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We work in interesting times...
Insurance & Risk Professional, August 2008 As the community faces a raft of new challenges, the insurance industry has some issues – and opportunities – to tackle This has already been an interesting year for all manner of reasons. The insurance market has been tough, we’ve had some serious dramas in financial markets and crazy weather patterns across the country have impacted our industry. Since September last year the United States central bank has found it necessary to cut the cash rate seven times. It’s been reported that the total asset writedowns and credit losses as a result of the global credit crisis for US financial institutions and global banks are now estimated to be $US380 billion. There is no doubt the fallout from global turbulence has added to the strain many Australians are already facing with rising fuel, food and commodity prices, and global inflation. In the past year the benchmark price for global crude oil has doubled, while the International Monetary Fund’s measure of global food prices has risen by almost 50%. That aside, the touchy issue of flood remains one of the unsolved questions on the insurance agenda in this country. It could bite the industry badly if we were to have a major event like Hurricane Katrina in the United States a few years back, where thousands of consumers were literally left out in the cold and the insurance industry copped a bucketing. Closer to home, the Insurance Council has recently had its application for a common definition of inland flood to be used by its members authorised by the competition regulator, albeit with some conditions attached relating to public education and the collection of information on insurer uptake, etc. NIBA has long argued for insurers to have a common definition of flood, and we support the general concept of a definition that can clearly tell insurance buyers exactly what they’re covered against. But we were concerned that insurers would still decide what, if any, aspects of flood they’d cover under their individual policies. To encourage them to expand and not reduce the coverage or their policies, we wanted to see a more limited definition. As the Australian Competition and Consumer Commission noted in its decision, the definition does not seek to address consumer concerns about the availability, adequacy and extent of flood cover. We will watch with interest to see what develops. After seven years talking about direct offshore foreign insurers (DOFIs) – in fact, ever since the HIH recommendations and subsequent Potts Report – new arrangements for DOFIs commenced on July 1. The legislation provides that unless a specific exemption applies, a DOFI can’t carry on business in Australia, directly or through an intermediary, without authorisation under the Insurance Act. The Government’s exemption arrangements take up many of the suggestions put forward by NIBA and strike a reasonable balance between protecting insurance buyers and granting access to overseas markets for sophisticated purchasers and hard-to-place risks. After repeated requests from NIBA, the Government finally agreed that the new reporting requirements for DOFIs will be deferred until January 1. This will give brokers additional time to make adjustments to their systems before having to collect data for submission to the Australian Securities and Investments Commission. Brokers place more than 80% of the commercial insurance in Australia and they will play a pivotal role in accessing DOFIs under the new scheme. It hasn’t been easy reaching a solution that fits everyone. Backing a key finding of the Australia 2020 summit, the Prime Minister recently announced it is time for a complete review of the tax system that was left untouched by the previous Howard government. The national tax review will hopefully present a fresh opportunity to examine the reality of cascading taxes on premiums that have made Australian policyholders the highest taxed in the world. Following the release of a discussion paper by Treasury, the review process will take several stages. A review panel will provide a final report by the end of 2009. A lot has been said about this issue over the years, yet little has been achieved. But we’re beginning to get some traction. More politicians at state and federal levels are asking questions, which means more people are talking to them about this issue. Maybe there is a glimmer of hope that the new Labor regime can bring some consistency to the solution. We live in a time of increasing economic pressure. Removing onerous charges on property insurance would ultimately be beneficial to all households in Australia. As I said, 2008 has turned out to be an interesting year! |
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