2021: catastrophes, COVID, courts, challenges – and change everywhere

2021: catastrophes, COVID, courts, challenges – and change everywhere

A look back at the events that dominated the industry’s year through our daily Insurance News online service

By Miranda Maxwell

No one saw 2021 coming, and a look back through the files of insuranceNEWS.com.au illustrates the fact that life is unpredictable. For the Australian insurance industry, it has been a struggle on all fronts as the pressure piled on and the catastrophe claims kept coming.

Industry professionals at all levels across every industry sector have had to cope with keeping the workflow moving while scattered to their homes by pandemic lockdowns. They have also had to grapple with milestone regulatory reform, insurance affordability issues, five declared catastrophes (and counting), sundry other destructive storms and floods, and a complex court battle over COVID-related business interruption (BI) claims. To name just a few of the issues handled in 2021.

Amid so much gloom it’s heartening to note that insuranceNEWS.com.au’s mostread article of the year was a quirky piece about Melbourne-based IAG employee and guitar hobbyist Fran Porter and her song about the experiences of lockdown life. The response to her uplifting video was phenomenal.

Here is our month-by-month look back at highlights of the year:

JANUARY

The year kicked off with the Australian Competition and Consumer Commission (ACCC) concluding a three-year inquiry into insurance affordability in northern Australia and calling for broker commissions to be replaced by a fee-based system. The almost 600-page final report contained 38 recommendations.

Next came news London-based Howden Broking was moving into the Australian market via a strategic broking partnership with Steadfast.

The UK Supreme Court ruled against insurers on COVID BI cover, prompting insurers to reserve millions for potential Australian claims.

Allianz Australia announced a new operating model and the departure of Chief GM Broker and Agency David Hosking, while NSW state insurer icare appointed former Tower CEO Richard Harding as its new head.

Almost 50 customers of US-based file transfer vendor Accellion, including the Australian Securities and Investments Commission (ASIC), the Reserve Bank of New Zealand and insurance law firm Allens, were hit by a cyber breach that affected millions around the world.

FEBRUARY

Federal Court of Australia proceedings commenced to test pandemic coverage in BI policies in the second industry test case, and as plaintiff lawyers moved in the Insurance Council of Australia (ICA) criticised proposed class actions as “premature”.

The ACCC expressed concerns about the local implications of a planned merger between global brokers Aon and Willis Towers Watson.

On February 5, ICA declared the Perth Hills bushfires the first insurance catastrophe of 2021. Claims came to $88 million.

NIBA published a discussion document on proposed changes to its venerable Code of Practice and the Federal Government considered exemptions to add-on insurance reforms after brokers warned the changes could expose consumers to financial risk.

February was a stellar month for women working in insurance as QBE Group appointed ICA President Sue Houghton to the vital post of Australia and Pacific CEO, and NIBA appointed Adelaide-based broker Dianne Phelan as President.

The London-based Ardonagh Group took up a majority stake in authorised representative group Resilium as its first move into the Australian broking market, and the Queensland Government agreed to settle the Wivenhoe and Somerset class action – resulting from the 2011 Brisbane floods – for $440 million.

MARCH

Some key appointments were announced in March. QBE named Andrew Horton, the head of British insurer Beazley, as its next group chief executive.

Chubb announced Peter Kelaher as its new Local Country President, replacing Jarrod Hill who had moved to IAG to run its intermediated business. IAG also named former chief customer officer Julie Batch to manage the group’s direct insurance operation.

Meanwhile, ICA declared widespread east coast flooding on March 18-24 was the year’s second insurance catastrophe, later revealing 57,000 claims at an estimated $645 million.

The Australian Prudential Regulation Authority (APRA) annual general insurance statistics revealed the industry made an underwriting loss of $78 million in 2020, driven by natural catastrophe claims costs, falls in investment income and COVIDrelated BI provisions. Just as sombre was the General Insurance Code of Practice Governance Committee annual report showing 32,870 self-reported code breaches, up 5% on the previous year, and 112 significant breaches.

ASIC offered immunity to people who informed it about business misconduct and co-operated on investigations and court action. And QBE started selling home and motor insurance products to Australia Post customers under a partnership agreement. Overseas – or perhaps between seas – the massive container ship Ever Given became lodged in the Suez Canal, sparking a global supply logjam and a marine insurance headache that’s still being sorted out.

APRIL

The much-anticipated unfair contract terms protections kicked in on April 5 for consumer and small business insurance contracts. On April 14, ICA declared an insurance catastrophe in Western Australia from Tropical Cyclone Seroja, with the coastal town of Kalbarri and the community of Northampton bearing the brunt of the storm and raising 7100 claims totalling $306 million.

Hollard announced senior executive changes under which Richard Enthoven would focus on his role as MD of Hollard Holdings Australia and Paul Fahey would become CEO.

April also saw a series of announcements from broker groups: Steadfast acquired a 60% stake in unisonSteadfast, a cross-border group that is managed from both Hamburg and Chicago. AUB Group unveiled The Insurance Alliance, an initiative allowing brokerages to access services offered by the company without becoming equity members of Austbrokers.

Financial Services Minister Jane Hume said the issue with commissions received by intermediaries applies purely “when they influence the advice provided” and agreed a flat fee model can be a challenging business proposition.

Insurance News launched a revamped homepage design and introduced a dedicated weekly insurtech section – acknowledgment of the fact that the industry is now inextricably tied to technology.

Catastrophic: Cyclone Seroja ripped through WA in April

Credit: Sedgwick

MAY

Confirmation of a government cyclone reinsurance pool for northern Australia came on May 4, backed by a $10 billion government guarantee.

John Trowbridge’s discussion paper on SME insurance affordability, commissioned by the ICA, put forward 16 potential solutions, including setting up underwriting consortia so insurers could share difficult risks.

The Ardonagh Group, fresh from digesting Resilium, acquired Sydney-based underwriting agency Epsilon. Joseph Longo was appointed the new Chairman of ASIC and Sarah Court became Deputy Chair.

A new strain of COVID first detected in India months earlier was named the Delta variant, a plague of mice continued to cause misery across regional NSW and Queensland and ICA unveiled a fresh logo and website.

JUNE

The High Court denied ICA’s application to appeal a judgment in the first test case on BI claims.

In the Deal of the Year, market wunderkind Hollard acquired the Commonwealth Bank’s general insurance business with an upfront payment of $625 million and ongoing links with the bank. The deal will increase Hollard’s annual gross written premium by about 50% and position it as the fifth-largest general insurer in Australia.

On June 13, ICA declared the year’s fourth insurance catastrophe for regions of Victoria impacted by storms and flood. There were 28,000 claims valuing $241 million.

NIBA announced Philip Kewin would become the association’s new CEO to succeed Dallas Booth. Mr Kewin is the former CEO of the Association of Financial Advisers.

The UK’s Financial Conduct Authority cracked down on so-called insurance “loyalty taxes,” saying renewing customers must not be charged any more than new ones.

Insurance executives put in a strong appearance before the House of Representatives Standing Committee on Economics in the face of a hostile approach from some MPs. At a separate inquiry, insurers were criticised by politicians for withdrawing cover from coal mining.

JULY

“It’s off” was the headline insuranceNEWS.com.au used to report the Aon/Willis Towers Watson mega-merger, which would have created the world’s largest insurance brokerage, had been abandoned due to resistance from regulators. Aon paid WTW a $US1 billion termination fee.

The latest version of the General Insurance Code of Practice came into effect, with significant changes and sanctions of up to $100,000 for code breaches. It is the fifth update of the code and provides comprehensive consumer protections in the postHayne royal commission landscape.

IAG CEO Nick Hawkins delivered the sort of full-year results no first-year CEO would ever want to report – an overall loss of $427 million, which included BI provisions for the pandemic, customer refunds and payroll remediation.

July also saw another top-level move to IAG when Zurich Australia General Insurance CEO Tim Plant left to become IAG’s Chief Insurance and Strategy Officer.

A law firm launched class actions in the Federal Court against QBE and Lloyd’s over the rejection of BI claims, and APRA said selling policies with outdated wording “exposes clear deficiencies in risk management”.

AUGUST

While Australia began to worry about the Delta COVID variant, there was a win at home in the long-running (and still running) myriad cases involving pandemic-linked BI insurance. In stark contrast to both the first test case launched by ICA and adverse rulings against insurers in the UK, the Federal Court found in favour of Chubb and 10 other industry respondents in an action launched by The Star Entertainment Group. (Although an appeal was later announced.)

Sydney-based Coverforce, a significant brokerage which had gone through some difficulties unconnected to the business of insurance, was acquired by Steadfast for $411.5 million.

And Suncorp CEO Steve Johnston had much to smile about when he announced a net profit rise of 13% to $1.03 billion supported by its strongest financial year performance in Australian premium revenue in almost a decade.

That’s especially impressive alongside the APRA industry statistics in August showing general insurers made a net profit after-tax of $1 billion for the year to June 30, with better investment income and underwriting results contributing.

How are we? Insurance News launched its inaugural wellness survey

The Business Events Council of Australia called for a government-led insurance scheme to enable the recovery of the business events sector, which had been flattened by COVID lockdowns, travel bans and border closures.

SEPTEMBER

The second ICA COVID BI test case was heard in the Federal Court, and lawyers put forward final arguments to conclude the eight days of hearings. Meanwhile, Slater and Gordon launched a class action against IAG on behalf of BI insurance policyholders.

Victorians were shaken on September 22 as a record-breaking 5.9 magnitude earthquake struck near Melbourne, causing surprisingly little damage in the city of 5.07 million. ICA put preliminary estimated losses at $147 million.

Aon announced it had promoted Jennifer Richards to CEO Australia, replacing James Baum, who is headed to a new role in London.

The ICA launched a Business Advisory Council as part of responses to the final report delivered by John Trowbridge on availability and affordability issues.

Lloyd’s annual industry-wide Dive In diversity and inclusion festival attracted its highest global audience to date, with 31,000 participants from more than 100 countries attending the three-day hybrid event.

Reinsurers’ much-loved annual Rendez-Vous de Septembre was again an online only-affair instead of in Monte Carlo.

IAG said its IAL brand will no longer accept new business, landlord insurers came under fire for chasing tenants over claims and the Bureau of Meteorology warned of an upcoming La Nina weather phase, promising a wet spring.

OCTOBER

A “once in a generation” set of regulatory changes came into effect on October 5. ICA said insurers were ready for the sweeping changes.

“Insurers win the day” was the October 8 headline as the Federal Court judged in favour of insurers on the vast majority of issues in the second BI test case on COVID-19 claims – an overwhelming win for insurers in eight of the nine test case claims.

Record “grapefruit-sized” hailstones 16cm in diameter hit north of Mackay in Queensland, and wild weather saw ICA declare an insurance catastrophe for parts of South Australia impacted by significant hail, rain, and strong winds. This was later extended to include affected areas of Victoria and Tasmania.

The first Insurance News Wellness Survey, conducted by Insurance News in the middle of prolonged lockdowns in New South Wales and Victoria, revealed that while many staff working at home were revelling in new-found work/life flexibility and the mixed delights of Zoom meetings, for others the lockdowns had raised levels of exhaustion and anxiety.

As we reported in the October issue of Insurance News, more than a quarter of insurance industry professionals who responded to the survey were so worried about their mental health they had considered or sought out expert help.

However, for housebound Sydneysiders the end to the state’s four-month staged lockdown was in sight, with restrictions lifted once vaccinations had reached 70%.

There was little joy to be found in the annual Optima report from major actuary and consultant Finity, which revealed insurer profitability had gone “from bad to worse”, with return on equity slipping to a sorry 2%.

Something that got people talking – or at least speculating – was unconfirmed rumours that Zurich Group was considering selling its general insurance business in Australia. We’ll keep you posted on that one.

NOVEMBER

The Full Court concluded hearing appeals in the second BI insurance test case after it considered five claims and an appeal from The Star Entertainment Group against Chubb and other insurers.

Separately, Federal Court action taken against Suncorp by a Melbourne restaurant was resolved. Suncorp said judgment will be entered in favour of its subsidiary Vero, but it would make a contribution to the plaintiff’s legal costs given the industry-wide significance of the issue. Suncorp said its reserving was appropriate in light of the decision.

NIBA published another draft Insurance Brokers Code of Practice following strong criticism of its earlier attempt by consumer groups and the code compliance committee.

A class action started in 2018 by Richmond Valley Council on behalf of 12 councils concluded in the NSW Supreme Court. A judgment in the case, which alleges JLT breached its broker duties and arranged cover “at less advantageous rates than were available”, is probably still months away.

Aon’s biennial risk survey saw cyber sit at the top of the pile for the first time, outstripping climate change and COVID, while Marsh’s commercial pricing index highlighted a dramatic rise in cyber premiums.

Industry leaders have spoken out about the climate challenge and what reinsurers, insurers and brokers can do during the UN summit in Glasgow.

ICA said Australian governments need to spend $30 billion on coastal protection measures over the next 50 years as climate change increases risks.