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
