Construction industry leaders met in Canberra this week to urge the Federal, State and Territory Governments to act now to address the building certifier insurance crisis that has potential to bring building and construction activity to a halt.

Denita Wawn, CEO of Master Builders Australia said, “The leader of Master Builders Associations from around the country are gravely concerned. Up to 30 per cent of insurance renewals for building certifiers and surveyors may not be renewed as early as July and construction activity will grind to a halt if a solution is not found urgently.”

NIBA CEO, Dallas Booth has attested that a crisis is certainly developing in relation to professional indemnity insurance for building certifiers and surveyors. He pointed out that Michael Bleby in the Australian Financial Review today references PwC data which suggests that this sector has been unprofitable for insurers since 2011, and that in 2017 insurers paid out $3.43 in claims for every $1 received in premiums.

Booth said, “On this basis, ‘the status quo’ is clearly not tenable, and it is not surprising at all that insurers are withdrawing from the market. Governments, building industry professionals, insurers and insurance brokers need to work on this issue very quickly.

“The true cause for claims payments of this nature has to be identified and dealt with, so the insurance community can do what it is supposed to do: provide cover for what might go wrong, not what almost certainly will go wrong. Only by fixing the cost of claims will a viable insurance market be able to return.”

He confirmed that NIBA is ready and willing to provide expertise to any discussions on these important matters.

Wawn explained that insurers as a result of a number of fires around the world, including the Grenfell fire in the UK, have elevated risk ratings on cladding affected buildings. They are declining to provide professional indemnity insurance, offering it with unacceptable exclusions or asking for unaffordable premium increases for building certifier professional indemnity renewals. As a result, certifiers who are needed to sign-off new buildings are being forced to close up shop.

“The problem is already causing delays to building projects across the country and will only get worse as more insurers withdraw from the market,” she said.

“Master Builders wrote to Building Ministers in April seeking action ahead of the July deadline and now we need all governments to come together now to manage what has become a risk for the whole industry caused by the use of combustible cladding on some buildings,” She concluded.

“Master Builders around the country are also calling for governments to speed up implementation of recommendations in the Shergold-Weir Building Confidence report to improve access to and the reliability of regulatory requirements for the building and construction sector,” Denita Wawn said.

Source: "Insurance & Risk" magazine.


NSW budget: ICA issues warning on rising insurance taxes

18 June 2019

The Insurance Council of Australia (ICA) says revenue from “inequitable” NSW insurance taxes and levies will rise by 5.4% per year over the next four years, placing an “unfair burden” on policyholders.

While welcoming much of today’s NSW budget for “solid operating surpluses, fiscal responsibility and strong infrastructure spending”, ICA CEO Rob Whelan warns against “continued over-reliance on both the Emergency Services Levy (ESL) and stamp duties”.

“Revenue from insurance stamp duties and the ESL will soar by 5.4% a year over the next four years, reaping $8.6 billion, compared with annual inflation of 1.3%,” he said.

“From July 1, NSW households will typically be paying more than 50% in taxes on insurance (GST, plus 9% stamp duty, plus the ESL) on renewals and new policies.

“As a result, typical household premiums will rise by $60-$100 this year.”

He says many small businesses and primary producers will be hit hardest.

“The combination of GST, stamp duty and ESL will result in these sectors paying up to 70% in taxes on their insurance policies.”

ICA urges the NSW Government to restart ESL reforms, which were abandoned in May 2017.

“Stamp duties and the ESL are a significant cause of non-insurance and underinsurance in the community.

“More than 848,000 NSW families (about 30%) do not have household (home or contents) insurance – Australia’s second-worst non-insurance rate after the NT.

“The ICA and its members would welcome consultation on an all-of-government approach to removing unfair taxes and levies on insurance and ensuring fairer taxation models are designed and implemented.”

The National Insurance Brokers Association (NIBA) says for the 2019/2020 financial year, the ESL alone will raise $895 million, a 14% increase from the previous corresponding period.

NIBA says budget papers indicate a further 22% increase in the ESL for the 2020/2021 financial year.

CEO Dallas Booth says the increases are “a massive burden being carried by responsible property owners who take out insurance to cover themselves if a major loss occurs”.

“Every independent examination of this levy since the HIH Royal Commission has recommended its abolition,” he said today.

“It is totally unfair and inequitable that the emergency services are funded by insurance policyholders, and not by property owners more broadly.”

NIBA says it is seeking a meeting with the NSW Treasurer to “press these concerns on behalf of its members and their clients”.


Claims from the hailstorm could be as high as $2 billion

Claims from the hailstorm that battered Sydney before Christmas could eventually be as high as $2 billion and lead to more premium rises, according to an equity analyst.

While the Insurance Council of Australia’s current estimate for the December 20 event stands at $871 million, Scott Olsson from Firetrail Investments believes that figure could more than double as claims continue to roll in.

“Our analysis suggests the cost could eventually reach $1.5-2 billion once all claims are reported and paid, which would make it one of the top five most expensive weather events of the past 30 years and possibly the most damaging hailstorm since the Sydney hailstorm in 1999.”

Mr Olsson believes IAG and Suncorp, with a combined 60-70% share of the NSW home and motor markets, are most exposed and says “at face value such an event could be disastrous for … profits”.

However, he says both insurers have “very strong levels of protection” through reinsurance.

“The net costs of this event are capped at $169 million for IAG and $250 million for Suncorp, despite the gross cost likely being multiples of this amount.”

Reinsurance costs would be expected to increase after such a large event, but Mr Olsson says IAG and Suncorp have a strong track record of negotiating favourable terms.

He attributes this to surplus capacity in global reinsurance markets, IAG’s and Suncorp’s position as two of the largest reinsurance purchasers in the world, and “the attractiveness of Australia as a source of diversification for global reinsurers”.

The number of repairs needed after a significant weather event can strain insurer supply chains, Mr Olsson says.

Following hailstorms, motor repairer capacity typically becomes stretched and costs are pushed higher.

“While any claims blowouts from the hailstorm should be covered by reinsurers, it is inflation in the day-to-day claims over the following six months that can put pressure on IAG and Suncorp,” Mr Olsson said.

He believes the storm could ultimately affect premium rates for home and motor.

“The indirect impacts from higher reinsurance costs and supply chain inflation tend to affect all insurers, which typically drives a pricing response across the industry (albeit sometimes with a lag).

“We believe there is a case for recent price increases to continue or perhaps accelerate.”