The ICA’s second annual Insurance Catastrophe Resilience Report uses insurer data and insights to review the last 12 months of extreme weather events and advocate for changes to reduce the impact of future events.
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Insurance industry ramps up efforts to achieve net zero emissions
Insurance industry ramps up efforts to achieve net zero emissions
News release
Monday 27 November, 2023
The Insurance Council of Australia (ICA) today released an updated version of its award-winning climate change roadmap, outlining the industry’s commitment to achieving net zero emissions by 2030 for operations and 2050 across the entire value chain.
The 2023 update of the roadmap, titled “Towards a Net Zero and Resilient Future,” provides clear goals and best practice guidelines for insurers to reduce greenhouse gas emissions.
It also includes new sections on implementation strategies and case studies showcasing industry progress, as well as the results of a survey of its members on their progress towards net zero.
The survey found that more than 85 per cent of members have set organisation-wide net zero targets by 2050 or earlier, with more than 60 per cent of members setting interim targets to reduce emissions across their operations, investment, and supply chains.
The survey shows insurers are investing in renewable energy and efficiency and are also working with communities to build resilience to the worsening impact of extreme weather.
The Insurance Council will continue advocating on behalf of its members and their customers for policy settings that accelerate Australia’s transition to net zero.
The roadmap recently won the Sustainability Award at the 27th Asia Insurance Industry, an award that was judged by 26 panellists across the insurance industry globally and audited by KPMG.
Comment attributable to Andrew Hall, CEO Insurance Council of Australia:
The insurance industry is at the forefront of the impacts of climate change. In 2022 alone, there were more than 302,000 disaster-related claims lodged from four declared insurance events across the country, costing $7.28 billion in insured losses.
Our members are taking decisive action to address worsening extreme weather driven by a change climate, as well as building a more resilient future for all Australians. The updated roadmap will help us achieve our net zero targets.
Comprehensive review released into insurers’ response to 2022 flood
Comprehensive review released into insurers’ response to 2022 flood
News release
Tuesday, 31 October 2023
A comprehensive review of insurers’ response to Australia’s largest ever extreme weather event released today has set out seven areas for action by insurers and the Insurance Council of Australia (ICA) to improve responses to future events.
Commissioned by the ICA and undertaken by Deloitte, The New Benchmark for Catastrophe Preparedness in Australia report examined the operations of eight insurers who together received around 99 per cent of all home and contents, motor, and small business claims related to the floods that impacted northern New South Wales and south-east Queensland in February and March 2022, known as Cat 221.
The flood, which was the second largest insured event in the world in 2022, resulted in more than 240,000 claims with a total value of $6 billion, including $3.4 billion in home property claims, $710 million in home contents claims, and $304 million in personal motor claims. An additional 2,200 claims staff were employed by insurers in response to the flood.
Deloitte interviewed more than 80 staff across the eight insurers, reviewed more than 400 documents and significant quantitative data from all eight insurers, consulted more than 50 people impacted by the event including insurance customers and elected and local government representatives, and interviewed numerous stakeholders including regulators, reinsurers, reconstruction authorities, consumer groups, researchers, international experts, and businesses in the supply chain.
Key findings from the report include:
- External factors made responding to Cat 221 particularly challenging, including a historically tight labour market, building materials constraints, the price and availability of new and used cars, and rental vacancy rates.
- The scale of Cat 221 tested claims processes at a scale never before seen and exposed vulnerabilities in insurers’ claims and complaint handling responses, particularly in catastrophe planning, resourcing, processes and technology, communications, and governance.
- Improvements have already been made by insurers as a result of lessons learned from Cat 221, but there is more work that can be done to continue to improve customer outcomes.
- Claim closure rates varied considerably across insurers, however speed is not the only measure of insurer performance as other factors impacted closure timeframes, such as exposure to the event, policy definitions, and the mix of claims types.
The report presents seven recommendations for improvement, noting that not all recommendations will apply to all insurers to the same extent (detailed recommendations attached).
- Preparedness - Insurers should improve their catastrophe planning, particularly their preparedness for extreme catastrophes like Cat 221.
- Customer experience - Insurers should improve the customer experience during catastrophes through better communication with policyholders and by delivering a consistent experience through claim handling and complaints.
- Resourcing - Insurers should redesign resourcing capability for catastrophe events, with a particular focus on workforce planning and resourcing and onboarding during catastrophes.
- Operational response - Insurers should assess what operational efficiencies could be delivered in catastrophes through process, technology, and infrastructure investments.
- Governance and transparency - Insurers should improve their ability to capture and leverage data and insights to understand the impact of internal and external factors on performance during catastrophes.
- Coordination with government - More effective coordination between government and the insurance industry is required to provide faster access to government funding, consistent approaches to clean-up and debris removal, and co-incentivise investment in resilience and adaptation measures.
- Code review - The Extraordinary Catastrophe definition in the General Insurance Code of Practice should be reworked as part of the upcoming independent review.
The Insurance Council has accepted all seven recommendations in-principle. The ICA will lead the work to improve coordination with government and will refer the recommendation regarding the Extraordinary Catastrophe definition to the upcoming review of the General Insurance Code of Practice.
An independent review of implementation progress will be undertaken in the second half of 2024.
Comment attributable to Andrew Hall, CEO Insurance Council of Australia:
The number of claims from Cat 221 was more than six times higher than the average received for catastrophes declared since 2016, so it’s not surprising that insurers were challenged in their ability to adequately respond to their customers.
However, insurers acknowledge there were failures of systems, processes and resourcing which impacted some customers as they progressed through their claims process, which was the driver behind the industry proactively reviewing its performance through this event.
The industry apologises to those customers for whom claims were not handled to the standard the industry strives to achieve, and we are working hard to better prepare for future extreme events.
The timing of this flood, which followed 12 insurance catastrophes since the Black Summer bushfires as well as the global pandemic, compounded insurers’ challenge, yet the industry is on track to finalise every valid claim, rebuild homes and repair communities, and remain prudentially strong.
This was in no small part due to the efforts of the thousands of people working hard in insurers’ claims departments, including the additional 2,200 staff employed by insurers to help deal with the surge in claims.
Australia has the conditions to underpin an insurance industry at the global frontier of extreme weather responsiveness.
Repeated exposure to such events, coupled with established disaster institutions and frameworks, means Australian insurers are well placed to show the world how to respond effectively and efficiently to extreme weather events. This will always need to be weighed up against the cost impacts and keeping insurance affordable.
Deloitte’s rigorous and thorough report provides a clear roadmap for insurers on ways in which meet this challenge and move forward on areas that have been identified for improvement.
The ICA will conduct a review on progress against the recommendations and report in the second half of 2024.
ICA Statement – 19 August 2023
ICA Statement - 19 August 2023
Saturday 19 August 2023
Insurers paid out $36.5 billion in claims last year, helping millions of Australians recover from the unexpected. Insurers are committed to ensuring products and services provided to customers are of a high standard and are consistent with regulatory obligations and community expectations.
Because of a series of very significant extreme weather events since the Black Summer bushfires the sector and its customers have experienced several very challenging years. In 2022 alone, there were more than 300,000 disaster-related claims lodged from four declared insurance events across the country, costing more than $7 billion in insured losses.
At the same time, in response to the Financial Services Royal Commission insurers have upgraded systems and processes and improved the way they engage with customers. This has resulted in better capacity to address customer issues and work more closely with regulators in ensuring improved customer outcomes.
We acknowledge there is more work to be done, which is why in April we commissioned Deloitte to undertake an independent review of how insurers responded to last year’s floods. This review predated the recently announced Parliamentary inquiry and will feed into that process, which we look forward to participating in.
Given the critical nature of insurance, it is vitally important that Australia has a robust and profitable insurance sector to help families, businesses, and communities get back on their feet.
Insurer profits are cyclical and often impacted by factors outside of the control of the businesses, including extreme weather events. Insurers faced historically low profits in 2020, 2021, and 2022, and recent improvements in profitability, largely due to a significant turnaround in investment returns and improvements in some commercial lines, should be seen in that context.
Persistently high inflation and significant increases in reinsurance costs are continuing to increase costs for insurers into 2023. Home insurance is under particularly significant pressure – for every dollar collected in home premiums in 2022 insurers' costs were $1.04.
The sector has appreciated the opportunity to work more closely with ASIC to develop a clearer understanding of their view of specific obligations for general insurers. We note that the recent interim stop orders on some lines of pet insurance were in place for less than 24 hours, following immediate engagement from affected businesses with ASIC to make amendments to certain documents. The sector was pleased to see these interim stop orders lifted so quickly.
Insurers must carefully calibrate costs through volatile weather periods to ensure the product remains in reach of as many Australians as possible. We note ASIC’s recommendation on resourcing and will engage further with the regulator to understand what level of permanent claims staffing they consider appropriate, given that any ongoing increase will be a cost that is ultimately borne by customers.
