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Willis Market Update - Aug 2015

  2. Welcome to the second edition of the Willis Insurance Market Update for 2015. This issue provides insights into the market forces that continue to drive the insurance sector. It also highlights emerging risks to enable you to make an informed decision on your risk and insurance programmes. Insurance Market Update Willis Australia - Half-Yearly - 2015 TONY BARBER DEPUTY CEO WILLIS AUSTRALASIA 2
  3. The year to date In the first half of this year we saw the continued trend for insurers to retain more capacity in-house, to reduce costs and combat front-end pricing pressure by buying less reinsurance. We also witnessed new capital continuing to flow into the insurance market, which spurred insurers’ confidence to execute business plans such as geographic expansion or line-of-business growth. With the lead-up to the end of the financial year, for those insurers whose budget cycles ran to 30 June, we observed aggressive market behavior as insurers continued to discount rates for well-managed risks, including high hazard exposures. Insurance companies experienced a slow growth environment, as competition made it difficult to raise prices. While these conditions provide challenges, clients are reaping the benefits of lower premiums and improved conditions through this unprecedented level of competition. Mergers, acquisitions and strategic partnerships continued to be frontline with the announcement of the Berkshire Hathaway, IAG strategic partnership agreement, ACE Limited’s acquisition of Chubb, Zurich’s interest in Royal Sun Alliance, and most recently, EXOR announcing its merger with Partner Re. These recent rounds of partnerships and acquisitions are more aligned to scale than synergy, and unlike the potential of previous mergers and acquisitions which have contributed to a capacity reduction, the recent round of announcements are more likely to fuel the market. In early July, we announced our own merger with Towers Watson. Although it’s too early to comment on the opportunities that this will provide our clients and the wider insurance market, there will be some exciting times ahead. Looking ahead In today’s globally interdependent marketplace where risks transcend borders and industry sectors, risks are becoming more complex and harder to predict. Economic, political and social developments, along with new technologies and emerging innovations and their potential negative impacts; are more relevant than ever. Emerging risks continue to be at the forefront with ‘cyber’, ‘the cloud’ and ‘drones’ becoming the new buzz words. The growing complexity of technology risk - incorporating cyber-attack, data loss, identity theft and business interruption from system failure - interlinks with other risks including reputational, people and terrorism. These risks can have significant impacts on organisations. Cloud computing and the use of data from connected devices places organisations in a new area of risk vulnerability. The operating of drones and securing the data that the drones will possess are two risk areas of liability exposure. With Australia’s terrorism threat level set to remain on high for the foreseeable future, the risks of a terrorist attack has rarely been more front-of-mind. Covering losses from terrorism attacks through insurance is not straightforward. The Australian Reinsurance Pool Corporation (ARPC), established by the Terrorism Insurance Act 2003 to administer the terrorism reinsurance scheme, lists several exclusions and strict legislation determining who can and can’t be indemnified for such loss. We continue to work closely with our clients to understand and develop solutions around non-traditional and non-physical risks and provide expertise and capability to navigate the evolving risks that may impact our clients. Tony Barber - Deputy CEO Insurance Market Update Willis Australia - Half-Yearly - 2015 3
  4. CONTENTS Insurance Market Update Willis Australia - Half-Yearly - 2015 1 THE DIRECT MARKET – GENERAL LINES Property 5-7 Liability 8 2 THE DIRECT MARKET - FINANCIAL LINES Directors and Officers Liability 9 Cyber Risks 10 Professional Indemnity 11 3 SPECIALITIES Construction 12-15 Human Capital and Benefits 16-17 Workers’ Compensation 18-22 4
  5. During the first half of this year, natural catastrophe losses tracked at around US$35 billion globally. This is well below the 10-year average of US$58 billion, and combined with the surplus of capital in the market, downward pressure on pricing continued. Fierce competition persisted as insurers were forced to reduce pricing to retain business against competitors. In addition, there has been a pricing squeeze on high hazard risks with good risk management practices and good loss performance. Insurers are increasing their use of data and data mining techniques to better understand which product lines and geographic areas are most profitable within their portfolios. In the early part of this year: reduced prices, decreased deductibles and expanding cover conditions sustained. Also, the last six months continued to show that those good-quality risks, which historically had issues with capacity, can obtain excess capacity at reduced rates by renewal time. In particular, the local government and food and beverage sector are enjoying a very competitive marketplace. Some clients are taking advantage of these savings to buy greater levels of cover. Without the traditional triggers that drive increased rates in our current market, it is likely that we will see a continuing rate reduction over the next six months. Economic change to market dynamics, as opposed to natural catastrophe, could be the driver to change if rating agencies such as APRA challenge insurer and reinsurer behaviors. Similar to a bank, an insurer must maintain a minimum amount of capital as a buffer against losses that exceed expectations. The idea is that the insurer will be able to continue operating and fulfilling policy holder obligations despite severe unexpected losses. The calculation of what the minimum capital level should be is set by the regulator – APRA. Insurers are generally expected to hold well in excess of this minimum amount. With the reduction in rates over the last three years, if natural catastrophes and combined loss ratios increase, it will remain to be seen if insurers can continue to support the current rating cycle. Ultimately we cannot predict where the rates will move to, but we can work with our clients to ensure that you are prepared and that your programme is sustainable. Property The outlook 1 THE DIRECT MARKET – GENERAL LINES Insurance Market Update Willis Australia - Half-Yearly - 2015 RATING REDUCTIONS CONTINUES CYBER, CLOUD, DRONES, TERRORISM – ARE YOU PREPARED? IS YOUR INSURANCE PROGRAMME SUSTAINABLE? 5
  6. The outlook for the mining sector varies by commodity with iron ore miners under the greatest pressure to maximise volumes and cut cost as prices wallow around $60 per tonne (in December 2012 it was at $128 per tonne) and the dynamic is similar for thermal and coking coal miners. However, in other commodities the outlook is less gloomy. A relatively stable gold price at around $1,100 per ounce for several consecutive quarters, has afforded gold miners a period of consistency in which to re-calibrate their operations to lower prices and speculation about an impending supply crunch for copper may fuel price rises in the near term. Low commodity prices tend to translate into lower business interruption values being declared for renewals. This allows some savings to be generated but favourable insurance market conditions continue to enable significant further savings to be achieved if a positive risk profile can be presented to underwriters. Sound risk engineering is essential so that insureds can demonstrate a continued provision of sustaining capital, sound maintenance regime and focus on risk management to avoid some of the breakdown losses that are being reported with concern by underwriters. In an environment of extended commodity price weakness, mining companies continue to recalibrate from growth to portfolio consolidation, productivity management and capital austerity. Playing to portfolio strengths, operational innovation, demergers and acquisitions are all potential growth areas for the opportunistic. Risk and uncertainty is a constant. However, quoting Warren Buffet, “Risk comes from not knowing what you’re doing”. Mining companies can avail themselves to insurance industry innovation and expertise in areas such as the use of analytics to quantify uncertainty and support more informed decisions around the treatment of risk whether by retention structures, or transfer to traditional insurance markets or the burgeoning alternative capital markets. Mining The outlook Insurance Market Update Willis Australia - Half-Yearly - 2015 SOUND RISK ENGINEERING IS ESSENTIAL TO KEEP INSURANCE COSTS LOW 6
  7. The decline in industrial activity associated with lacklustre global economic growth has led to a surplus of generating capacity in electricity markets. This challenging trading environment has been further exacerbated by an extremely competitive retail market and, in Australia, an inconsistent government approach to carbon pricing and renewable energy targets has created difficulties in long term planning for thermal generation and reduced investor appetite for wind farm projects. The path ahead for power generation clients is unclear, but the insurance market dynamics are favourable in terms of available capacity. In addition, the surplus generation in the market reduces the risk that business interruption claims might be disproportionately volatile and there is also less pressure on individual generating units so underwriters are prepared to deploy capacity at competitive terms. Historically the natural resources market has hardened extremely rapidly when change has come, so clients committing to longer term policies may prove to have made the best long term choice. Power The outlook Insurance Market Update Willis Australia - Half-Yearly - 2015 7 DEPRESSED COMMODITY PRICES CONTINUE ACROSS THE NATURAL RESOURCES SECTOR Across the natural resources sector depressed commodity prices continue to put pressure on revenue, and with the global outlook for economic growth remaining limited, this dynamic seems set to last. Fortunately for insureds the insurance market continues to offer favourable conditions for renewing cover and achieving savings where they can differentiate themselves from peers as attractive risks. Available capacity, particularly from property and casualty insurers, continues to grow with the arrival of new entrants. As established markets strive to maintain top- line income in the face of fierce competition on premium rates and historically low natural catastrophe losses. Natural Resources 2014 NATURAL CATASTROPHE LOSSES WERE 38%BELOW THE GLOBAL 10-YEAR AVERAGE
  8. During the first half of this year, we saw consolidation of layers to deliver even greater savings on large programmes with insurers supporting higher limits with more capacity being made available. A benign claims environment and aggressive competition from insurers to hit budgets, in conjunction with surplus capacity in the market, continued to drive down pricing on liability programmes at a greater rate than the property market. Deductibles continued to decrease and cover broadened with what were previously programme extensions, now becoming automatic inclusions. Most industries have enjoyed a competitive environment. Sectors with exposures such as labour hire, bush fire, molestation and sexual misconduct cover, continue to have their risk management practices closely monitored by insurers. Available capacity for these kinds of exposures can be more difficult to obtain. The insurance market is closely monitoring The Royal Commission and is awaiting the Commission’s drafting of redress and civil litigation. The outcome of this paper could change the position of certain insurers and their ability to continue to offer molestation cover. The impact of the mergers, acquisitions and strategic partnerships of XL/Catlin, Lumley/CGU, CGU/Berkshire and ACE/Chubb is yet to be seen. Our priority is to keep a watching brief on the effect that this could have on available capacity for certain risks and we will advise clients accordingly. The liability market will continue to be a buyers’ market. There are no signs of reduced capacity at this stage. We will continue to work with clients with molestation and sexual misconduct exposure to ensure that stringent risk management procedures are in place to safeguard cover continuation - in particular in the not for profit, school and church sectors. Liability The outlook Insurance Market Update Willis Australia - Half-Yearly - 2015 8 RATES DECREASES CONTINUE LIABILITY REDUCTIONS OUTWEIGHING PROPERTY REDUCTIONS LOWERDEDUCTIBLES/ BROADER WORDING
  9. During the first half of this year we witnessed a competitive directors and officers (D&O) insurance marketplace. Claims continued to be incurred by insurers, predominantly arising out of an increasing focus by regulators on publicly-traded entities and their disclosure practices; however these have had little impact on the overall capacity and competition available in the market. For risks with good claims histories, and limited exposure to entity securities claims (Side C) we continue to see significant levels of capacity, competition and favourable breadth of cover available. For clients with exposure to claims, or for those that do purchase entity security protection, insurers are more closely reviewing and underwriting risks, however capacity is still available. Private company D&O, via blended management liability policies, continues to be competitively-rated with most insurers now offering this product. The majority of claims in this space tend to be as a result of employment practices, statutory liability or crime losses; as opposed to traditional claims against directors; and insurers are considering those areas more closely. We expect the current market conditions for the remainder of 2015. With the high level of capacity that is still available in the Australian D&O market, and the renewed interest from the London market, we anticipate that soft market rates will last into the near future. While recent insurer mergers and acquisitions will continue to be monitored, any changes in programme structure will likely be as a result of clients proactively managing their exposure, rather than insurers changing their position. The current claims environment, specifically around entity securities, has been active for some time and we don’t expect this to drive changes in the market in the short term. New carriers entering the market will continue to challenge incumbent carriers for the remainder of this year. Regulatory and legislative changes will still be a key focus and exposure for directors and officers. Insurers will increasingly concentrate on the risk management frameworks of entities and emphasis will be placed on the corporate governance and internal control processes of insureds. Directors and Officers Liability The outlook 2 THE DIRECT MARKET – FINANCIAL LINES Insurance Market Update Willis Australia - Half-Yearly - 2015 CONTINUED LEVELS OF CAPACITY FOR D&O RISKS WITH GOOD CLAIMS HISTORIES 9 KEY FOCUS & EXPOSURE FOR DIRECTORS & OFFICERS ARE REGULATORY & LEGISLATIVE CHANGES
  10. The cyber landscape continues to evolve and develop. In fact, the inaugural Australian Cyber Security Centre Report highlighted the cost of these rising risks at more than $1 billion annually. Insurers are now more frequently seeking to capitalise on this area of risk, and more insurers than ever have dedicated cyber risk insurance policies available. The interest and quotation activity around cyber risk insurance continued to increase in the first half of 2015, with many clients seeking options for protecting against this developing risk. In particular, following recent cyber claims activity in the USA which resulted in the removal of a number of directors from the insured’s board, we are seeing an increased interest in risk management activity and the purchase of this class of insurance at the instigation and direction of directors. Claims data from insurers is developing, but we are aware of several paid cyber claims, both globally and in Australia. Although significant capacity exists, as this class of insurance matures insurers are constantly reviewing their pricing and scope of coverage. The insurance options provided by insurers vary greatly and careful review of policy wordings available is advised prior to proceeding. We expect the claims environment to continue to develop with greater focus and awareness of cyber risks. During the second half of the year, we anticipate that insurers will continue to launch and refine cyber offerings, with greater competition available. While the overall risk environment tends to suggest greater claims will be incurred by insurers, we do not expect this to become apparent in the short-term and therefore would expect premiums to remain competitive and broad cover readily available to insureds with good controls in place. Cyber Risks The outlook Insurance Market Update Willis Australia - Half-Yearly - 2015 INCREASED NUMBER OF INSURERS WITH DEDICATED CYBER RISK INSURANCE POLICIES EVOLVING CYBER LANDSCAPE 10
  11. For the majority of the professional indemnity (PI) market, we continued to witness competitive market conditions in the first half of 2015. This competition has been sustained by significant capacity still available from both Australia and London, despite recent market consolidations of active PI insurers. There is little sign of a change in these market conditions. Claims have continued to be notified and incurred by insurers in the financial planning, property valuation and structural/ civil engineering fields. Risks in these areas are subject to less competition and capacity, though in some pockets we witnessed opportunistic behaviour by insurers in an attempt to gain market share. These attempts were generally focused on risks with clean or well-managed claims histories. Project PI capacities for the construction sector are on the increase for large single projects, as markets traditionally catering for annual PI risks now also move into the single project domain. Available limits in Australia are now upwards of $200 million in the single project space. We don’t expect a significant change to the current market conditions during the second half of 2015. For the financial planning, property valuation and structural/civil engineering fields we expect to see capacity closely monitored by insurers. While newer entrants may provide options in this space, claims histories will be closely monitored by insurers, and we don’t expect the market to open up and begin offering rate reductions or significantly broader coverage. Outside of the more restricted industries mentioned above, we expect to see continued capacity and competition available for well-managed risks with good claims histories. Risks that have not tested their insurer and remarketed in the past two years may witness premium and rate reductions, however given the ‘claims made’ nature of this class of insurance the maintenance of relationships between clients and their insurers remains important. Professional Indemnity The outlook Insurance Market Update Willis Australia - Half-Yearly - 2015 PI CAPACITY CLOSELY MONITORED BY INSURERS FOR FINANCIAL PLANNING, PROPERTY VALUATION & STRUCTURAL/CIVIL ENGINEERING SECTORS 11 COMPETITIVE PI MARKET CONTINUES
  12. The general contracting market remains stable for projects commenced; however the gap between ‘approval’ and ‘commenced’ projects has increased throughout the year. As illustrated in our Construction Australasia Insight newsletters, this gap places increased financial and logistical strain on all participants throughout the industry. The construction insurance market remains exceptionally competitive following new capacity for premium rates and deductibles. Many contractors are taking advantage of the current insurance market conditions and are insuring key risks which they traditionally self-insured. These key risks include: l environmental liability l cyber risk, particularly those in the volume residential building market l workplace health and safety liability. For many of these key risks, contractors have taken advantage of the ‘soft’ market to maintain their insurance spend thereby reducing their overall risk profile. The outlook for general construction remains stable in terms of premium rates and deductibles. In terms of policy wording enhancements we will continue to see insurers favourably responding to requests. Construction General construction The outlook 3 SPECIALITIES Insurance Market Update Willis Australia - Half-Yearly - 2015 CONTRACTORS TAKING ADVANTAGE OF SOFT MARKET 12
  13. The slowdown in activity in the mining and resource sectors continued into the second quarter of this year. This is attributable to lower commodity prices, significant capital and labour costs in Australia and the lengthy consent process, compared to other international jurisdictions. The states and territories continue looking to the private sector to help stimulate growth. More public and private partnership (PPP) projects have been tendered and will come to the market later in 2015 with much needed injection of premium, which is hotly contested. These PPP projects involve road, rail and social infrastructure. Policy cover is now broader than ever, with guaranteed maintenance protection and full design offerings under contract works polices considered the norm e.g. LEG 3/DE5. These cover offerings also extend to civil risks, both surface and sub-surface based, where it was previously limited in terms of the ability or desire of the insurance market to provide this protection. Insurers continue placing more emphasis on building their offering into multi-lines participation and are actively promoting cross sell initiatives to enhance their premium solutions. This is not simply limited to conventional insurance (such as contract works or public liability) but includes specific offerings such as those developed for environmental risks and workplace health and safety exposures. As a bonus for insurance buyers, multi- Major projects >$250m Insurance Market Update Willis Australia - Half-Yearly - 2015 PREMIUM SOLUTIONS ENHANCED AS MORE EMPHASIS PLACED ON MULTI-LINE PARTICIPATION 13 class participation usually results in premium discounts being offered across the insurer’s entire premium pool. Third party liability pricing remains extremely competitive. While sizable deductibles are being applied to the injury of subcontractor employees, i.e. ‘worker to worker’, the primary market is hotly contested. Notable new entrants to the market have had little impact yet. However, we anticipate another level of competition at the mega project level, like never before. Massive levels of capacity are being made available to the right risk and resources for the associated risk management or engineering initiatives that will support lead-offer appeal. The future of the major project market will continue to be heavily contested as the majority of large oil and gas projects start transitioning from the construction phase to operations - insurers will be keen to replace the available capacity with genuine opportunities. While we believe prices can’t get much more competitive, the ability for clients to negotiate positive/ successful outcomes will continue for the foreseeable future, with due consideration to any inherent exposure to natural catastrophe perils and the impact of weather on the project risk profile.
  14. State governments continue with the trend of annually reviewing their warranty scheme and implementing change. Victoria introduced changes effective 1 July 2015, with a fourth trigger - new policy wording and documentation to reflect the new trigger. The New South Wales Government is introducing a new IT platform, eliminating the use of current QBE and Calliden platforms in this state. The number of broker representatives has reduced in this market and increased its reliance on the input of the remaining brokers for the underwriting and administration of the portfolio/scheme. New South Wales has changed its underwriting model, moving from an annual dollar turnover value to an open job limit. Premiums are continually being reviewed by the state governments and the private insurers, as claims results nationally continue to impact underwriting results. Warranty Insurance Market Update Willis Australia - Half-Yearly - 2015 14 STATE GOVERNMENTS & PRIVATE INSURERS CONTINUE TO REVIEWWARRANTY SCHEMES
  15. Following the recent announcement of Zurich opening up a surety operation in Australia by the end of this year, there will be 11 sureties operating locally - almost tripling over the last three years. New entrants continue to have a strong appetite for consortiums and joint ventures undertaking major infrastructure projects. Fierce competition in the tier one space has led to a wave of interest in tier two and three companies as surety providers look for better returns. Also, in an effort to generate greater returns, a number of surety providers have broadened their focus beyond the traditional construction sector towards services industries e.g. logistics, maintenance; and workers’ compensation. As competition continues to heat up among the current surety providers, rates have softened and underwriting requirements/ criteria have further eased. Terms offered to tier two companies which can demonstrate financially-strong balance sheets and historical profits are the best since the GFC. Issuing of rehabilitation bonds generally remains on hold until APRA issues a final determination on the treatment for capital adequacy purposes. However, there is one market that has the ability to issue these bonds to mining companies which have operating mines, a strong balance sheet and have been profitable. Surety Insurance Market Update Willis Australia - Half-Yearly - 2015 NUMBER OF LOCAL SURETY PROVIDERS TRIPLE 15 INTEREST GROWSIN TIER 2 & 3 SURETY SPACE SURETY PROVIDERS BROADEN FOCUS
  16. The group life market in Australia (comprising life, total and permanent disability and salary continuance) has been experiencing several months of continued rate increases, some as much as 75-100%, if the claims experience is bad enough. This has been driven by a number of factors which we mentioned in our last market update, including: l Increased claims due to stress and mental illness. l Increased claims from events that occurred a long time ago, as people become more aware of their insurance cover within their super fund. l Higher legislative capital requirements of insurers. l Large losses on some accounts (especially large industry super funds)experienced by insurers and re-insurers. To combat this trend of increasing premiums and claims, insurers are continuing to tighten definitions for ‘total’ or ‘permanent disability’. The personal accident market continues to be soft, characterised by low premium rates and plenty of insurer capacity. This year new business has been slow, largely as a result of the resource sector downturn. New premium has been negatively impacted by the lack of new projects commencing, and with existing resource-based projects either coming to an end or passing their peak. An increase in redundancies has seen lower premium flow and an increase in claims. If this trend continues, it is possible that the market could turn and rates could harden. Outside of project work in the resource sector, premium flow from existing clients remains steady with support coming from the union sector through mandated cover via EBAs. Human Capital and Benefits Life Accident and health Insurance Market Update Willis Australia - Half-Yearly - 2015 LIFE INSURANCE RATES CONTINUE TO INCREASE - SOME AS MUCH AS 75-100% 16 THE PERSONAL ACCIDENT MARKET CONTINUES TO BE SOFTInsurers continue to compete strongly for new business opportunities. Clients are still looking to minimise the cost of their plans, as well as developing a culture of early claims intervention to short circuit the continuously rising claims/premium scenario. The outlook
  17. As mentioned in our last market update, the Australian health insurance landscape has undertaken a succession of legislative changes over the past 24 months. The changes primarily relate to progressive reduction of the Federal Government rebate support for private health insurance. From 1 July 2012: rebate amount was means-tested with defined income thresholds. From 1 July 2013: rebate was no longer payable on lifetime health cover loading. From 1 April 2014: rebate amount was adjusted by an annual rebate adjustment factor. From 1 July 2014: PHI income thresholds (which are normally adjusted annually for CPI) were paused for three years, commencing on 1 July 2015. Health Insurance Market Update Willis Australia - Half-Yearly - 2015 17 ACCIDENT & HEALTH PREMIUMS FROM EXISTING RESOURCE SECTOR CLIENTS REMAIN STEADY, OUTSIDE PROJECT WORK These legislative changes highlight two key emerging trends for corporate health insurance plans. 1. As cost and complexity of PHI increases for individuals and families, the opportunity for employers to attract and recruit quality staff through superior corporate health plans is growing even more valuable and important. 2. Traditionally structured corporate health plans are being challenged, advancing the development of a range of innovative and flexible plan structures. Corporates that have reviewed and restructured their health plans appropriately have been able to attain cost certainty and administrative simplicity, and also achieved better alignment of their corporate health plans with their company and HR objectives. The outlook
  18. Across the various workers’ compensation jurisdictions in Australia conditions continue to change throughout this year. These changes are likely to have an impact on an employer’s total cost of people risk in the 2015/16 year. The following is a snapshot of all jurisdictions (except Seacare) governing workers’ compensation across Australia. Australian Capital Territory In April, the ACT Government released the ACT Workers’ Compensation Review of Scheme Performance to 30 June 2014. This investigated trends in claims and set an estimate of reasonable premium rates for 2015/16. The review advises that there has been little growth in the premium pool and as a result it recommends an increase in the average rate by 7.7% to a rate of 2.65%. Increasing claim costs typically mean that premiums need to increase. However evidence from the market is that employers with good claims records are able to negotiate premium discounts. New South Wales Early this year, WorkCover announced its intention to change the premium model for larger employers. Reforms announced in June apply to all employers with a base tariff premium greater than $30,000. These reforms substantially change the way that claims costs are considered and premiums are calculated. It is clear that employers with poor claims records will pay higher premium, in line with WorkCover’s intended changes. It is also apparent that some large employers with a record of low claims costs will pay a higher premium under the new formula, than would have been paid under the old formula. The last scheme valuation in New South Wales was released in October 2014 and was a surplus of $2.6 billion. The next valuation will be released with WorkCover’s 2014/15 Annual Report and this is expected in October 2015. Workers’ Compensation Insurance Market Update Willis Australia - Half-Yearly - 2015 AVERAGE CLAIM COST & REDUCED DISCOUNT RATES CONTRIBUTE TO THE MEAN PREMIUM RATE INCREASE TO 2.65% 18 EMPLOYERS WITH POOR CLAIMS RECORDS WILL PAY HIGHER PREMIUMS
  19. Northern Territory On 1 July the first of two Bills, which was passed in May 2015, was implemented in the Northern Territory. This includes the following amendments to the Act: 1. The definition of a worker aligning with the PAYG definition used by the Australian Tax Office. 2. Increased benefits for workers over the age of 67 who can now receive 104 weeks of compensation as opposed to the current 26-week cap. 3. Five-year cap on payments for less serious injuries (evaluated as a permanent impairment of below 15%). 4. An increase in death and funeral benefits. 5. Tighter restrictions on stroke and heart attack caused by degenerative conditions. 6. Capping the calculation of weekly earnings beyond the first 26 weeks of incapacity to $3,543 (or 250% of average weekly earnings, as defined by the ABS). 7. Clarification that the 26-week period (point 2) will be 26 weeks of compensation paid, rather than from the date of injury. These changes are designed to maintain the viability of the scheme through liability reductions due to ongoing deterioration in scheme performance. The second Bill, introduced in June, is yet to pass parliament. It will encompass stronger return to work accountability for workers, allowing for settlement of claims, access to counselling and paid legal advice to workers, and tighter mental injuries and journey claims. Queensland Queensland’s average workers’ compensation premium rate for 2015/16 was maintained at 1.20% making it the lowest in Australia. Changes to the Experienced Based Rating formula, have been implemented. The changes to the premium calculation methodology will continue to reward good performing employers, and penalise poor performing employers. Insurance Market Update Willis Australia - Half-Yearly - 2015 FIRST PART OF BILL INTRODUCED IN NT & SECOND BILL TO BE DEBATED 19 QLD HAS LOWEST WORKERS’ COMP PREMIUM RATE AT 1.2% COMMON LAW THRESHOLD TO BE REMOVED IN QLD
  20. South Australia Reforms to the South Australian scheme commenced 1 July 2015. The key features of these reforms include: l The WorkCoverSA scheme was rebranded as Return to Work SA, to reflect a more intense focus on getting people back to work rather than prolonging injury and illness to continue receiving financial payments. l Under the new scheme, injured workers are eligible for regular compensation payments for a maximum of two years. l Seriously injured workers will remain eligible for financial support for life. The average premium rate for 2015/16 is 1.95% (previously 2.75%). These reforms reward any employer with a positive claims cost performance. Tasmania The scheme continues to feel the impact of the state’s high unemployment and poor economic conditions, with only minimal premium growth over the past few years. Despite the overall scheme loss ratio continuing to be in excess of 100%, insurers are continuing to discount by approximately 13% from the suggested rates for ‘good’ performing employers while looking for increases on the ‘poorer’ performing employers. Insurance Market Update Willis Australia - Half-Yearly - 2015 WORKERS’ COMP PREMIUM RATE IN SA AT A RECORD LOW 1.95% 20 IN TASMANIA RATE INCREASED BY 1% TO 2.3% IMPACTED BY A REDUCTION IN DISCOUNT RATES ASBESTOS FUND LEVY DOWN FROM 4.0% TO 3.5%
  21. Victoria The scheme continues to deliver very strong financial results. The average premium rate for 2015/16 is 1.272% of the state’s rateable remuneration. This is a continuation of the average rate from 2014/15 and reflects a record low for Victoria. These low rates flow on to benefit employers through lower premiums. There was a discount option of 5% if employers paid their premium on or before 1 August. Employers paying on or before 1 October will receive a 3% discount. Better agent service is a priority and WorkSafe is preparing for the agent license renewal scheduled for mid-2016 Western Australia In April, WorkCover WA announced that the recommended premium rates for 2015/16 have been reduced by 4.7% despite rising average claims costs and longer duration claims. The average recommended premium rate is now at 1.483% which is the lowest recorded in Western Australia - a result of a fall in claim numbers, moderate wage growth and low interest rates. This decrease has not been applied uniformly across all ANZSIC codes with some poor performing industries seeing an increase in industry rate. Insurance Market Update Willis Australia - Half-Yearly - 2015 WORKERS’ COMP AVERAGE PREMIUM RATE 1.272%IN VIC 21 WORKERS’ COMP AVERAGE PREMIUM RATE 1.483% IN WA
  22. Comcare In March 2014, the Australian Federal Government announced significant reform as part of its deregulation agenda, which will allow more national employers to be covered by the Comcare scheme. Currently there are two Bills before parliament – the Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 and the Safety, Rehabilitation and Compensation Amendment (Improving the Comcare Scheme) Bill 2015. The 2015 Bill was introduced and read for a first time in the Senate on 15 June 2015 and is currently awaiting a second reading. Likewise with the 2014 Bill, the timing of this will depend on what category and status the legislation is given by Government. Since publication of our Insurance Market Update this March, there have not been any significant developments on the Comcare 2014 Bill. We will provide you information as it arises and we will continue to lobby the Federal Government on the significant benefits to Australian business which can self-insure under a single workers’ compensation and WHS framework. Insurance Market Update Willis Australia - Half-Yearly - 2015 22
  23. About Willis Willis Australia is part of Willis Group Holdings plc, a leading global risk advisory, re/insurance broker and human capital and benefits firm. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website,, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world. © Copyright 2015 Willis Australia Limited. All rights reserved: No part of this publication may be reproduced, disseminated, distributed, stored in a retrieval system, transmitted or otherwise transferred in any form or by any means, whether electronic, mechanical, photocopying, recording, or otherwise, without the permission of Willis Australia Limited. The views expressed in this document are not necessarily those of Willis Australia Limited, its parent companies, sister companies, subsidiaries or affiliates (hereinafter “Willis”). Some information contained in this document may be compiled from third party sources and we do not guarantee and are not responsible for the accuracy of such. The contents herein are provided for informational purposes only and do not constitute and should not be construed as professional advice. Any and all examples used herein are for illustrative purposes only, are purely hypothetical in nature, and offered merely to describe concepts or ideas. They are not offered as solutions to produce specific results and are not to be relied upon. The reader is cautioned to consult independent professional advisors of his/her choice and formulate independent conclusions and opinions regarding the subject matter discussed herein. Willis is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader’s application of any of the contents herein to any analysis or other matter, nor do the contents herein guarantee, and should not be construed to guarantee, any particular result or outcome. ABN 90 000 321 237 • AFSL 240600 Contact Willis Adelaide Level 1, 190 Flinders Street SA, 5000 t: +61 8 8223 1200 Brisbane Level 1, 10 Eagle Street QLD, 4000 t: +61 7 3167 8500 Melbourne Level 4, 555 Bourke Street VIC, 3000 t: +61 3 8681 9800 Visit us online at Hobart Grd Flr, 85 Macquarie Street TAS, 7000 t: +61 3 6235 8500 Perth Level 8, 191 St Georges Terrace WA, 6000 t: +61 8 9481 4455 Sydney Level 16, 123 Pitt Street NSW, 2000 t: +61 2 9285 4000 W0574AU