know

Insurance Updates

On March 29th, 2021, the Victorian Government enacted a raft of new rental regulations, making over 130 changes to the Residential Tenancies Act, 1997. The changes are intended to set minimum standards for the condition of rental properties and enhance the rights of tenants.

The changes are designed to take in the entire length of the tenant/landlord relationship, from the first inspection to the return of the bond after the end of the tenancy. Here is an overview of the information you need to know – at every stage.

 

BEFORE THE TENANT HAS THE KEYS

The practice of inviting rental bids or soliciting higher offers than the advertised price is now forbidden in Victoria. This means the advertised price and the ‘going rate’ are the same. In addition, 14 minimum standards have been introduced, including the requirements for a:

  • working toilet and door locks
  • three-star shower head
  • vermin-proof rubbish bin
  • working stove
  • food preparation area and sink in the kitchen.

Landlords must also ensure tenancies:

  • are free of mould
  • have appropriate lighting and ventilation
  • are energy efficient
  • have appropriate gas and electrical safety checks conducted (for tenancies starting on or after 29th March 2021).

 

ONCE INSIDE THE FRONT DOOR

Before these changes, some landlords and property managers refused to permit minor modifications to rental properties by tenants. Under the new changes, tenants can make modifications unless there is a “reasonable reason” to prevent them from:

  • installing picture hooks, shelves, and child-safety devices without receiving consent from their landlords
  • painting the premises, provided the property is returned to the previous colour at the end of the tenancy
  • making changes to outdoor areas by adding a herb garden
  • installing additional locks, including on the letterbox
  • replacing the doorbell with a wireless camera model

 

EVICTION RULE CHANGES

There has been a major change to the accepted valid reasons for eviction. Previously, a landlord could state “no specific reason” when evicting a tenant. This is no longer the case.  Acceptable reasons for eviction now include selling the property, the owner moving back into the property, and building demolition for development.

 

END OF TENANCY – RETURN OF THE BOND

To limit drawn-out disputes over bond returns, a departing tenant can make an application to the Rental Tenancies Bond Authority upon leaving their property. A landlord only has 14 days in which to make a claim on that bond for compensation, or the bond will be repaid in full to the tenant.

 

A FINAL NOTE

Landlords in Victoria need to familiarise themselves with the changes, particularly as they may need to make upgrades to their properties. These upgrades should also be considered when budgeting for the maintenance of the properties. A full explanation of the changes to the Victorian rental laws is available here.

 

 

WITH YOU ALL THE WAY

Matthew Henderson

Operations Manager – Underwriting Facilities & Strata

matthew.henderson@honan.com.au

 

 

Find out about Emergency Accommodation & Loss of Rent

 

 

Rising Insurance Premiums: How global markets impact local pricing

Insurance Updates
To unpack how losses around the world may be influencing the price of your insurance locally, and whether you can expect pricing corrections any time soon, Eliza White – Managing Director of Honan Asia sat down with three insurance and reinsurance experts.

 

 

 

ELIZA: FOR SOME TIME, WE HAVE BEEN HEARING ABOUT A HARDENING INSURANCE MARKET, WHICH IS CHARACTERISED BY A LACK OF SUPPLY AND HIGH COSTS, BUT HOW DID WE GET HERE?

 

Insurance is founded on the concept that the premiums of the many pay for the claims of the few. A powerful principle, but the challenge comes when the cost of claims exceeds the total pool of premium. The increasing costs of claims are triggered by a range of factors including natural catastrophes, urban sprawl, interest rates, and claims inflation. For instance, in Australia, the cost of claims has increased by 9.1% since 2013/14, due in part to the 2019/220 bushfire season, where losses totalled $2.3billion.

Each insurer has a limit to how much insurance they can provide – this is known as their capacity. Because there has been a dramatic increase in claims globally, insurers are more cautious about taking on risks and their pricing increases. One way for insurers to offer more capacity is by purchasing reinsurance.

 

 

ELIZA: HAVE YOU EVER WITNESSED A HARD MARKET LIKE THE ONE WE ARE CURRENTLY EXPERIENCING? IF SO, WHAT CAUSED IT?

 

Generally speaking, a hard market is driven by something that is not foreseen by the insurance industry. For example, terrorism has been excluded ever since September 11, just as Infectious Diseases are now being excluded.

 

I have witnessed similar conditions to the current market while working in London in the years following the 2005 US wind season and while working in Asia following the string of natural catastrophes in 2010-11 which included the devastating Christchurch earthquakes, Queensland, and Thailand floods, and Tōhoku earthquake and tsunami. I wouldn’t classify these as hard markets though. They severely impacted insurers’ results and caused significant pricing corrections, however, there was still capacity around for brokers in the following years to complete placements, which is generally not the case in a “hard market”. 

The September 11 terrorist attacks triggered what I would classify as a hard market. Before this event, insurance companies hadn’t properly considered the exposure/peril of terrorism, and adequate pricing and aggregate management were not factored into their underwriting. This event depleted global re(insurance) capacity, pushing pricing to levels not seen previously for most products/classes of business. This event also gave birth to a new class of business: Terrorism, which up until this point had been absorbed by property insurers. In the years following, several start-up (re)insurance companies entered the market, particularly in Bermuda; this increase in the supply eventually helped to reduce pricing to pre-event levels over the next decade.

 

Other than September 11, the 2010 Christchurch Earthquakes caused pricing corrections. This only lasted 18 months and was very much isolated to New Zealand.

I wouldn’t say we’ve hit a hard market yet. A truly hard market is when brokers absolutely cannot place a risk at all. It’s teetering on that for some. Underwriters are told by Head Office “you now only have $10 million of capacity to deploy (typically an insurance company would have hundreds of millions of capacity), so use it wisely”. So that’s when I think it would be a hard market – where their hands are almost tied, and everything is a referral to Head Office.

 

 

ELIZA: YOU HIGHLIGHTED THE ISSUE OF CAPACITY. REINSURANCE PLAYS A PIVOTAL ROLE HERE; CAN YOU EXPLAIN WHAT REINSURANCE IS EXACTLY?

 

Reinsurance is essentially insurance for Insurers. Insurers purchase reinsurance for the same reason that individuals or businesses purchase insurance – to transfer risk.

 

Just as a homeowner will look to purchase insurance because they can’t retain the risk of their house burning down; if insurance companies can’t retain the risk for a major flood or bushfire, they will look to purchase reinsurance for these exposures.

 

Reinsurance is a tool used by insurers to manage aggregate exposures and minimise volatility across portfolios via risk transfer. For example, Australia has seen an increased frequency of natural catastrophes such as bushfires, floods, and storms over the past decade, increasing the level of capital insurers need to hold on their balance sheets to continue maintaining coverage for these perils for clients. Transferring some of this risk to reinsurers is often a good solution to manage this.

 

 

ELIZA: WHY DOES AN INSURANCE COMPANY NEED TO BUY INSURANCE THEMSELVES? 

 

Reinsurance balances an insurance company’s portfolio, rather than having a major loss that could wipe out a whole year’s premium. Reinsurance protects insurance companies and allows them to keep offering insurance to their clients.

 

For example, if a client has a policy limit of $10 million, an insurance company may only be able or comfortable in providing $5 million worth of risk capacity to that client. The insurer may look to buy another $5 million of reinsurance, so they can provide $10 million in capacity to that client. In this instance, while only half of the capacity is the insurer’s and the other half is reinsurance capacity, the client will only see $10 million from one insurer, which makes claims management very easy.

The alternative would be to have two or three insurers providing that $10 million in capacity, but any amendments or claims would then ultimately need to be communicated back to two or three insurers. Reinsurance enables you to deal with one insurer who represents your whole policy limit (i.e., $10 million).  

 

 

ELIZA: WHY MIGHT THE COST OF REINSURANCE AFFECT INSURANCE PRICING FOR CLIENTS ACROSS ASIA PACIFIC?

 

Reinsurance pricing will increase in response to losses, but you can also have areas of the market where a shortage of capacity exists, so it’s a supply and demand issue. In markets where insurers have decided not to service certain geographic locations or industries, you have a lack of supply, so the pricing will go up.

It affects it quite a lot. If reinsurance costs are $500,000, that’s what insurers need to charge when they provide the insurance to their clients. If the price of reinsurance increases by 20% for a company, then across their entire portfolio they will need to charge an extra 20% in premium to pay for the higher costs. When you hear the term ‘hardening market’ and your rates are going up by 10%, that’s because insurance companies themselves have to pay 10% more to continue offering insurance.

For insurance companies, when their cost of reinsurance increases this adversely impacts their expense ratios as their fixed costs remain the same so this, in turn, drives up the premiums they need to charge clients to maintain the same level of coverage. 

 

 

 

ELIZA: WHY DOES THE PRICE OF REINSURANCE CHANGE SO DRAMATICALLY?

 

Claims and capital. The cost of claims and the cost of capital dictate the price increases and decreases of reinsurance. Events such as hurricanes, fires, typhoons, and earthquakes are really driving costs of insurance. These are not the same as isolated events like a fire at a factory – they’re large environmental catastrophes that cost insurance companies, and in turn reinsurance companies, billions of dollars. Unfortunately, it has been another hectic natural catastrophe year to date, which means little chance of reinsurance pricing reprieves landing in the next 12 months.

COVID-19 hasn’t helped, and these big losses are suffered by the entire industry. When the insurance and reinsurance markets are losing money, insurers increase their pricing and often deploy less capacity in the insurance products that they offer.

In the current market, rate increases of ~10% are a fantastic result for clients.

An additional factor to bear in mind is that many of these insurers (listed enterprises with shareholders expecting dividends) have been running at a loss for upwards of six years now. Ultimately, it might take a few consecutive years of positive performance before such pricing is passed on to the consumer in the form of lower premiums. 

 

 

 

ELIZA: DOES THIS MEAN LOSSES TAKING PLACE AROUND THE WORLD COULD AFFECT THE PRICE OF MY INSURANCE IN ASIA PACIFIC?

 

Yes, because the majority of insurance companies will purchase reinsurance for their business globally, known as a ‘treaty’. Therefore, even if losses are predominantly affecting the US, it will impact what insurers can do here in the Asia Pacific region.

These days it’s very much a global play for insurers, with direction and strategy dictated from a centralised Head Office, often located offshore. 

Going back to basics, insurance has always been designed to spread the losses of the few across the many. If you look at an event in isolation and say “I haven’t had a claim for 10 years so I shouldn’t pay any additional premium”, that’s great, but the person who had the $100 million loss last year simply can’t pay $100 million in premium the next year. That loss has to be spread between the 50 companies that didn’t have a loss that year … so if they do have a loss, they don’t pay a $100 million premium in the next year.

 

Yes, events in the US, Europe, and other countries certainly impact insurance costs in the Asia Pacific. For example, in 2005 and 2017, large losses from the US Hurricane Seasons (Katrina and HIM) impacted the amount of reinsurance capacity available in the market. Most of the major reinsurers have operations all around the world, so this change in supply and demand dynamic resulted in reinsurance prices going up globally which impacted the cost of capital for insurers everywhere, including Asia Pacific.

 

 

ELIZA: HOW DO INTEREST RATES AFFECT THE PRICE OF INSURANCE?

 

It’s a worldwide view on investment returns. With interest rates currently at an all-time low, insurance companies aren’t able to make investment returns that have historically been used to offset underwriting losses. Again, it comes back to demand and supply. If the supply of insurance capacity is down, then the pricing goes up.

 

There are two parts to this question. One is that insurers and reinsurers rely on capital to be able to provide insurance. That capital is provided either through shareholders or private equity and that capital is always deciding where it can get its best return for the dollars committed. If investors can get a good return on investing in insurance, capital will flow freely to insurance companies. If interest rates are 20%, investors can achieve a higher return elsewhere, so they’ll take it out of insurance.

The second half of the equation is that insurance companies in turn have their own investment arms. When interest rates are really high, insurance companies are pushed to write a lot of premium to take that cash flow and invest it at higher interest rates. At such times, insurers will have greater risk tolerance and deploy more capacity.

Right now, the big players in the Australian market would have to focus on underwriting profitability as they’re unable to produce investment returns to offset underwriting losses. ‘De-risking’ is the term they use. This is ultimately driving price hikes. The current climate encourages insurers to reduce the amount of capacity they deploy, so again, supply and demand.

 

 

 

ELIZA: WHEN DO YOU ANTICIPATE PRICING CORRECTIONS FOR CLIENTS IN THE CURRENT MARKET?

 

I don’t see it happening this year, but I don’t think it’s too far away, to be honest.

If there are no major natural catastrophes, and there is some relief from COVID-19, investors will start to see two or three years of profitability from their insurance investments. With interest rates where they are, investors globally will see insurance as a way to secure a relatively high return on investment. As an investor in a depressed economy, if I’m able to secure 10% by investing in insurance stocks, that’s fantastic, where else would I get that type of return? Give it another year or two of that type of return and you’ll start to see capacity come back into the market. Some insurance companies have short memories, they’ll start to come back and they won’t be so selective and aggressive.

 

Most insurers have seen strong positive compound rate change since 2017, however, the market still isn’t back to pre-2012 pricing levels which gives you an idea of how much rate left the market during the softer underwriting years of 2012-2017. I think the pricing is going to remain pretty consistent for the next 1-2 years as most insurance portfolios are only just getting back to or nearing 100% of technical adequacies so underwriting discipline will continue.

The clients who will fair best in the coming years will be those who invest in their risk management, prioritise quality risk data and up-to-date information, and engage with proactive brokers presenting detailed submissions to insurers months before inception. 

 

 

 

WITH YOU ALL THE WAY

These market conditions are fluid, and we are committed to keeping you updated and informed with relevant and practical insights as the situation evolves.

To understand more about reinsurance or find out about Honan’s reinsurance offering – Honan Re, be sure to reach out at any time.

 

TOM JOYCE

New Business Manager – Honan Re

tom.joyce@honan.com.sg

+65 9839 7067

 

Insurance Update: Financial Institutions

Financial

The Financial Institutions insurance market continues to harden, with reduced capacity to underwrite risk as we progress further into the 2021 calendar year. Insurers are pressing for increased premium and/or retention levels on a portfolio basis (rather than a risk-by-risk basis) to grow the premium pool. 

Global volatility presents a major concern for insurers, given the anticipated resurgence in the markets and has been the key driver for increased premium rate momentum. With the Australian market floating on an unprecedented level of monetary and fiscal support, investors sitting on large cash reserves, and rapid accelerations in equity gains; underwriters are concerned about sudden devaluations to the market and consequent investor legal suits.  In addition, the lingering effects of the Hayne Royal Commission remain an integral rating factor, as well as any potential long tail claims arising from COVID.

Despite the above however, we are starting to see bright spots in terms of risk appetite navigation.  Following multiple years of the hardening phase, and notwithstanding the unpredictable market cycles, insurers have carved out much better clarity, visibility, and consistency with respect to their appetite across the different FI sectors.

 

KEY TAKEAWAYS FROM FY21: Q3

In Q3, Financial Institution clients who were hardest hit typically exhibited some of the characteristics below:

INCREASE IN FUNDS UNDER MANAGEMENT (FUM) AND REDEMPTION RUNS

Insureds with substantial FUM increases experienced higher prices, as FUM typically indicates the overall magnitude of potential losses.  Conversely, large redemption runs were heavily penalised, given the harbinger for potential investor claims.

NATURE OF FUND 

The type of fund was also an influential factor.  Hedge funds with high gearing ratios and an aggressive alpha focus were impacted, compared to those with more benign strategies. Underlying alternative asset classes were also a key premium driver, with funds exposed to private credit, quant strategies and commodities most impacted, especially those to oil futures which briefly entered unprecedented negative territory.  Hedge funds with a history of shareholder activism were also impacted (this can be a major source of claims), in addition to those Hedge funds that were targets themselves – similar to the GameStop short squeeze scenario.

Feeder fund and other similar “fund of fund” struc­­tures were also affected, due to their higher exposure to international markets, particularly when exposed to the more litigious US investor base.  

Passive index funds which delivered solid beta returns with low management expense ratios were least affected, as well as mutual funds with low-risk strategies.  Funds with considerable retail investor bases were impacted, due to the more litigious nature of this class, compared to the sophisticated wholesale/institutional sector.

VENTURE CAPITAL/PRIVATE EQUITY

There were pricing and coverage implications in the venture capital/private equity funds space, depending on the underlying investee company portfolio.  Investee companies with enduring profitability models, recurring and stable revenue streams and strong Series Round interest were looked upon favourably by underwriters.

PRIVATE DEBT & DISTRESSED ASSETS

As banks’ lending criteria have been subject to tighter controls, we have seen an influx of managers allocating alternative capital to private debt and distressed assets.  While not impossible to place these risks with insurers, insureds exposed to one undiversified single underlying asset (especially property development), found it difficult to source a solution.

LISTED INVESTMENT COMPANIES (LICS)

LICS with high discounts to Net Tangible Assets had underwriters concerned, especially where the risk of further drops was high. Valuation risk and Directors’ and Officers’ SIDE C continuous disclosure are key concerns in this space.

DISCLOSURE DOCUMENTATION

Insureds making aggressive return forecasts or assurances of minimal investment risk in PDS documents have been highly scrutinised. This had been fuelled by the Federal Court finding that promoter Mayfair 101 engaged in false advertising by targeting investors who used Google search engine terms such as “best term deposit”.

INITIAL PUBLIC OFFERING INSURANCE

Driven by their ability to quickly scale and hence attract higher valuation multiples, we have seen a wave of IT and Cloud focused SaaS companies listing.  Higher multiples can leave companies vulnerable to large devaluations, which can be concerning to insurers.   As such, underwriters have been extremely diligent when deploying capital in the IPO insurance area.

 

KEY CONSIDERATIONS FOR FY 21: Q4

Underwriter appetite in the FI insurance space is highly dependent on the general economic climate.

As long-term bond yields have increased, institutions have moved capital from equities to lower risk fixed interest instruments, with negative consequences for share valuations.  While this is a sign of market recovery, the remaining instability is concerning to insurers. Going forward, insurers will be highly focused on the underlying asset class and risk strategy of each insured, individual fund manager performance, and exposure to retail (compared to wholesale) investors.

Ultimately, the financial markets will need to stabilise before premium increases level off. 

 

WHAT INDUSTRY TRENDS SHOULD CLIENTS MONITOR OVER THE COMING QUARTER? 

FINTECHS

The financial institutions market has been awash with new asset management-focused FinTechs, introducing considerable capital into this space. Many of these FinTechs are challenging the standard rules of investing, trading, clearing, settlement and custody, funds as a service; and insurers have been slow to onboard these risks.

DIGITAL BANKS

The insurance market is also seeing a higher volume of digital banks and more insurer scrutiny following the recent collapse of one of the first mover neo banks.  This has raised questions among insurers, with many adopting a “wait and see” attitude before deploying capacity.  There are positive signs for the sector however, with APRA now insisting neo banks have an income-generating product e.g., lending product before taking on deposits.

CRYPTOCURRENCIES

We are seeing more institutions recognise decentralised finance (DEFI) and cryptocurrency as a legitimate asset class.  Many allocators are now acknowledging Bitcoin as a solid store of value, and a “digital gold”. Alternate currencies such as Ethereum are gathering momentum, given their potential for smart contracts in DEFI infrastructure. Major asset managers such as Ark Invest and Van Eck have been pioneers in this space, with others now following suit.   Furthermore, as a discrete asset class, crypto is not regulated, however on the basis cryptocurrency is classified as a “financial product” under the Corporations Law, it is subject to ASIC regulation. This means insurers may become more open to the class.  A number of carriers are now receptive to providing coverage, depending on the weighting of crypto assets to total FUM.

ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG)

Funds are increasingly embracing the ESG (Environmental, Social, Governance) theme, promoting investments in the electric and renewables space.  Younger investors have been known to focus on this area and arguably, underwriters perceived this as lower risk as it is driven more by ethical investing concepts rather than pure investor return.

 

With You All The Way

Feel free to reach out to discuss your risk exposures.

 

Henry Clark

Head of Professional & Executive Risks

henry.clark@honan.com.au

 

Dennis Moens

Client Manager – Professional & Executive Risks

dennis.moens@honan.com.au

 

 

Learn about changes ahead for the Buy Now Pay Later sector and implications for Australian FinTechs.

 

5 ways to bolster your risk management program in a constantly changing world

Insurance Updates

Most people’s experience with general insurance is limited to Home & Contents, Private Motor and Travel Insurance. If you own a business, you may have come across Public Liability and Business Insurance. With changes to the way we live and work, however, our individual and business risk profiles are constantly evolving. In response, the insurance market offers a range of specialised products designed to protect against the changing nature of risk.

Here are 5 of the lesser-known insurance products and their powerful role in risk management:

 

1. Legal Expenses Insurance

The nature of insurance is for use as a shield to defend against risk rather than a tool, like a sword, to pursue or attack. Legal Expenses Insurance, however, breaks this mould and is a product that can be purchased by businesses to pursue (and defend) potential legal disputes and the costs associated with these actions (a typical limit is $100,000).

2. Group Personal Accident Insurance for Working-from-Home (WFH)

While many businesses have now returned to the office/workplace, it is expected that the prevalence of remote working will remain substantially higher than pre-COVID levels. Insurance is available for businesses to support employees who become injured while working from home. The policies provide benefit payments (depending on the injury) and can extend to assist with ergonomic injury support, childcare reimbursement, staff replacement and recruitment costs.

3. Kidnap, Ransom & Extortion Insurance

Travel Insurance policies will often have some level of cover for kidnap, ransom, and extortion, but a separate and more robust policy can be purchased to protect against evolving global security threats. These policies are provided by insurers as a crisis management solution for organisations and their employees and include a range of risk prevention and consultancy services, including crisis consultants, hostage negotiators, emergency extractions and repatriation consultants, surveillance, security monitoring and awareness training.

4. Prestige Home Insurance including Personal Cyber Insurance

A typical home insurance policy purchased directly from an insurer may not provide sufficient cover prestigious homeowners. A more suitable policy may be a prestige home insurance policy designed for homeowners with higher value assets including artworks, antiques, wine and spirits collections, jewellery, and watches. These products can now also include protection from malicious cyber activity.  You can learn more about personal cyber benefits and risk mitigation services here.

5. Tax Audit Insurance

In the event the Australian Taxation Office or other Government department comes knocking to audit your business’ tax returns, you will need to cover the cost of the accountancy fees which can stack up quickly when audits include multiple years of tax returns. A Tax Audit insurance policy can cover the fees associated with tax audits and other official investigations (i.e. reviews and inquiries) into your liability to pay taxes. Typical limits range from $20,000 – $100,000 but higher limits can be secured.  

 

WITH YOU ALL THE WAY

To find out more about these policies and how they can be customised to meet your specific needs, feel free to reach out at any time.

 

Dominic Brettell

Head of Client Service – Newcastle/Hunter

dominic.brettell@honan.com.au

 

 

Discover more about protecting your personal assets in an increasingly online world

Insurance Catastrophe Declared Following Disastrous NSW Flood

Insurance Updates

In light of the 1 in 100 year storms and floods which continue to wreak havoc across NSW’s mid-north coast and Western Sydney regions, the Insurance Council of Australia (ICA) has today declared a catastrophe for large parts of the State. For insured residents, businesses and property owners in affected areas, this is good news – their claims will now be fast tracked.

Since the storms first hit last Thursday March 18, some NSW locations have seen close to 1000mm of rain, with others receiving 500mm. NSW Premier Gladys Berejiklian says around 18,000 people have so far been evacuated from their homes, and the NSW Government is appealing to the Australian Defence Force for clean up assistance across the State. At the time of writing, Queensland’s south-east is also being affected by extreme weather.

NSW major flooding is expected along the Hawkesbury River at Windsor and Sackville, the Macleay River at Kempsey and Smithtown, the Wollombi Brook at Bulga and the Colo River at Upper Colo and Putty Road.

Source: Bureau of Meteorology, March 22, 2021.

 

KEY IMPLICATIONS FOR 2021 PROPERTY INSURANCE

NSW 2021 VERSUS TOWNSVILLE  2019

With residential insurance premiums in strata and real estate already increasing by more than 10% at the start of this year, March 2021 will be remembered for the NSW flood events starting on 18 March 2021 (and rain to continue to fall until approximately 25 March).

For context, the Townsville floods of 2019 was forecast to potentially cost insurers and reinsurers ~$1bn in claims. Based on the widespread impact of this month’s NSW flooding thus far, this March 2021 event is likely to see insurance claims exceeding those of Townsville.

 

THE IMPACT OF UNINSURED BUILDINGS

The impact of uninsured buildings due to flooding in NSW is likely to be high. Many businesses are reporting that insurance cover for flood was not in place due to affordability issues. Instances such as these demonstrate how important it is for property owners to source quotes via a reputable insurance broker – brokers who rigorously audit their needs, ensure cover is adequate, and that the price of premiums are not considered in isolation. 

 

GOVERNMENT SAFETY NETS

The current NSW floods will stretch NSW and Federal Government safety nets – their potential to ease the burden of increasing premiums post catastrophes will now be at capacity. The insurance industry is already dealing with increased insurance premiums in North Queensland (and Australia), cyclone areas and rural bushfire locations, specifically in alpine regions.

 

SUPPORT FOR STRATA & REAL ESTATE AGENTS – HONAN READY TO HELP

Honan Insurance Group is on hand to assist with NSW flood related claims and will be drawing on its national team to prioritise the lodgement. We’ll also be working hard to make affected buildings safe, if impacted by flooding and / or storm water damage. It is important that you check your insurance policy to review what you’re covered for. Some insurers have implemented an embargo on writing new insurance policies in NSW locations that are experiencing severe storm and flooding events.

 

KEY STEPS FOR LODGING A CLAIM

At Honan, we’ve prepared an essential list of tips for responding to storms, floods, and optimising claims relating to flood or storm events

If you are insured via Honan Insurance Group, you can lodge a claim directly online, or via your Strata Manager or Real Estate / Property Manager.

  1. Contact insurance broker citing the date, time, cause and location of the loss
  2. Use your insurance policy number reference when making a claim
  3. Take photos of damage
  4. Obtain identification of all civil authorities involved. i.e. SES, Police, health department, building inspector, etc.
  5. Keep relevant damaged items for assessment or photo evidence
  6. Arrange for quotes
  7. Retain all invoices, time sheets etc, to ensure all costs are captured and attributable to the loss and to prevent an overlapping of normal costs with these expenditures
  8. If you are making a business insurance claim, have your ABN and GST information handy (if applicable).

 

UNDERSTANDING FLOOD INSURANCE

Not all properties are exposed to the risk of flooding, however with the insights from the 2019 Townsville flooding and this month’s NSW flooding yet again highlights the need for clients to work closely with their broker to understand their risks, to secure adequate cover and purchase adequate flood insurance to protect their livelihood and assets.

Using a reputable insurance broker will give you access to flood mapping tools that can be used to determine if you are in a flood area with no risk, or in an area with the potential of low, medium or high risk flooding.

You can learn more about strata flood insurance – what it covers, and whether you need it, here.

 

We’re With You All The Way

Feel free to reach out to discuss your situation and address any questions or concerns.

 

Kieran Drum

National Head of Strata

kieran.drum@honan.com.au 

 

 

Discover the latest Corporate Insurance insights for FY21 Q2-Q3

 

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