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Industry

Insurance Council welcomes resilience and cyber investment

March 29, 2022 by insuranceca

Home Industry

Insurance Council welcomes resilience and cyber investment

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News release

Tuesday, 29 March 2022

Key budget takeaways impacting insurance:

  • $268.1 million in resilience preparedness related measures
  • $9.9 billion in cyber security over 10 years to improve cyber preparedness
  • $2 billion expansion of the Home Guarantee Scheme

The Insurance Council of Australia (ICA) today welcomed the Federal Government’s 2022-23 Budget announcement of $268 million in related measures to better protect Australians from the impacts of extreme weather and improve protections against cyber attacks. 

Under the Emergency Management Fund, the Government has committed $150 million per annum for recovery and post-disaster efforts over the next two years. An additional $116.4 million has been provided to the Black Summer Bushfire Recovery Program, funding 524 community projects with total program investment of $390 million.

Emergency Management Australia has received an additional $1.7 million to better share data and information across states and territories during large scale disasters.

The ICA has long been calling for the Federal Government to lift its investment in this area, and just last month released its Building a More Resilient Australia report which called for a doubling of Federal Government investment to $200 million in this area over the next five years, matched by the states and territories.  

The ICA’s proposed $2 billion resilience investment pipeline included:

  • $522 million for local projects such as flood levees to defend regional towns 
  • $413 million to better protect homes against flood, Australia’s most expensive natural peril, by raising utilities and services above the expected floodline
  • $221 million to cyclone-proof more than 44,000 homes in northern Australia 
  • $712 million to support the selective reduction of fuel in our forests 
  • $37 million for an improved national flood early warning system, estimated to increase the lead time for flood warnings from 3-5 to 10-15 days
  • $10 million to establish a national coastal hazard information database  

While the two-year commitment to resilience funding is welcome, sustained and greater funding in this area is required if the risk profile of communities exposed to extreme weather is to change.

The Insurance Council welcomes the Government’s $9.9 billion investment over 10 years to boost the nation’s capacity to prevent and respond to cyber threats.

This follows the release of an Insurance Council report on Monday, Cyber Insurance: Protecting our way of life in a digital world, which highlights the challenges to maintaining and developing a cyber insurance market to support Australian individuals, businesses and organisations operating in a digital economy.

As announced yesterday, the Insurance Council and those members who offer Lenders Mortgage Insurance (LMI) remain concerned about the continued expansion of the Home Guarantee Scheme, which removes the need for eligible borrowers to have LMI.

By displacing a proportion of the LMI market, the cost of providing LMI to borrowers who do not access the Scheme is potentially impacted. 

Comment attributable to Andrew Hall, CEO Insurance Council of Australia: 

The Insurance Council has long been calling for the level of investment in resilience measures to be increased, so funds confirmed in the Federal Budget are an important step in the right direction. 

The funds identified for the northern rivers rebuild is needed to ensure that community can rebuild stronger homes and infrastructure in a way that makes them more resilient to future extreme weather events.

While we are pleased the Federal Government is heeding this important call to step up its funding in resilience measures, there are dozens of other communities in Australia that remain exposed and require similar assistance, and we look forward to working with all levels of Government to assist in resilience and mitigation efforts.

Insurers welcome additional investment in cyber-security and resilience related measures to better protect Australian from the impacts of extreme weather and cyber threats in the digital age. We look forward to working with the Government in these important areas of public policy.

Useful links

ICA Election Platform
ICA Cyber Insurance White Paper
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Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the Christensen Inquiry

July 27, 2021 by insuranceca

Home Industry

Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the Christensen Inquiry

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Opening statement: Tuesday, 27 July 2021

Thank you Chair. I'm supported today by my Chief Operating Officer, Kylie Macfarlane who looks after our disaster recovery and resilience teams.

By way of introduction, general insurers provide Australians with 43 million business and household policies each year and pay more than $166 million in claims every working day.

Over the last year we provided support to Australia’s export industries to the amount of at least $500m dollars in gross incurred claims.

Insurance is a key component of the economy, especially in a country like Australia, where our natural peril risks are a constant reminder of the challenges we face in protecting our assets.

Insurers are proud of the way we have supported the growth of our nation, from our largest exporters to underwriting Australian’s homes, contents, small businesses and cars.

The nation's economic recovery following the COVID downturn has included lower unemployment and record levels of investment.

Unfortunately, not all sectors of the economy are performing as strongly, and the general insurance sector is currently enduring its most challenging circumstances in nearly two decades.

Insurer profitability over the last 24 months, ending March 2021, was down 64 per cent on the preceding two years.

According to APRA, the entire general insurance sector only made a profit of $19 million dollars in the most recent March quarter, largely because of the impact of recent natural disasters and in provisions undertaken for potential pandemic claims.

While over the last 18 months the Australian community has been focused on the pandemic, since the devastating bushfires of 2019, we've also endured three major flood events, a category 3 cyclone, three destructive hailstorms and a bushfire in the Perth Hills.

Over the past three years, insurers have paid out more than $7.4 billion dollars in natural disaster claims, with more than $5.6 billion dollars paid out since the 2019 bushfires.

Australian insurers are also impacted by global trends which influence underlying costs—in particular, the cost of reinsurance.

Insurance is a globalised financial service and is currently in what is described as a hardening market, meaning reinsurance pricing has increased, and, in turn, this is impacting the cost of premiums locally.

Insurers are well aware that the availability and the affordability issues of some lines of insurance for small and medium businesses have become challenging – and this includes SMEs in our export sector.

We are very aware of the impact this market environment is having on particular sectors.

In many of these categories, insurer profits are under pressure with gross loss ratios running at near or more than 100 per cent. So in this context solutions are often difficult to determine as more money is being paid out than what is being collected in premiums.

A range of inquiries and reviews over the past decade have put forward various recommendations on how to address these.

In November last year, the ICA engaged former insurance executive and regulator John Trowbridge to undertake an independent review and identify potential solutions to these affordability and availability issues.

His paper was released earlier this year for public comment, and we are engaging with key stakeholders, such as COSBOA and other specific industry associations, to continue to work through these important but complex issues.

With this consultation paper on commercial insurances, a dialogue with stakeholders representing different SME sectors has started.

There is no single silver bullet for resolving these issues, but we are serious about grappling with them for the benefit of small businesses and the broader economy.

We are engaging with government, regulators, policy holders, industry groups and consumer groups to understand where we can find sensible actions moving forward over the short, medium and longer term.

Turning to the topic of climate change, there is a growing recognition by companies, investors and regulators that climate presents a significant set of financial risks as well as opportunities.

Insurers have been looking at how to balance the requirements of regulators, investors and the overall global insurance environment.

Central banks and financial regulators globally now widely acknowledge that climate change is a source of financial stability risk.

Our industry is aligned with the regulatory guidelines on managing the financial risks of climate and we recognise that our regulators are keeping pace with the global standards.

We will continue to heed the guidance of our regulators and manage liability risks accordingly.

In Australia the emphasis in the immediate term has been on addressing the physical risks associated with a warming climate.

Climate change in Australia means more intense and frequent natural hazard events and more loss events, as re-insurers can clearly evidence.

To mitigate these physical risks, we have been collaborating with all levels of government to protect Australians through implementing projects to drive more resilient built environments, especially against cyclone and bushfire risks.

We are working with Federal Government to see these resilience projects replicated and scaled through the National Recovery and Resilience Agency.

We stand ready to provide data to Government on where investment in resilience and mitigation will provide the maximum benefit as well as bring down pressure on premium pricing.

We're happy to take any questions from the committee.

Useful links

Our Executive Team
icon Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the House Economics Committee
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Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the House Economics Committee

June 25, 2021 by Shannon White

Home Industry

Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the House Economics Committee

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Friday, 25 June 2021

House Economics Opening Statement – 25 June, 9:15am Main Committee Room

Thank you, Chair, for the opportunity to give evidence and provide this opening
statement to the Committee.

My name is Andrew Hall and I am the CEO of the ICA. I am supported today by the
ICA’s General Counsel, Anne Knight, who is leading efforts in relation to the
business interruption test cases, and Aparna Reddy, General Manager of Regulatory
Policy for the ICA.

General insurers provide Australians with 43 million business and household policies
each year and pay more than $166 million dollars in claims every working day.

Insurance is a key component of the economy, especially in a country like Australia,
where our natural peril risks are a constant reminder of the challenges we have in
protecting our assets.

The nation’s economic recovery following the COVID turndown is the envy of the
world. Lower unemployment and record levels of investment are all positive
indicators of the performance of the Australian economy.

Unfortunately, not all sectors of the economy are performing as strongly, and the
general insurance sector is enduring its most challenging circumstances for two
decades.

Insurer profitability over the 24 months ending March 2021 was down 64 per cent on
the preceding two years, and according to APRA the entire general insurance sector
only made a profit of $19 million dollars in the most recent March quarter, largely
because of the impact of recent natural disasters.

While over the last 14 months the Australian community has been focused on the
pandemic, since the devastating bushfires of 2019 we have also endured two major
flood events, a category 3 cyclone, two destructive hailstorms and a bushfire in the
Perth Hills.

Over the past three years insurers have paid out more than $7.4 billion dollars in
natural disasters claims, with more than $5.4 billion dollars paid out since the 2019
bushfires.

Insurers received more than 39,000 claims arising from the bushfires, totalling more
than $2.3 billion dollars. More than 95 per cent of these claims are now finalised and
paid, supporting those communities in their recovery.

Australian insurers are also impacted by global trends which influence underlying
costs, in particular the cost of reinsurance.

Insurance globally is currently in what is described as a hardening market, meaning
reinsurance is more difficult to obtain, risk appetites are very low, and in turn is
impacting the cost of premiums locally.

We are aware that the availability and affordability of some commercial lines of
insurance for small and medium sized businesses has become challenging.

In many of these categories insurers themselves are under pressure to provide a
profitable product, with gross loss ratios running at near 100%, so solutions are often
difficult to determine.

In November the ICA engaged former insurance executive and regulator John
Trowbridge to undertake an independent review to identify potential solutions to
these affordability and availability issues. His paper was released a month ago for
public comment and we are engaging with key stakeholders such as COSBOA and
other industry organisations to continue to work through these important but complex
market issues.

There is no single silver bullet for resolving these issues, but we are serious about
grappling with these issues for the benefit of small businesses and the broader
economy.

Another area where higher premiums are being felt is in northern Australia, and
insurers welcomed the Government’s announcement of a reinsurance pool to help
address this, and the $600 million dollars for resilience measures through the new
National Resilience and Recovery Agency.

We remain engaged with Government as it undertakes a detailed design of the pool
and establishes these new agencies over the coming months.

We welcome the renewed focus by Governments across the country to investing in
resilience. Reducing the risks are fundamental to maintaining a healthy insurance
pool to protect homes and businesses.

Underinsurance remains an endemic problem in this country, exacerbated by stamp
duties and taxes on premiums. We stand ready to work with Governments to help
inform consumers on how to take the right level of cover, which could provide billions
in return for communities to recover faster from these major events.

At the same time as we navigate the current market conditions, insurers have had to
respond to a significant regulatory reform as we have implemented the Hayne Royal
Commission’s recommendations.

We are committed to working collaboratively with the Government to strengthen the
confidence and integrity of the industry, and to ensure that insurance products
fully meet community expectations.

Insurers are also preparing for the start of a new industry Code of Practice on 1 July
– although some components of the new Code relating to consumer vulnerability and
financial hardship were already fast-tracked to provide additional support for
customers during COVID-19.

The updated Code of Practice seeks to meet evolving community expectations and
positively influence interactions with customers when buying or renewing insurance,
making a claim, or making a complaint.

The ICA will be rolling out an information and advertising campaign in coming
months to promote awareness of the new Code.

If I can turn to pandemic related issues and the business interruption test cases
which are currently before the courts.

The ICA has taken a coordinating role for insurers to have the BI issues determined
together through the courts as quickly as possible.

I will limit my comments this morning as an application for special leave to appeal the
ruling of the NSW Supreme Court in the first test case is listed before the High Court
later this morning.

A second test case has also commenced in the Federal Court which will determine
the meaning of certain policy wordings.

Although not a party to the proceedings, the ICA engaged on behalf of insurers with
AFCA to get agreement on both test cases, and our members are funding the costs
for all policy holders involved in this process.

As soon as final rulings are obtained from the courts, insurers will assess, and
process business interruption claims in an efficient, transparent, and consistent
manner.

Finally, like many sectors as we emerge from COVID 19, insurers are keen to see a
roadmap to reopen our international borders and reopen those areas of the economy
impacted by the pandemic, particularly travel and travel insurance.

A roadmap to reopening – with the confidence that once borders open, they will stay
open – will enable insurers to plan to again provide this crucially important service to
travellers.

We are happy to take questions from the committee. Thank you.

Useful links

Our Board
icon Opening statement from Andrew Hall, appearing on behalf of the Insurance Council of Australia before the House Economics Committee
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NSW bushfire funding welcome, but insurance taxes remain

June 23, 2021 by Shannon White

Home Industry

NSW bushfire funding welcome, but insurance taxes remain

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News release

Thursday, 20 May 2021

The Insurance Council of Australia (ICA) has welcomed additional funding of $268 million in the New South Wales State Budget to continue implementation of the recommendations of the NSW Independent Bushfire Inquiry, but said the failure to address insurance taxes meant many homeowners would remain without adequate cover of their most important asset.

The $268 million to be expended in the 2021-22 Budget is part of a $460 million package begun last year. Since the devastating 2019-20 bushfires insurers have paid out in excess of $5.6 billion in claims related to natural disasters in New South Wales.

While the quantum to be spent on mitigation against future natural disasters is not known at this point, the ICA welcomes the increased investment which adds to significant support contained in the recent Federal and Victorian budgets.

This new funding is tempered, however, by the failure of the New South Wales Government to reform state insurance taxes which remain the highest in the country.

In addition to imposing stamp duty on every policy purchase or renewal, New South Wales is the only mainland state that taxes insurance policyholders to fund fire and emergency services and policyholders pay almost three times more in state insurance taxes than Victorians (see table).

The ABS Household Expenditure Survey showed that the Victorian rate of household non-insurance is seven per cent compared to 13 per cent of households non-insured in NSW.

Quote attributable to ICA CEO Andrew Hall:

Insurers have been calling for some time for this scale of investment in resilience and mitigation measures, and it’s good to see the New South Wales Government has heard those calls.

More resilient communities, businesses, and households mean less disruption to life and faster recovery after a major natural disaster.

However, the effectiveness of this new investment is lessened by the failure to reform taxes and levies on insurance in New South Wales, which remain the highest in the country.

Stamp duty on insurance is a retrograde revenue measure that numerous inquiries and reviews have found leads to household underinsurance or non-insurance.

The Treasurer should seize the opportunity afforded by his proposed changes to property taxes to remove these taxes which are barriers to appropriate levels of insurance cover for New South Wales households and businesses.

 

Premium Cost

ESL (State)

GST
(Federal)

Stamp Duty (State)

Total
Cost

Total State Taxes

Total
Taxes

NSW

1000

180

118

116.82

1414.82

296.82

414.82

Victoria

1000

-

100

110

1210

110

210

Useful links

icon NSW bushfire funding welcome, but insurance taxes remain
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Queensland Budget a missed opportunity to invest in mitigation, cut insurance taxes

June 16, 2021 by Shannon White

Home Industry

Queensland Budget a missed opportunity to invest in mitigation, cut insurance taxes

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News release

Thursday, 20 May 2021

The Insurance Council of Australia (ICA) today said the Queensland Government’s Budget announcement of just $10 million for household resilience and mitigation measures was a missed opportunity to better protect Queenslanders from extreme weather events. 

With just $3 million to be spent on new household resilience funding in 2021-22, the Queensland State Budget has failed to confront the enormity of the challenge to make Queensland homes and businesses more resilient to natural disasters.  

Queensland led the way with its Household Resilience Program to help eligible homeowners in coastal parts of Queensland improve the resilience of their homes against cyclones, but this successful program has not been renewed, leaving many Queensland homeowners without support for much-needed home building mitigation.  

The new Queensland Betterment Fund of $20 million, jointly funded with the Federal Government, is intended to reduce the cost of future reconstruction of public assets damaged by natural disasters.  

Other natural disaster resilience and mitigation funding in the Budget comes from the Queensland Resilience and Risk Reduction Fund, jointly funded with the Federal Government, which is expected to expend $14.4 million in 2021-22.  

In addition to the disappointing investment in resilience and mitigation, the ongoing failure to address stamp duty on insurance means underinsurance will continue to be an issue in the state with the greatest exposure to the impacts of natural disasters.  

Quote attributable to ICA CEO Andrew Hall: 

Insurers have been calling for some time for greater investment in resilience and mitigation measures, so it’s disappointing the Queensland State Budget fails to meet this challenge.  

The Federal Government’s recent allocation of $600 million over five years for new disaster preparation and mitigation programs and $40 million to make strata buildings in northern Australia more resilient to extreme weather potentially unlocks significant partnership investments with the states.  

Queensland should be looking to maximise these opportunities.  

More resilient communities, businesses, and households mean less disruption to life and faster recovery after a major natural disaster. 

On the revenue side, stamp duty on insurance remains a retrograde measure that numerous inquiries and reviews have found leads to household underinsurance or non-insurance.  

The ICA urges all state and territory governments to advance tax reform and remove stamp duty on insurance products to increase insurance affordability for all Australians. 

Useful links

Our Board
icon Queensland Budget a missed opportunity to invest in mitigation, cut insurance taxes
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Fact Sheet: Lenders Mortgage Insurance

June 13, 2021 by insuranceca

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