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This is a finding of the 18th annual J.P. Morgan Deloitte General Insurance Industry Survey released today.

The survey shows respondents from the insurance industry expecting the “two-speed” market of premium rates in 2010 continuing into 2011, with anticipated rate increases in domestic lines and soft trends in commercial insurance.

“Insurers expect rates in commercial lines for most classes to decline. We believe that competitive pressures and excess capital from overseas and changes in distribution platforms in the broker space will continue to pressure rates in the commercial classes into 2012,” said JP Morgan senior insurance research analyst, Siddharth Parameswaran.

Rate pressure on liability, professional indemnity and D&O is of most concern, despite these classes being significant positive contributors to overall industry profitability in the past.

“Overall respondents were broadly optimistic this year about the outlook for the year ahead and the possible positive impact of continued economic growth for insurance companies,” he said.

Nevertheless, this could be another year of extreme natural events given the La Nina pattern and resultant wet weather on recently in NSW and Victoria.

Elaine Collins, Deloitte actuarial partner and joint coordinator of the survey, added that in commercial classes the industry faced a 1% decline in premiums last year versus a forecast increased of 6% for the year.

Premium rates in the commercial classes were unable to sustain the forecast increases, with the industry facing a one percent decline in premiums last year, versus a forecast increase of six percent for the year.

Content Courtesy – www.insurancenewsaustralia.com

As has been the case in every recent flood in Australia, the different stances on flood cover by different companies has led to a great deal of criticism, with senior politicians and the media weighing in demanding “clarity and compassion”.

Assistant Treasurer Bill Shorten, who met Insurance Council of Australia (ICA) CEO Rob Whelan on Friday to discuss the floods, was careful in his comments to media following the meeting. He said he had asked the industry to handle claims speedily and treat claimants “flexibly and humanely”.

Prime Minister Julia Gillard has been less circumspect, calling for insurers to be “flexible” in deciding who is and isn’t insured, while Queensland Premier Anna Bligh wants them to be “compassionate” and Victorian Premier Ted Baillieu is urging them to “err on the side of generosity”.

The insurance industry’s public response to criticism has been low-key. An ICA spokesman told insuranceNEWS.com.au yesterday the council is responding to media criticism. She did not elaborate on how this is being done, beyond commenting that ICA is “stretched to the absolute limit and inundated with media”.

Several insurers have stated on the record they will not consider ex gratia payments to flood-affected policyholders. Others are saying nothing at all.

However, reinsurers have made it clear that insurers which didn’t offer flood cover will not be allowed to deviate from their contracts, and can’t expect them to consider financing ex gratia payments, either.

Claims mount as insurers get to work

The real work for the insurance industry is only just beginning.

With claims mounting by the hour, insurers are trying to assess the situation as quickly as possible, but say it’s going to be some time before the true cost of this event will be known.

ICA says more than 12,000 claims have already been submitted to member companies, amounting to more than $410 million.

It’s impossible to give any kind of realistic estimate of the cost of insured claims at this point.

Apart from the devastation in the population centres, commercial claims are expected to be massive. At present only 15% of Queensland’s 57 coalmines are operating normally, with 25% completely shut down. Equipment and infrastructure will have to be rebuilt or replaced before the mines can return to operation.

UK-based Barclay’s Capital says the insured losses from the flooding could top $6 billion, and has warned Bermudan reinsurers’ bottom lines are at risk as a result.

Media reports from London quote Barclays analyst Jay Gelb citing “early estimates” of $4 billion of losses from this month’s floods and $2 billion from the December floods.

It’s expected that three of the five largest reinsurance claims in the past year will have come from this region – the March Melbourne and Perth storms, the Christchurch earthquake and the Queensland floods.

ICA CEO Rob Whelan says the industry has the capacity and resources to handle the expected volume of claims.

Suncorp Group says its reinsurance program will limit the costs of claims for flooding in Brisbane and southeast Queensland to between $70 million and $90 million.

It also expects to take on additional reinsurance costs of about $120 million to reinstate multiple covers for the rest of the financial year.

The insurer received more than 2500 claims for the first weather system that battered the region in December, and initial estimates show the event costing between $130 million and $150 million.

Suncorp is the largest insurer in Queensland, and its Suncorp, GIO and APIA personal lines brands offer automatic flood cover. The group has so far received more than 10,000 claims from across Queensland since December 24.

To combat these growing increases, the group has increased its number of general claims staff and assessors working on the ground and a number of customer response teams have been deployed to Brisbane, Toowoomba and other badly affected regions.

The commercial claims team is also working extended hours, including weekends.

Commercial Insurance CEO Anthony Day says teams deployed to Emerald, Bundaberg, Chinchilla, Dalby, Theodore and Biloela are fully equipped to provide both commercial and personal insurance advice and information to brokers and customers to lodge claims and process emergency payments.

Mr Day is urging businesses with Vero’s optional flood cover and home and contents policies to lodge their claims as soon as they’re able to.

Zurich Insurance, which also provides flood cover to its commercial customers, declined to comment on the current status of flood claims, saying it has a global policy not to release interim numbers or claims costs.

IAG CEO Mike Wilkins says claims are being prioritised according to the severity of damage and customers are encouraged to lodge their claims as quickly as possible.

The group has currently received 1200 claims from heavy rain associated with Tropical Cyclone Tasha in late December, costing between $10 million and $30 million, bringing the total natural peril claim loss for the six months to December 31 to between $120 million and $140 million.

A further 2400 claims from the floods in southeast Queensland have been added to the tally, but IAG says it’s still too early to count the total cost.

Mr Wilkins says IAG’s reinsurance program allows for maximum event retention for a first event in the 2010 calendar year of $150 million.

CGU’s GM Claims Ben Bessell – whose company doesn’t offer flood cover – says the insurer is assessing each claim on a case-by-case basis.

“If any of our policyholders have been impacted by the recent severe weather we encourage them to contact us to get the process underway,” he told insuranceNEWS.com.au.

Mr Bessell says CGU is confident its assessors and loss adjusters will be able to work through the claims at a “steady pace”.

However, he has urged claimants to be patient, as the “sheer size and geographic nature” of the event will cause expected delays in reaching everyone concerned.

Inquiry will examine flood insurance

An independent commission of inquiry into the Queensland floods disaster will examine the role of the private insurance industry in providing cover, according to Premier Anna Bligh.

The inquiry will have the powers of a royal commission and seek submissions from the public, summon witnesses, compel the production of documents and issue search warrants.

The commission will make recommendations in its interim report in August, and release a final report in January next year.

It will be headed by Queensland judge Justice Cate Holmes, assisted by two deputies: former Queensland Police Commissioner Jim O’Sullivan and international dams expert Phil Cummins.

Ms Bligh said it would be remiss of the inquiry if it ignored insurance-related issues. She says many victims say they have paid premiums for years believing they were covered for floods.

“The states don’t regulate the insurance industry – that’s a national responsibility,” she told Sky Media. “But I think, given the size of this event, it would be remiss of us not to allow people to bring some of that evidence to the commission.

“And the commission may be able to make some recommendations that the Federal Government could look at and perhaps protect all Australians better in the future.”

Ms Bligh says insurance policies aren’t transparent and alleged people had been “caught out by the fine print”.

ICA CEO Rob Whelan said in a statement this morning that the industry will be “an active and constructive participant” in the inquiry.

He also pointed out that proper flood mapping would allow flood risks to be fully understood and underwritten.

“ICA now has a database with some 4.2 million properties that are prone to flooding on its National Flood Information Database,” he said in a statement. “This work, along with other initiatives on building codes, weather-resistant building materials and various flood mitigation activities, will create a better understanding of how communities can become more resilient.”

“The general insurance industry has now received over 7000 claims with an estimated insurable value of $365 million,” said Mr Rob Whelan CEO of the ICA. This is a significant increase on the initial estimates released by the ICA last week. These figures do not at this stage include claims from damage in Toowoomba and Brisbane or large industrial and mining claims.

ICA members have reported that these claims figures represent approximately 76% property claims and 24% motor vehicle claims.

The Insurance Taskforce continues to work around the clock with the QLD authorities. The industry has the capacity and resources to handle the expected volume of claims in the coming days as customers are able to return to their properties and begin the recovery process.

Insurance assessors are on the ground and ready.

Recovery tips for policyholders include:

 As part of the clean up process remove water and mud damaged possessions. Carpets

and soft furnishings can be removed from the building and disposed of (if possible take photos or make an inventory of the possessions that have been damaged).

 Don’t be concerned if insurance documents have been lost or damaged due to the flood. Insurance companies keep records electronically and only require the policyholders’ name and address in order to locate a policy.

 Contact your insurer before authorising repairs.

All claims received by the general insurance industry will be assessed on a case by case basis taking into account the nature of the damage sustained and the terms and conditions of each insurance policy.

“It is important to note that not all insurance policies will cover policyholders for this type of flood event, policyholders should contact their insurer for clarification.” Mr Whelan said.

Chief Executive, Lachlan McKeough, commented that the substantial growth has been achieved across the existing broker network through business growth initiatives including bolt on acquisitions, which have driven the increase in profits.

With a total turnover of over $1.2 billion in general insurance premiums, and over $200 million in funds under management the Austbrokers Network ranks within the top general insurance broking groups in Australia.

Treasurer John Lenders said the Fire Services Levy was already under review by the Government and he would use the existing review process to determine the best model for the new levy. Mr Lenders said the existing green paper process and the Royal Commission had provided the Government with enough evidence to move to a property levy, however, the Royal Commission was silent on the fine details of how the levy would operate and the Government will work through how such a levy would be applied.

Fire services are currently funded through a mix of funding through the Fire Services Levy on insurance premiums, direct contributions from the State Government and through metropolitan councils. Under the new arrangement the new levy would replace the money contributed through
insurance premiums.

The Government started the process to determine the best model for the new levy by today releasing a set of policy principles that a new model would need to satisfy. The new model would:

- Be a progressive property-based levy;
- Provide the same level of funding as the existing FSL to the CFA and MFESB respectively;
- Collect no more revenue than would be collected under the current model; and
- Provide a 50 per cent concession to low income earners.

The Government will embark on a period of thorough consultation to determine the best model and options will be put into a white paper which will be released in February.

The new system would be fully in place on 1 July 2012