gi australia unsw mar15 (3)
TRANSCRIPT
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 1/33
© 2015 Finity Consulting Pty Limited
General Insurance in Australia
2015 and Beyond
Greg Johnson and Jessie Wang | 26 March 2015
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 2/33
Outline
2
General insurance
Industry structure
Main players
Current challenges
Evolving industry
Actuaries in GI
Questions
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 3/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 4/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 5/33
Industry structure
5
Governments
Corporates
SMEs,
not-for-profits
Individualsand families
Buyers
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 6/33
Industry structure
6
Brokers
Underwriting Agencies
Distributors
Agents
Governments
Corporates
SMEs,
not-for-profits
Individualsand families
Buyers
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 7/33
Industry structure
7
Brokers
Underwriting Agencies
Direct insurers
Distributors
Agents
Governments
Corporates
SMEs,
not-for-profits
Individualsand families
Buyers
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 8/33
Industry structure
8
Brokers
Underwriting Agencies
Direct insurers
Distributors Manufacturers
Agents
Other(primary)insurers
Governments
Corporates
SMEs,
not-for-profits
Individualsand families
Buyers
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 9/33
Industry structure
9
Brokers
Underwriting Agencies
Direct insurers
Distributors Manufacturers Capital providers
Agents
Other(primary)insurers
Reinsurers
Shareholders,Capitalmarkets
Governments
Corporates
SMEs,
not-for-profits
Individualsand families
Buyers
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 10/33
Main Players
10
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 11/33
Insurers
11
All-lines
underwriters
Personal l ines
focus/brands
Corporate
focus/brands
Specialised/
niche players
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 12/33
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.
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 13/33
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.
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 14/33
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 …
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 15/33
Regulators
15
Prudential
APRA
Workers’ comp
authorities
CTP authorities
CorporateGovernance
ASIC
ConsumerProtection
ACCC
State FairTrading depts
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 16/33
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)
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 17/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 18/33
Evolving Industry
18
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 19/33
Evolving industry
19
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 20/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 21/33
Profit drivers
21
Cost
• Claims(attritional, large and events)
• Cost of reinsurance
• Expenses(fixed and variable)
Income
• Premium income
• Investment return
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 22/33
Evolving industry
22
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 23/33
Evolving industry
23
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 24/33
Evolving industry
24
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 25/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 26/33
Case study
26
AustralianInsurer
CommercialInsurance
Fire Motor Fleet Liability
PersonalInsurance
Home Car
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 27/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 28/33
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 29/33
Case study
Outstanding claims valuation
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 30/33
Case study
Outstanding claims valuation
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
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 31/33
Why work in GI?
31
Changingindustry and
role
Challengingproblems
Work withskilled people
Globalindustry
Communitycontribution
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 32/33
Questions
32
7/23/2019 GI Australia UNSW Mar15 (3)
http://slidepdf.com/reader/full/gi-australia-unsw-mar15-3 33/33
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
This presentation is a general overview of the subject matter and does not provide specific advice to any person / entity.
33