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

 

Responding to Flood & Storm Damage

Insurance Updates
If your property has been affected by flood or storms, be sure to contact your broker. If it is safe to do so, here are some actions to help you secure the property and limit further damage*.

 

ARRANGE AN EMERGENCY MAKE-SAFE – contact a contractor to undertake an ‘emergency make-safe’. This involves temporary repairs to ensure the property is watertight and to minimise/prevent further damage. If you’re unsure who to call, try the SES for emergency assistance.

 

IF WATER HAS ENTERED THE PROPERTY do not switch on the electricity until an electrician has undertaken checks.

 

AVOID BLACK WATER – this is unsafe, contaminated water and must be left to experts.

 

DRY OUT WET AREAS – contact a restoration expert to extract water and commence the drying process (i.e. removal of wet carpets and installation of blowers, dehumidifiers).

 

PREPARE AN ITEMISED LIST of damage and take photographs to support your claims process.

 

DISPOSE OF SPOILT AND DESTROYED ITEMS – again, it’s important to take photographs.

 

KEEP ANY ITEMS THAT CAN BE REPAIRED. If in doubt, speak to your broker.

 

OBTAIN QUOTES to repair damaged items, which will help in the claims process too.

 

 

*Please note, this list is not exhaustive. This information is general in nature and does not take your
personal circumstances into account.

Changes ahead for the Buy Now Pay Later sector: Key implications for Australian FinTechs

Finance

Cries for regulation in the currently self-regulated Buy Now Pay Later (BNPL) sector are nothing new. Financial services providers and consumer rights groups have long expressed concern that these services enable financial overcommitment from vulnerable Australians. But are we reaching a point where the size and scale of these businesses, the emergence of several new market entrants, and the disruption to traditional credit markets is forcing the Government’s and regulators’ hands?  This article looks at the current situation for BNPL FinTechs in Australia, how insurers currently view their risk exposures, and how this may change if regulations are introduced.

 

THE CURRENT STATE OF PLAY

In 2018, digital laybuy platform Afterpay and the BNPL sector avoided regulation when ASIC reported it was not looking to bring them under the National Credit Act. In late 2020, a Senate Committee on Financial Technology and Regulatory Technology backed the BNPL sector’s code of practice, saying self-regulation helped to protect innovation. This code is currently being finalised by The Australian Finance Industry Association (AFIA) in collaboration with its BNPL members. It aims to have the BNPL industry Code of Practice operating by 1 March 2021.

Recently, however, a report provided to the UK’s financial regulator, the FCA, following a review of the unsecured credit market, has made the strongest case yet for implementing regulation within the BNPL sector, at least in the UK.

 

HOW WILL THIS IMPACT THE AUSTRALIAN MARKET?

The BNPL sector is never far from the sights of ASIC, which released an industry update in November 2020. ASIC currently holds Product Intervention Powers (PIP) over BNPL products which provides a regulatory tool to address any significant harm to consumers. Come October 2021, the Design and Distribution Obligations (DDO) legislation will also apply to most ASIC regulated products, which will include BNPL products.

Whether these regulatory controls, complemented by industry self-regulation, will provide consumers sufficient protection without stifling innovation remains to be seen. What is certain, however, is this topic remaining hot for a while yet. According to IBISWorld, the market is predicted to maintain strong growth, with Australian BNPL revenue forecast to grow from AUD 680M (USD 488M) in FY20 to AUD 1.1BN by FY25, with users set to double to 4M within three years.

 

INSURING BNPL FINTECHS IN AUSTRALIA

FinTechs are a blend of technology and financial businesses, exposing them to risks common in both sectors, where insurers’ appetites are commonly limited.

Examples of such risks include:

  • Technology risk – tech failures leading to 1st and 3rd party financial loss
  • Financial and credit risk
  • Financial crime, fraud, and identity risk
  • Cybersecurity and Data Privacy – 1st and 3rd party losses
  • Directors & Officers Liability
  • Public & Products Liability
  • Regulatory Investigations and Statutory Liability
  • Money Laundering risk

Although some do, BNPL FinTechs are not required to hold an Australian Credit Licence (ACL). Thus, in the eyes of insurers, they do not have the same responsibilities and obligations as ACL holders under the National Consumer and Credit Protection Act. This lack of regulation makes insurers nervous, and securing adequate insurance is therefore challenging. It will be interesting to see whether insurers’ risk appetites change if regulation is introduced into the BNPL sector – as recommended in the UK.

 

We’re with you all the way

With significant experience in the financial, technology and FinTech sectors, Honan welcomes the opportunity to assist all businesses operating in this space. Feel free to reach out at any time to discuss your insurance needs. 

 

Dominic Brettell

Head of Client Service – Corporate Insurance & Risk Solutions

dominic.brettell@honan.com.au

 

 

Discover the 4 Risk Protection Essentials for Tech Start-Ups.

Corporate Snapshot: FY21 Q2-Q3

Insurance Updates

In this update, we share practical insurance insights from the quarter that’s been, and forecasts for the quarter ahead.

 

KEY TAKEAWAYS FROM FY21: Q2?

Q2 saw a continuation of the hard market which has dominated the past 3 years. Over the December quarter, we saw two distinct approaches to underwriting from overseas/global insurers. The first; a more conservative and selective approach to risk acceptance, especially for new business. The second; a largely ‘business as usual’ play by local insurers who continued to balance growing their books with managing a risk-distributed portfolio. The behaviour of global insurers was largely driven by management reporting, end of year close out, and annual reinsurance treaty negotiations as underwriters looked to limit additional exposure to their portfolios.

In December, insurers again exceeded their top line premium targets as well as deploying their full calendar year capacity. This resulted in greater focus on risk selection, with even tighter terms and conditions applied to policies. Additionally, underwriters were required to obtain referral/management approval prior to the release of terms.  This caused delays, which in many cases resulted in a declinature for terms to be offered.

 

KEY CONSIDERATIONS FOR FY21: Q3?

2021 marks the fourth consecutive year of hard market conditions, albeit with some anticipated softening on underwriters’ pricing for low hazard, vanilla style risks. At the upper end of the rating spectrum, we will continue to see higher rate increases for more hazardous risks, resulting in broader pricing. Well performing businesses are likely to receive higher single figure increases compared to distressed accounts (claims, occupancy, and exposure to natural catastrophe perils), which continue to attract rate increases in excess of 25%.

Despite underwriters continuing to approach natural catastrophes and highly volatile risks with caution, market capacity is set to remain stable for the quarter ahead.

 

WHAT INDUSTRY TRENDS SHOULD CLIENTS MONITOR OVER THE COMING QUARTER?

As Insurers introduce new underwriting guidelines for the calendar year, we will see:

  • withdrawal of certain product classes (such as Professional Indemnity and Excess Liability)
  • introduction of sub-limits for hail and windstorms (previously not sub-limited)
  • complete exclusion for Infectious Disease
  • reduction of % participation, especially where risks are written on a 100% basis.

Insurers are taking these steps in an effort to maintain underlying profitability, especially in response to poor investment returns courtesy of low interest rates. 2021 results are expected to be mixed, contingent on product class and State/Territory frameworks. This will be reflected in upcoming market and regulatory reporting.

The recent Business Interruption test case in NSW in respect to COVID-19 will remain front of mind for insurers, with several undertaking capital raising to bolster balance sheets should Insurer appeals be unsuccessful.    

 

We’re With You All The Way

Feel free to reach out to discuss your risk exposures.

 

Travis Wendt

National Head of Corporate Insurance & Risk Solutions

travis.wendt@honan.com.au 

 

 

Read the FY21 Q2-Q3 Financial Lines Market Update

 

Financial Lines Snapshot: FY21 Q2-Q3

Finance

In this update, we share practical insurance insights from the quarter that’s been, and forecasts for the quarter ahead.

The 2020 calendar year was one of the toughest on record for Professional and Executive Risks, with rate increases and capacity reductions continuing to pervade the market, driven fundamentally by large claims reserves.  We do expect pricing to gradually stabilise as insurers reach critical mass in gross written premium, though this will also be heavily reliant on the attraction of new capital to support the market.  Without more capital, pricing will remain elevated and put simply, will be a “supply and demand” problem.

 

KEY TAKEAWAYS FROM FY21: Q2?

Following substantial rate increases, Directors and Officers (D&O) market woes for publicly listed companies continued into FY21 Q2. We witnessed renewal premium uplifts within the vicinity of 150% – 200%, with historically under-priced or distressed accounts receiving as much as 300%.  These increases were primarily driven by an insurer portfolio correction to buffer against the bottleneck of existing class action activity, as well as claims arising from COVID-19.  

Q2 also saw a flurry of insurance activity from initial public offerings (IPOs) in a buoyed market. Buying patterns in the space indicated a growing trend to incorporate standalone public offering insurance into annual D&O programs, with clients even opting to strip out Side C (Entity Securities Cover) due to pricing constraints.

 

KEY CONSIDERATIONS FOR FY21: Q3?

For Q3 FY 21, further rate increases are anticipated given Q3 FY 20 accounts eluded price adjustments associated with COVID-19.  With no signs of abating, this adjustment phase may carry into FY 21 Q4 (albeit not with the same severity we witnessed last year) as programs look to stabilise.

In the wake of COVID-19, most D&O insurers have adopted a “wait and see” approach with respect to writing new business, and have been meticulous in the underwriting process; particularly in terms of company free cash flow, cash runway and debt serviceability.  Conversely, some markets have taken a more active stance in writing new business; bolstering their position in response to more attractive rates and a healthier post-pandemic market.

Pertaining to other product classes, Employment Practices Liability has presented challenges to insurers with an increased incidence of unfair dismissal allegations and higher regulatory burdens for company health safeguards and protections resulting from COVID-19. Higher premium rates, reduction in capacity and considerably decreased take up of new business has followed, and is likely to continue in Q3.

Cyber Security policies have also been affected, given the potential network vulnerabilities exposed while working from home.  The scale and speed of the workforce displacement in 2020 has seen a significant increase in the prevalence of new attacks not previously contemplated with the higher volume of losses translating to higher premiums – another trend to continue in Q3 and another reason why Cyber is considered the number one business risk for company boards.

The Design and Construct Market has also been a focal point against the background of Government stimulus packages. Soaring premiums and limited appetite for risk that have discouraged insurers from offering cover to building certifiers and surveyors are now affecting other professions. Engineers have been severely impacted, and extra work coming from stimulus spending has exposed them to greater risk. Further to this, the NSW Government’s draft regulations for the Design and Building Practitioners Act 2020 has presented difficulties. The new “duty of care” provision in the Act applies “retrospectively” which will likely have serious ramifications for the PI Insurance market; broadening the launching pad from which owners can bring claims.

Now, more than ever, it is important to have a highly skilled and experienced broker to represent such clients in the market.

 

WHAT INDUSTRY TRENDS SHOULD CLIENTS MONITOR OVER THE COMING QUARTER?

There are some bright spots in the insurance market, particularly for D&O. The recent landmark Worley court decision on class actions has sent a powerful signal to boards and directors that they may successfully defend class actions if they can show reasonable steps were taken to determine how decisions were made.  This is an important decision because very few shareholder class actions have progressed to a judgment of the Court on merits.  If there are more decisions of this ilk, where courts are given the opportunity to interpret continuous disclosure provisions and demonstrate the successful application of defences available, we may see a longer-term recovery in the D&O market.

Furthermore, The Parliamentary Joint Committee on Corporations and Financial Services (the Committee) has completed its inquiry into litigation funding and the regulation of the class action industry. Reforms, such as the push to make the easing of the continuous disclosure “director at fault” rules permanent would raise the threshold to lodge claims and aid the D&O market considerably. The reforms (if implemented) will also substantially increase regulatory and judicial oversight of litigation funders and plaintiff firms, and thereby (in theory), reduce the volume of class actions.

 

We’re 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

 

 

Find out more about Honan’s Professional & Executive Risk Services.

WA: New Industrial Manslaughter Laws with Important Implications for Businesses

Insurance Updates

In an effort to harmonise the Work Health & Safety (WHS) regimes across Australia, Western Australia has now passed legislation to update its Work Health and Safety Act 2020 (WA), (the Act).

 

Workplace Health & Safety Overhaul

The new laws will likely come into place in April 2021. This will include several changes, with the most notable being the Industrial Manslaughter Legislation:

If a ‘Persons Conducting a Business or Undertaking’ (PCBUs) is engaging in conduct knowing the conduct is likely to cause death “or serious harm” to an individual, the crime will now carry potential imprisonment term for up to 20 years and a fine up to $5,000,000 for an individual person and up to $10,000,000 for a body corporate.

 

Critical Actions for Directors & Officers

Any organisations based in Western Australia should now review their work health and safety procedures to ensure they meet the new legislative requirements.

These new changes are intended to make safety front of mind and help prevent any future fatalities from occurring.

Under the new legislation, it is important to note that officers can also be charged for crimes committed by a PCBU in certain circumstances, including when the PCBU’s conduct was attributable to the officer’s neglect, or engaged in with the officer’s consent or connivance.

Officers (in particular) should ensure they understand their obligations with respect to the PCBU’s WHS duties and officer due diligence.

 

What about Insurance?

Up until now, companies could transfer the risk of these penalties via insurance, however this will now be prohibited going forward. Companies will therefore need to ensure that policies offering WHS Penalties cover are not entered into.

 

We’re with you all the way

To find out more about these changes, feel free to reach out at any time.

 

Dan McCallum

Head of Client Services (WA)

dan.mccallum@honan.com.au

 

 

Learn more about Honan Workplace Risk consulting here.

 

Underinsurance in the Property Market: Do You Have the Right Cover?

Insurance Updates

Uncertainties in the property market brought about by COVID-19 have prompted many home owners to take a detailed look at their insurance policies, often for the first time.  It’s usually not until a disaster occurs (e.g. a fire, storm or cyclone) that people realise they don’t have adequate cover. Underinsurance is an area often overlooked by property owners, but it has the potential to cause severe financial hardship if you need to make a claim. In this article, we’ll explain how this common issue occurs and what you can do to avoid it.

 

WHAT IS UNDERINSURANCE?

According to the Australian Securities and Investments Commission (ASIC), a home is underinsured when the insurance covers less than 90 per cent of the rebuilding costs.  It’s alarming that 1.8 million households don’t have any home insurance at all, according to the Australian Bureau of Statistics, and for those with insurance, 80 per cent don’t have the correct cover, according to the Insurance Council of Australia. This is a significant problem in the event of a claim because you would not be covered for the full cost of a total property rebuild. The following example illustrates the issue:

The Insured has undervalued their property replacement value by 50%. If they suffer a claimable loss, the Insurer can limit the settlement payable under the policy.

Full Replacement Value of your property = $1,000,000
Sum Insured under your policy = $500,000
Value of claim = $100,000
Amount payable by the insurer as a result of the application of the ‘Average’/’Co-Insurance’ clause (i.e. 50%) = $50,000

 

 WHY IS UNDERINSURANCE SO COMMON?

For most policy holders, this issue stems from a lack of information, rather than an intentional reduction in cover to save money on their premium. One of the most common causes of underinsurance is inaccurate building sum insured estimations, based on incorrect information such as initial building costs or using the market value of the property. For example, many insurance policy holders neglect to estimate on all components that are required when rebuilding a house. Often, the estimations do not consider the higher cost of building materials when compared with the original build and the additional services required for a total rebuild, including demolition costs and architectural fees.

 

HOW CAN WE HELP?

Whether you have an existing policy, or you are looking to secure insurance, Honan recommends seeking an independent valuation of your property to ensure you’re covered for the correct amount. A property owner can also use an insurance calculator for a desktop estimation. The Insurance Council suggests policy holders can review their property on a room-by-room basis to assess their contents and use an insurance calculator to estimate the building sum insured amount. The insurance calculator is an estimate and is not intended to replace a professional valuation. Please feel free to reach out, Honan can refer you to our partnered valuers / quantity surveyors to assist you with this process.

 

 

Corporate Snapshot: FY21 Q1-Q2

Insurance Updates

In this update, we share practical insurance insights from the quarter that’s been, and forecasts for the quarter ahead.

 

KEY TAKEAWAYS FROM FY21: Q1?

While the March quarter saw Australian insurers post a quarterly loss of $997m after tax, APRA statistics released for the June quarter reveal a market turnaround, with a net profit of $1.0bn after tax. Improved loss ratios and slight gains from investment returns were the main drivers of this result.  Despite this, Property & Casualty underwriters continue to focus on overall portfolio management, which includes:

– pricing adequacy

– risks in catastrophe zones (bushfire, cyclone, flood)

– ‘sideway’ exposures such as prevention of access

– higher Worker to Worker deductibles

– tightening of cover (infectious disease exclusions).

In addition to upward premium pricing for primary and excess layer(s), casualty underwriters have been undertaking remediation actions across their portfolios.  As with property, casualty underwriters’ portfolios continue to see deterioration in loss ratio(s) brought on by claims frequency, long term inadequacy of pricing, broadened cover and the rising cost of claims (e.g. higher prevalence of litigation).  Rate increases of between 10-20% are being witnessed on primary layers with excess layers seeing reasonably calmer pricing increases of 5-10% at this stage.

 

KEY CONSIDERATIONS FOR FY21: Q2?

As we move into the summer months, the regular seasonal risks are present: bushfires in the southern states with cyclones, windstorms and flooding in the north.  This season is widely tipped to see La Niña conditions return to eastern Australia, meaning increased rainfall and a risk of more tropical cyclones forming across parts of Queensland.  Insurers may apply policy adjustments by broadening flood and named cyclone sub limits or may mitigate their own risk through the purchase of reinsurance.  This last strategy will invariably come at a cost, which will be passed on to clients either in part or in full.  High performing or clean risks remain desirable and continue to see more favourable pricing outcomes.

From a casualty perspective, we expect the current trends to continue over Q2.  Insurers will be taking a much firmer stance on their capital deployment and could lead to a reduction in capacity on certain risks.  Coverage provisions are also being reviewed, especially those considered non-traditional that have crept in over the past few years, including Cyber and Professional Indemnity.       

 

WHAT INDUSTRY TRENDS SHOULD CLIENTS MONITOR OVER THE COMING QUARTER?

Insurers require greater levels of information to adequately underwrite risks, especially on those accounts where they are not active/current participants.  With insurers reducing their capacity, many clients are now required to market their program to new insurers, many of which are unfamiliar with the specific risks of that business.  A quality submission with updated risk information is key to achieving a positive outcome and a powerful point of differentiation from others, especially in industries deemed high risk. 

From a property perspective, unprotected food & beverage is still considered high risk, even more so for those with bushfire or cyclone exposure.  Liability risks subjected to the highest level of scrutiny are those in the commercial cleaning, asbestos removal, contractor/labour hire sector as well as Global Liability programs with risks domiciled in the US.

 

 

We’re With You All The Way

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

 

Travis Wendt

National Head of Corporate Insurance & Risk

travis.wendt@honan.com.au

+61 434 651 918

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