General Insurance in Australia

2015 and Beyond

Greg Johnson and Jessie Wang | 26 March 2015

2015 Finity Consulting Pty Limited

Outline
General insurance
Industry structure

Main players
Current challenges
Evolving industry
Actuaries in GI
Questions
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General Insurance
- 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
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- Injury/loss to third parties or staff professional

indemnity, workers comp, public and products liability

Other Industries
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
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Industry structure

Governments

Corporates
SMEs,
not-for-profits
Individuals
and families
5

Buyers

Industry structure

Governments

Brokers

Corporates

Underwriting
Agencies

SMEs,
not-for-profits

Agents

Individuals
and families
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Buyers

Distributors

Industry structure

Governments

Brokers

Corporates

Underwriting
Agencies

SMEs,
not-for-profits

Agents

Individuals
and families
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Buyers

Direct insurers
Distributors

Industry structure

Governments

Corporates

Underwriting
Agencies

SMEs,
not-for-profits

Agents

Individuals
and families
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Brokers

Buyers

Other
(primary)
insurers

Direct insurers
Distributors

Manufacturers

Industry structure

Governments

Corporates

Underwriting
Agencies

SMEs,
not-for-profits

Agents

Individuals
and families
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Brokers

Buyers

Other
(primary)
insurers

Direct insurers
Distributors

Manufacturers

Reinsurers

Shareholders,
Capital
markets

Capital providers

Main Players

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Insurers
All-lines
underwriters

Personal lines
focus/brands

Corporate
focus/brands

Specialised/
niche players

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Capital providers
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.
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Self-insurers
Organisations actively manage their own losses (as opposed to noninsurance)
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

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For other types of losses, may need actuarial advice to set provisions
in accounts, or allocate costs between divisions or members.

Intermediaries
Major international broker groups

Local brokers and selling groups

Underwriting agencies

Agents

Pensioner groups, pharmacies, service stations, real

estate agents, financial planners, vets, consultants
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Regulators
Prudential

Corporate
Governance

APRA

Workers comp
authorities

CTP authorities
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Consumer
Protection
ACCC

ASIC
State Fair
Trading depts

Other players
Industry representative groups
Insurance Council of Australia
National Insurance Brokers Association
Underwriting Agencies Council
External dispute resolution
Financial 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)

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Current industry challenges

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
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Evolving Industry

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Evolving industry

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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 credit
Lower 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
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Profit drivers
Cost
Claims
(attritional, large and events)
Cost of reinsurance
Expenses
(fixed and variable)

Income
Premium income
Investment return

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Evolving industry

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Evolving industry

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Evolving industry

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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
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Case study
Australian
Insurer

Commercial
Insurance

Fire

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Motor Fleet

Personal
Insurance

Liability

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
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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
Cumulative Incurred Claims (capped at $350k) ($,000's)
Accident Quarter
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14

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DQ1
3,385
4,227
4,202
5,772
6,185
5,778
5,695
4,876

DQ2
5,354
6,165
6,496
8,077
8,638
8,309
8,143

DQ3
5,869
6,750
6,837
8,852
9,283
9,104

DQ4
6,190
6,867
7,199
9,003
9,664

DQ5
6,324
7,007
7,398
9,242

DQ6
6,315
6,882
7,455

DQ7
6,254
6,879

DQ8
6,278

Case study
Outstanding claims valuation
Incurred Claims Development (ICD method)

Incurred Claims Costs ($'000)

Analysis of claim trends

12,000
10,000

8,000
6,000

4,000
2,000
0

DQ1

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DQ2

DQ3

DQ4

DQ5

DQ6

DQ7

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

DQ8

Case study
Outstanding claims valuation

Loss Ratio

(Claims Cost as % Earned Premium)

Claims costs adjusted by exposure (loss ratios)

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Accident Quarter
Paid

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Case Estimate

IBNER

IBNR

Why work in GI?

Changing
industry and
role

Challenging
problems

Work with
skilled people

Global
industry

Community
contribution
31

Questions

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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
jessie.wang@finity.com.au
This presentation is a general overview of the subject matter and does not provide specific advice to any person / entity.

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