Insurance Business Australia

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					    Report on Australia by the National Insurance Brokers
                     Association (NIBA)
                    Noel Pettersen - CEO
2008 was an interesting and challenging year for Australia. There was extreme
volatility in Australian financial markets as a result of the global financial crisis.
Weather related events also had a significant impact on the Australian insurance
industry. The Australian insurance market was generally soft throughout 2008 but
there are now definite signs of it hardening.

Up until now, the Australian insurance industry has escaped much of the fallout from
the global financial crisis; nevertheless this crisis does represent the most important
event impacting on insurance intermediaries in 2008.

During the space of only a few months Australia changed from a very strong, rapidly
growing economy driven by a resources boom to an economy facing a credit crisis
and recession with a rapidly falling growth rate and growing unemployment. Stock
market prices fell by around half over the course of the year and the value of the
Australian dollar fell by over one third compared with the US dollar.

The Australian Government and other Australian public authorities moved quickly to
stimulate the economy through government expenditure, reduced interests and a range
of other measures intended to shore up consumer confidence in the Australian
financial system. Despite this action an increasing number of individuals and
companies are experiencing significant financial stress.

Banks, as well as other deposit taking institutions and insurance companies that are
prudentially regulated in Australia have, however, fared reasonably well and there
have been no major financial failures amongst this group. Nor has there been a need
for special Government loans to support this sector.

The most significant impact to date of the financial crisis on Australian insurance
intermediaries relates to changes in businesses confidence and in investment
decisions.

Much of the concern felt by Australian insurance brokers to AIG’s substantial losses
from mortgage insurance in the US were ameliorated when the US Government
announced that it would financially support the company.

As part of the Government’s measures to deal with the global financial crisis,
legislation guaranteeing insurance claims by retail clients against an insurance
company failure was passed by Parliament. The scheme is limited to Australian retail
policyholders and covers both claims and administrative costs. Any payments
necessary under the arrangement will be recovered through the liquidation of the
relevant insurer. Should the liquidation process, however, not provide sufficient
funds, the shortfall is to be made up by way of an insurance industry levy. These
consumer protection arrangements will in effect remain dormant until there is a failure
of an authorised insurer.



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Whilst the full effects of the crisis may not, as yet, been felt by the Australian
economy, NIBA expects that most Australian insurance brokers will escape the crisis
without significant loss. To date the Australian public retains confidence in the
Australian prudential regulatory system and in the financial viability of Australian
regulated insurers.

1. What are the (5) most important issues on the (political/public) affairs
   agenda? (Major issues to be resolved / monitored).

The major issues are:
      a. New regulation. NIBA will need to ensure that any new regulation
           introduced by the Government, such as, credit and mortgage loan reform,
           does not adversely impact on the Australian insurance broking industry.
      b. Government taxes and charges on ins urance. NIBA is actively pursuing
           a campaign to reform government taxes and charges that apply to
           insurance policies in Australia. The extent of the taxes and charges varies
           by state. The highest rate being for business insurance in country Victoria
           where the taxes and charges equal the basic insurance premium.
      c. Flood ins urance. Flood insurance has not always been readily available
           in Australia. There is also considerable inconsistency between insurance
           companies in their policy definitions of flood and in the way they
           administer their policies in relation to flood. As a result insurance claims
           for seemingly similar events and properties are treated differently. NIBA
           would like to see wider coverage for flood in insurance policies and
           consistency in the way that flood is administered by insurance companies
           in Australia.
      d. Dealing with unauthorised insurers. The Australian Government
           recently introduced restrictions on insurance brokers placing business with
           overseas insurers that are not authorised to conduct insurance business in
           Australia. Put simply, the arrangements require insurance brokers to have a
           reasonable basis for placing policies with other than authorised insurers.
           The approach adopted is seen as a balance between consumer protection
           and the need to access world markets for difficult to place policies. NIBA
           will need to ensure that all the administrative procedures for the new
           arrangements, including those relating to reporting and statistics are not
           unduly burdensome.
      e. External Dispute Resolution. The compulsory dispute resolution
           arrangements for insurance brokers in Australia basically apply to retail
           client’s claims under $100 000 Aust. The Regulator has suggested that the
           limit should be increased to $280 000 Aust. for all external dispute
           resolution schemes for financial service participants irrespective of their
           particular sector. NIBA is opposed to such a large increase for insurance
           brokers. NIBA’s preferred approach is to allow individual external dispute
           resolution schemes to continue to set their own limits having regard to the
           nature of the particular industry sector concerned and the attitude of
           relevant PI insurers.

2. What are the (underwriting) market conditions and tre nds (current
   year/coming year)?



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Weather related events have had a significant effect on the Australian insurance
industry over the last year. They have cost the Australia community around $2.5b
Aust. in insured losses. The industry responded well to these events. Insurance
companies and insurance brokers have developed a very high level of skill in
restoring order after storms.

The market generally was soft throughout 2008 but there are clear signs of it
hardening. NIBA considers that the global financial crisis is likely to affect both the
supply and demand for insurance. An increase in the cost of capital resulting from
tougher credit conditions is likely to see those investing in insurance seeking a higher
return while purchasers of insurance will be looking to reduce their total outlays
including insurance costs.

3. What are the inte rmediary market conditions/tre nds (current year/coming
   year)? What are your vie ws of insurance interme diation over the next 12
   months?

Insurance brokers in Australia have at least been holding their market share if not
increasing it over the last few years and there is no reason to believe that their market
share in future years will decline.

The Australian insurance market for both underwriters and intermediaries is very
competitive and participants have to be efficient and effective to survive.

Some rationalisation of the insurance brokering industry occurred during 2008 and
this is expected to continue in future years. Smaller brokers are finding it increasingly
difficult to meet regulatory, systems and administrative obligations, cover fixed
overheads and have the necessary mass to negotiate effectively with insurers. As a
result many smaller insurance brokers have been joining cluster or aggregator groups
that can provide the necessary assistance and spread overhead expenses. Others are
specialising in a particular product or industry sector. The rationalisation also reflects
an ageing insurance broker population.

At present there are about 700 registered insurance brokers in Australia. Some
industry commentators have projected that over the next 10-15 years that number
could be halved.

Insurance broker regulation in Australia underwent a fundamental change a few years
ago and only relatively minor fine tuning is expected to occur in the coming year. The
Government and the regulators appear to be relatively satisfied with current
regulation.

4. Education and Training

NIBA has undertaken a complete review of all its qualification programs in both
coursework and assessment pathways. A major new initiative has also be gun to
reinvigorate what it means to be a professional insurance broker, both in terms of
skills and knowledge, and to reposition the existing Qualified Practicing Insurance
Broker (QPIB) qualification. NIBA membership supports a more integrated approach



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to career path development which sets benchmarks beyond the current QPIB
qualification.

The recent introduction in Australia of Anti-Monetary Laundering and Counter-
Terrorism Financing Law has been an interesting development. Insurance brokers
have largely escaped the more detailed requirements of the new Anti-Monetary
Laundering and Counter- Terrorism Financing legislation. NIBA has argued that a
similar position should be taken with regard to premium funding activities undertaken
by insurance brokers. While NIBA’s position has the support of the Government
Regulator the detailed regulations relating to premium funding are yet to be
proclaimed.




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