gi australia unsw mar15 (3)

7/23/2019 GI Australia UNSW Mar15 (3)

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© 2015 Finity Consulting Pty Limited

General Insurance in Australia

2015 and Beyond

Greg Johnson and Jessie Wang | 26 March 2015



Outline

2

General insurance

Industry structure

Main players

Current challenges

Evolving industry

Actuaries in GI

Questions



General Insurance

3

- Non-life insurance

- Protection for property loss + liability to third parties

Personal Lines:

- Motor, CTP

- Home and contents

- Consumer credit, extended warranty

- Travel, pet, personal accident

Commercial Lines:

- Property – physical damage to buildings, cargo, stock

- Injury/loss to third parties or staff – professional

indemnity, workers comp, public and products liability



Other Industries

4

Life Insurance

• Mortality and disability rates• Compensation amount is known• Dealing with longevity risk and health issues

Superannuation

• Defined benefit and defined contribution• Similar to life insurance• Mortality, disability and early retirement rates

Other

• Banking and investment

• Data analytics• Pricing

General Insurance

• Fire, storm, theft, crash, injury, etc• Claim amount is unpredictable• Challenges: climate change, increased regulation



Industry structure

5

Governments

Corporates

SMEs,

not-for-profits

Individualsand families

Buyers



Industry structure

6

Brokers

Underwriting Agencies

Distributors

Agents

Governments

Corporates

SMEs,

not-for-profits


Buyers



Industry structure

7

Brokers


Direct insurers

Distributors

Agents

Governments

Corporates

SMEs,

not-for-profits


Buyers



Industry structure

8

Brokers


Direct insurers

Distributors Manufacturers

Agents

Other(primary)insurers

Governments

Corporates

SMEs,

not-for-profits


Buyers



Industry structure

9

Brokers


Direct insurers

Distributors Manufacturers Capital providers

Agents

Other(primary)insurers

Reinsurers

Shareholders,Capitalmarkets

Governments

Corporates

SMEs,

not-for-profits


Buyers



Main Players

10



Insurers

11

All-lines

underwriters

Personal l ines

focus/brands

Corporate

focus/brands

Specialised/

niche players



Capital providers

12

Australian listed companies

Insurers QBE, IAG, Suncorp-Metway, Calliden

Banks Westpac, CBA

Conglomerates Wesfarmers

International insurers and reinsurers

US/Bermuda ACE, AIG, Chubb, FM, Liberty

Europe Allianz, Hannover Re, Munich Re, Swiss Re,

Zurich

South Africa Budget, Hollard, Youi

Japan Mitsui/Sumitomo, Tokio, Yasuda

State governments TIO, WorkCovers, motor accident authorities,builders warranty

Other unlisted entities Medical defence organisations, local govt,

brokers, pharmacists.



Self-insurers

13

Organisations actively manage their own losses (as opposed to non-

insurance)

Aim to achieve lower costs than if insured

Own capital at risk – but can purchase reinsurance

Typically large entities which can ‘pool’ risks – governments, large

corporates

Must get actuarial advice where self-insure a statutory class like

workers’ compensation; also other obligations

For other types of losses, may need actuarial advice to set provisions

in accounts, or allocate costs between divisions or members.



Intermediaries

14

Major international broker groups

Local brokers and selling groups

Underwriting agencies

Agents

Pensioner groups, pharmacies, service stations, realestate agents, financial planners, vets, consultants …



Regulators

15

Prudential

APRA

Workers’ comp

authorities

CTP authorities

CorporateGovernance

ASIC

ConsumerProtection

ACCC

State FairTrading depts



Other players

16

Industry representative groups

Insurance Council of Australia

National Insurance Brokers’ Association

Underwriting Agencies Council

External dispute resolutionFinancial Ombudsman Service

Industry educators / accreditation

Aust/NZ Institute of Insurance & Finance

Actuaries Institute

Statistical data collection

Insurance Statistics Australia

APRA (incl National Claims & Policy Database)



Current industry challenges

17

Financial

• Allocation of capital• Expenses• Maintain profitability under intense competition

Increased regulation

• Risk management• ICAAP• Self-regulation under pressure

Natural events

• Climate change

• Flood cover – East Coast floods 2011-2013• NZ earthquakes

Other

• Sharing Economy• Internet• Data



Evolving Industry

18



Evolving industry

19



Evolving industry

Markets, economies, society change

Increased capital, prudential requirements post-HIH and GFC

Greater involvement of actuaries – pricing, FCRs, ICAAP

GFC and aftermath

Direct impacts on some classes e.g. LMI, PI, trade/consumer creditLower investment returns

Decreased economic activity – business volumes down

Catastrophic events

weather, global population growth , changing building / technology

Higher consumer expectations

e.g. flood insurance

NDIS and NIIS

Mergers and acquisitions – insurers, brokers

20



Profit drivers

21

Cost

• Claims(attritional, large and events)

• Cost of reinsurance

• Expenses(fixed and variable)

Income

• Premium income

• Investment return



Evolving industry

22



Evolving industry

23



Evolving industry

24



Actuaries in GI

Reserving – Insurance Liability Valuations - Appointed Actuary

Financial Condition Reports

Pricing – short tail, long tail

Capital, reinsurance, volatility

ICAAP = Internal Capital Adequacy Assessment Process

Accident compensation

Lots of other technical aspects

Senior management roles and boards e.g. GM, CRO

25



Case study

26

AustralianInsurer

CommercialInsurance

Fire Motor Fleet Liability

PersonalInsurance

Home Car



Case study

Home insurance – pricing for riverine flood cover

Data

Addresses of insured homes

Historic flood claim costs

Geocoded addresses (latitude, longitude and elevation)Modelling

Distance between home and the nearest river

Elevation points in between

Average claim size

Output

High, medium and low risks

Expected flood claim cost

Technical premium

27



Case study

Outstanding claims valuation

Claim triangle by accident and development periods

Project incurred cost, claim number, average claim size

Outstanding claims = ultimate claim cost – paid

= Case estimates + IBNER + IBNR

28

Cumulative Incurred Claims (capped at $350k) ($,000's) Accident Quarter DQ1 DQ2 DQ3 DQ4 DQ5 DQ6 DQ7 DQ8

Mar-13 3,385 5,354 5,869 6,190 6,324 6,315 6,254 6,278

Jun-13 4,227 6,165 6,750 6,867 7,007 6,882 6,879

Sep-13 4,202 6,496 6,837 7,199 7,398 7,455

Dec-13 5,772 8,077 8,852 9,003 9,242

Mar-14 6,185 8,638 9,283 9,664

Jun-14 5,778 8,309 9,104

Sep-14 5,695 8,143

Dec-14 4,876



Case study


Incurred Claims Development (ICD method)

Analysis of claim trends

29

0

2,000

4,000

6,000

8,000

10,000

12,000

DQ1 DQ2 DQ3 DQ4 DQ5 DQ6 DQ7 DQ8

I n c u r r

e d C l a i m s C o s t s

( $ ' 0 0 0 )

Mar-13 Jun-13 Sep-13 Dec-13

Mar-14 Jun-14 Sep-14 Dec-14



Case study


Claims costs adjusted by exposure (loss ratios)

30

0%10%

20%

30%

40%

50%

60%

70%80%

90%

100%

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

L o s s R a t i o

( C l a i m s C o s t a s % E

a r n e d P r e m i u m )

Accident Quarter

Paid Case Estimate IBNER IBNR



Why work in GI?

31

Changingindustry and

role

Challengingproblems

Work withskilled people

Globalindustry

Communitycontribution



Questions

32



Background

Greg Johnson and Jessie Wang are consultants from Finity

Consulting in Sydney

Greg Johnson has more than 35 years of experience in the

Technology, Outsourcing, Broking and General Insurance

industry in the USA, UK and Australia

Jessie Wang consulted in general insurance since 2010 and

qualified as a Fellow of the Institute of Actuaries Australia

(FIAA) in 2013

Questions? You can contact us on (02) 8252 3300 or

[email protected]

This presentation is a general overview of the subject matter and does not provide specific advice to any person / entity.

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gi australia unsw mar15 (3)

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