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Insurance Business | 23 Apr 2014, 08:53 AM Agree 0
Brokers are making personal sacrifices to help their clients, as the issue of insurers 'price gouging' again rears its head.
  • realist | 23 Apr 2014, 09:23 AM Agree 0
    Wasn't there recently another cyclone in FNQ? I'd say insurers and re-insurers have it pretty much right on this one.
  • Bruce | 23 Apr 2014, 09:33 AM Agree 0
    Helena I think is ignoring the fact that these events are very likely to occur again. The insurance companies can't be expected to keep forking out for homes that are in cyclone prone or flood prone areas and either of substandard construction or in areas where NO flood mitigation works have been performed. Insurance is there to protect against fortuitous losses ...not inevitabilities. The pricing is based on inevitability - the question now remains is what is the policy holder going to do to reduce the risk? Most I suggest will do nothing and bleat to the State & Federal Governments.
  • Monty Sheridan | 23 Apr 2014, 09:50 AM Agree 0
    Humbling to see that this broker is wearing some of the burdening costs, however forcing all insurers to operate through out Australia still puts the power in 'insurers' hands in respect of pricing, terms of cover etc. Surely businesses closing down is not solely due to insurance costs - nothing to do with a high dollar, lack of tourism?
    I think Australia needs to follow New Zealands lead (of 1946) and introduce a defined event disaster pool / levy, that works on a first loss type basis capped to a realistic level for residential property. Which in turn will flow through to create more reinsurance capital for commercial risks.
    Its also ironic that this timed, after a near Cat 5 hit FNQ. Although Cairns was predominately unscathed, a few degrees South and this may have been a different story completely!
  • Brisbane broker with FNQ clients | 23 Apr 2014, 10:01 AM Agree 0
    “deliberately pricing themselves out of the northern Queensland market to avoid further exposure to the risk of natural disaster-prone regions”.
    Isn't so much an accusation as stating the insurer's business case. It is a bad business decision to have a lot of your risk in a really dangerous place, so I don't blame insurers for avoiding the area.

    Having insurance isn't a legal requirement, and insurers are businesses, not government charities. We shouldn't force them to take a dive so people can live in danger prone areas.

    Forcing insurers to have cover in danger areas will just see a price rise again - either a focused price rise in the danger areas like FNQ, or a general price rise "punishing" the people who don't live in those areas.
  • Ian J | 23 Apr 2014, 10:09 AM Agree 0
    Wise comments Monty. I agree that the insurers cannot continue to rebuild property in an area that historically is subject to adverse weather. Australia would benefit as a whole with a disaster pool fund. We all copped it when a Terrorism levy was imposed and it didn't stir up any negative tone (most insured's had no idea they were even funding it), despite the remote possibilities. How much did that raise over the years? A catastrophe fund would serve the entire Country and run correctly would assist those mainly affected but it shouldn't be there for those who simply choose not to insure and rely on hand outs.
  • Simon | 23 Apr 2014, 10:10 AM Agree 0
    Sure in FNQ we have cyclones every few years but the damage caused is minimal to that which occurs in Sth East Qld where they have severe storms and hail regularly, do they pay the exorbitant premiums we do in Cairns, I don't think so, it all comes down to the profit margins, there is a lot more money to be made in Sth East Qld due to the dense concentration of housing, insurers are using the "Cyclone threat" as a very convenient excuse when it comes to FNQ
  • Helena | 23 Apr 2014, 10:35 AM Agree 0
    Great comments, thanks for taking the time! We have just had another Cyclone cross the coast in NQ and right now, FNQ is pretty much structurally sound – the re-building following Cyclone Larry took care of that and Cyclone Yasi followed it up. Most of our buildings are now built to category 5 cyclone standards. From what I’m hearing, the claims activity from Cyclone Ita hasn’t been excessive and hopefully this means the loss costs haven’t either, I read somewhere that there have been around 510 claims lodged so far and the bill was around $7.5 million - it’s worth noting the buildings that were damaged in Cooktown were of an existing category 3 construction.

    Over the last several years, we’ve seen insurers withdraw from the region, citing ‘ we’re no longer writing business above the 26th parallel, it’s a cyclone zone’. While the remaining insurers see an increase in market share, this translates into much higher loss costs when a catastrophe like a cyclone happens. These insurers are left holding the baby and the bathwater and this has to be factored into the calculations of premiums for sure, however it’s my understanding that, generally, insurers work on a 3-5 year cycle, though budget for 2 significant storms a year. Essentially this cycle takes 3-5 years to adjust to something, and theoretically, with all things being equal, if budgets are based on a certain frequency then pricing should also be based on that same frequency. It’s also my understanding that reinsurance rates have started to come down and as an industry, we have seen almost two years claim free when we talk about major catastrophe losses.

    Businesses have closed down within the region from a number of causes including the GFC, however the lack of funds from that economic downturn coupled with higher premium costs have meant some businesses are doing it particularly tough. Don't forget these business onwners probably also have a home insured in FNQ as well. As you know home and contents premiums are generally paid out of out of tax dollars, and when you’re on a fixed wage, having to deal with a huge premium increase is stressing in so many ways. The fact is for many people, just keeping their largest asset insured, or their business protected means they have to choose between other necessities or discretionary items for themselves or family.

    Unfortunately the answers aren't simple, as these issues have been incubating for a long time. Many feel a knee jerk reaction happens in the face of an event and what we end up with over the longer term is an overall unwillingness to work at all levels to create lasting solutions, to cover many events over many years to come. What’s happening here can happen anywhere, brokers need to understand that no one region is immune to an insurer’s change in underwriting appetite.
  • Mike Sullivan | 23 Apr 2014, 10:57 AM Agree 0
    My experience is from 1972 Althea, I have seen and experienced cyclones and natural disaster since then, they do not get any easier, regardless of the peril insurers have supported cleints across Australia, after 1972 a plethora of insurers left FNQ many to return and leave again, whilst insurers have a bottom line to reach and balance of exposures the status quo will remain, Victoria has the same issue in the fire regions so FNQ is not alone.
    Rebate commissions your client your decision it is your business you also have a responsibility to the bottom line, however as an AR they would not be required to meet capital adequacy requirments of PS 166 as an FSA licence holder is required none the less it is always a balance between good management practices and client value.
    If premiums have risen so have commissions in $ value so it then becomes a matte rof reducing the ratio % of retained commission to premium, Which in fact if the % is reduced the $ factor may , may still be higher . This then become a value matter as to the expense ratio to income and EBIT. Matematically the picture is an interesting exercise, I would be interested to see that published.
  • Col Irvine | 23 Apr 2014, 11:34 AM Agree 0
    Perhaps there are a number of remedies that could be considered to assist in reducing the cost of insurance in what are considered to be catastrophe exposed post codes.
    EG;
    1)GST and stamp duty exemption on insurance policies in nominated post codes
    In a policy that has an annual premium of around $3,000 this would save $597.00 per annum.
    In a policy with an annual premium of $10,000 savings would amount to $1,990.00.
    2)Offer by Insurers to reduce the "bells and whistles" cover on existing policies in favour of a "bare bones" policy that still addresses the major perils of Fire,Storm&Tempest,Cyclone,Theft,Earthquake, Tsunami,Flood and, Storm Surge.
    3) A joint arrangement by Insurers in Australia to automatically assume a proportion of risk for nominated policies in nominated post codes.
    4)Consideration to the establishment of an insurance Catastrophe fund that individuals can buy into for designated perils only such as,Cyclone,Earthquake, Tsunami and Storm Surge.
  • Monty Sheridan | 23 Apr 2014, 11:37 AM Agree 0
    Helena - Great to see you taking on board the feedback.
    Wasn't Larry & Yasi both South of Cairns - so Cairns escaped relatively unscathed being on the Northern side of crossing point?
    This would mean, that Cairns hasn't bourne the full brunt of a large cyclone since codes were introduced?
    It was lucky (and unlucky for those there)that Ita crossed in a sparsely populated area, and became a Cat 1 yet there is still an estimated $7.5Mn damage across the region? What would a Cat 3 or 4 cost?
  • Queenslander | 23 Apr 2014, 12:15 PM Agree 0
    and what about Sydney Hailstorms, Sydney Bush Fires and Western Sydney Flood risk?
    Ooops! these are in the backyard of most insurer Head Offices - best not go there.
    Much easier target up north.
  • Mark | 23 Apr 2014, 12:56 PM Agree 0
    Why not make primary house insurance tax deductible, this will encourage more people to insure, secondly don't give 100% handouts to those who choose not to insure, only a % of their lost value should be paid out in the event of disaster eg 50% of loss, that will again encourage people to insure, and insure to their full replacement value. If there is more people insuring, then the cost of premiums will reduce. Thirdly as an industry we should be encouraging people to buy insurance based on cover and premium, not just the cheapest price they can find.
  • Helena | 23 Apr 2014, 01:46 PM Agree 0
    Both Yasi and Larry crossed south of Cairns and they both made a mess. They crossed in country towns and rural areas and I was here for both, working in the industry. The building codes were changed around 1985, and post cyclone, there were associated costs in bringing a number of damaged houses in line with the new regulations. Here's hoping the new regulations do what they are supposed to do and help to reduce the damage bill in the event a Cat 5 cyclone omes into Cairns. From various resources the insured losses from Yasi (2011) were around $1.35b and from Larry (2006) around $470m. In considering the 2011 ICA summary (which shows 2011 adjusted dollar amounts), of the 10 largest cat events up to 2011, the loss from Yasi appears to come in at around number 10. The loss from the Sydney Hailstorms in 1999 comes in first at $4.3b, the loss from Cyclone Tracy in NT in 1974 comes in at $4b, followed by the Newcastle Earthquake in 1989 at $3.2b, and the QLD Floods of 1974 at $2.6b. From here the summary shows the QLD Floods of 2010/11 with a loss of $2.3b, the Brisbane Hailstorms of 1985 at $2b, the 1983 Ash Wednesday Bushfires in S/A & Vic at $1.7b, followed by the NSW Storms in 2007 at $1.7b, and Cyclone Madge across WA/QLD/NT in 1973 at $1.4b. Can't argue with the data, it's on the ICA website. Personally, we have seen a 300% premium increase on a property we own, in Cairns, in four years, and that's after we have optioned our excesses. That's on a domestic block. Our farming clients have been subjected to some incredible premium increases since 2010 and brokers only really have two insurers to work in this product class in the region. Same with storm surge - the intermediated product market is really limited when it comes to getting a policy that provides cover for this event, as the majority of policies don't.
  • Monty Sheridan | 23 Apr 2014, 02:26 PM Agree 0
    Good figures, and while they may indicate the quantity of loss from these catastrophes they do not really give a sense of severity. By severity I mean, the notion that everyone contributes to a pool, has been ‘regionalised’ or localised so appears that each area stands on its own merits. The worst loss being Sydney, has a much greater density of population to support it (i.e. $4.3Bn over a population of 4.3Mn). FNQ/NQ population is circa 500,000 and endured a loss of $1.35Bn. Essentially per capita it was almost 3 times worse. While density of population does not give a regionalised premium pool, in principle it should be close for 2011 figures. I trust you get my rationale.
  • Helena | 23 Apr 2014, 03:43 PM Agree 0
    I get your rationale. I've looked at the ICA information as a whole and came up with this - the reported loss from Cat events to 2011 have totalled somewhere around $23.2b. Of that we've had two cyclones in QLD in 41 years with a total combined loss of around $2.7b. Just saying - you know, living the dream.

    Thanks for taking the time to post your comments and feedback.
  • Robert Cooper | 23 Apr 2014, 04:34 PM Agree 0
    Cairns is lucky to have such a caring and thoughtful Insurance Broker up in that region, not only rebating back commission, but also researching the risks and speaking out on behalf of the region.

    One of the points made was the fortuity of cyclones compared to their inevitability. I would argue that while Cyclones are a fact of life each year, they are still fortuitous events because we do not know how intense they will be and where on such a long Coast they are likely to strike. Melbourne is closer to Brisbane than Brisbane is to Cairns. It is a lot of Coast.

    While Cyclones are very intense Storms, there have been very strong Storms down South including in Perth. In addition they have a much greater Bushfire Risk because of the drier climate. Adelaide has a huge Earthquake Risk.

    The debate should really about how we adapt to all these major catastrophic risks into the future, how much Man adds to the risks and how the Insurance Industry and Governments, along with Business can reduce the exposure with good regulations and standards on developments in all our regions.
  • jeffrey | 26 Apr 2014, 05:36 PM Agree 0
    Having insurance for strata units is a legal requirment
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