Genworth Changes Recognition of Premium Revenue

Genworth Mortgage Insurance Australia Limited (Genworth  today advised an expected greater fall in Net Earned Premium.

ASIC had raised concerns about the basis used by Genworth to recognise premium revenue in the financial reports for the year ended 31 December 2016 and the half-year ended 30 June 2017 having regard to the pattern of historical claims experience in earlier underwriting years.

Genworth said that it has finalised its annual review of the premium earning pattern (also known as the “earnings curve”). The review process included a detailed evaluation and recommendation by the appointed actuary and supporting work and recommendation by independent reviewers.

The change to the premium earning pattern will negatively impact Net Earned Premium (NEP) by approximately $40 million, and as a result 2017 NEP is expected to be approximately 17 – 19 per cent lower than 2016, instead of the previous guidance of a 10 to 15 per cent reduction

The modified premium earning pattern reflects an expectation of the future emergence of risk based on a consideration of all identified relevant factors, but principally:

  • losses from mining related regions, which form the majority of the incurred cost of the last 2 years, continuing to occur at late durations; and
  • improvements in underwriting quality in response to regulatory actions, along with continued lower interest rates, extending the average time to first delinquency, while continuing to be beneficial to overall loss levels.

The change will have the effect, in aggregate, of lengthening the average duration of the period over which Genworth recognises its revenue by approximately 12 months. It also has the effect of introducing a third separate earnings curve for business written in 2015 and later. The change however does not affect the total amount of revenue expected to be earned over time from premiums already written.

The two earnings curves that comprise the previous premium earning pattern were first introduced in 2012. The last time the Board approved a change to the premium earning pattern was in September 2015, with this change applied to the financial statements in the third quarter of 2015. The Company conducted an annual review of the earnings curve in 2016 but no change was made to the curve based on the information at that time.

The modified premium earning pattern will be applied to the recognition of revenue in the income statement for the fourth quarter of 2017 and in subsequent reporting periods. The Company’s Unearned Premium Reserve (UPR) balance of $1,087 million as at 30 September 2017 remains unchanged. As was highlighted in the half year (2 August 2017) and third quarter (3 November 2017) results announcements, any change to the premium earning pattern has the potential to change the Company’s 2017 full year guidance.

The change to the premium earning pattern will negatively impact Net Earned Premium (NEP) by approximately $40 million, and as a result 2017 NEP is expected to be approximately 17 – 19 per cent lower than 2016, instead of the previous guidance of a 10 to 15 per cent reduction.

Based on preliminary estimates, the Company expects the full year loss ratio to remain between 35 and 40 per cent as the NEP reduction is expected to be partially offset by the fourth quarter incurred loss expectations, and preliminary estimates of the Outstanding Claims Reserves as at 31 December 2017 which currently reflect more favourable recent incurred loss experience.

The change to the premium earning pattern is expected to have minimal impact on Genworth’s regulatory solvency ratio which is expected to remain above the Board’s target capital range of 1.32 to 1.44 times the Prescribed Capital Amount as at 31 December 2017. The Company has completed an on-market share buy-back to a value of approximately $50 million and following this announcement intends to continue the
buy-back for shares up to a maximum total value of $100 million, subject to business and market conditions, the prevailing share price, market volumes and other considerations.

The Board continues to target an ordinary dividend payout ratio range of 50 to 80 percent of underlying NPAT and will continue to evaluate other capital management opportunities.

The Company notes that this full year outlook is based on preliminary expectations and recommendations that remain subject to completion of the year end process, including the external audit, market conditions and unforeseen circumstances or economic events. The Company expects it will be in a position to provide guidance for the 2018 financial year at the time of announcement of its 2017 full year financial year results.

Genworth notes that it has had discussions with ASIC about the premium earning pattern. The modification to the premium earning pattern announced today was determined following the outcome of Genworth’s annual review. In particular, Genworth believes that the premium recognition pattern as applied to prior released financial statements was the correct pattern to apply in respect of those financial statements. Genworth does not intend to restate financial statements already released to the market.

ASIC notes the decision by Genworth Mortgage Insurance Australia Limited (Genworth) to change the recognition of premium revenue in its upcoming financial report for the year ending 31 December 2017.

Genworth has announced that the change will negatively impact net earned premium by approximately $40 million and as a result net earned premium for the 2017 year is expected to be approximately 17-19% per cent lower than the 2016 year, instead of previous guidance of a 10 to 15 percent reduction.  The change affects the recognition of revenue for the fourth quarter of 2017 and subsequent reporting periods.  The unearned premium liability at 30 September 2017 remains unchanged.

ASIC had raised concerns about the basis used by Genworth to recognise premium revenue in the financial reports for the year ended 31 December 2016 and the half-year ended 30 June 2017 having regard to the pattern of historical claims experience in earlier underwriting years.

Youi pays $164,000 for poor insurance sales practices

ASIC says Youi has refunded 102 consumers approximately $14,000 in total, and will pay $150,000 as a community benefit payment to the Financial Rights Legal Centre’s Insurance Law Service, after ASIC raised concerns about its home and car insurance sales practices.

Youi has also engaged an independent firm (EY) to conduct a review of sales practices in response to concerns that some sales staff were charging consumers for insurance policies without their consent to purchase. This included where consumers only made an inquiry to get an insurance quote.

ASIC was concerned that Youi’s remuneration and bonus structures incentivised sales staff to prioritise sales ahead of consumers’ interests.

Since the review, Youi has:

  • Changed its remuneration structure and reduced the incentives provided to sales staff based on sales volumes
  • Reviewed sales scripts and staff training
  • Introduced new controls and monitoring of sales staff
  • Made significant changes to its legal, risk and compliance capability.

EY will conduct a follow-up review to assess the implementation and test the effectiveness of the recommendations made in their initial assessment of Youi’s risk culture and review of sales practices. A final report will be provided to ASIC by 30 June 2018.

Acting ASIC Chair Peter Kell said positive consumer outcomes should be at the heart of sales structures: ‘It is completely unacceptable that customers were signed up for Youi insurance policies without their knowledge or permission.’

Consumers who believe they have a dispute with Youi should contact Youi directly on 07 3852 7895. The Financial Ombudsman Service can provide further assistance on 1800 367 287.


The Financial Rights Legal Centre’s Insurance Law Service is a national service providing consumers free advice about insurance problems.

ASIC’s MoneySmart website has information for consumers about getting the best deal on insurance, including what to look for in insurance products so they can find the right policy for their needs.

CBA Sells Life Insurance Businesses

Commonwealth Bank today announced the sale of 100% of its life insurance businesses in Australia (“CommInsure Life”) and New Zealand (“Sovereign”) to AIA Group Limited (“AIA”) for $3.8 billion (the “Transaction”). The sale agreement also includes a 20-year partnership with AIA for the provision of life insurance products to customers in Australia and New Zealand.

CommInsure Life and Sovereign customers will retain all the current benefits of their existing policies. The Transaction and partnership announced today will allow customers to have continued access to high quality life insurance products through Commonwealth Bank and life and health insurance products through ASB, with the addition of AIA solutions to our offerings. Customers will benefit from AIA’s innovation in life insurance including a focus on digital engagement, the benefits and synergies of global scale and specialisation, and their strong bancassurance experience.

AIA is the largest independent publicly listed pan-Asian life insurance group and has well established life insurance businesses in Australia and New Zealand. The combined operations from this transaction will make AIA the market leader in both Australia and New Zealand.

Commonwealth Bank Chief Executive Officer Ian Narev said: “Providing our customers with access to high quality products and services for all their financial needs is core to our vision of securing and enhancing financial wellbeing. We have said for some time that while distributing life insurance is a fundamental part of that strategy, we were open to different models for doing so. The combination of AIA’s leading insurance capability and scale and Commonwealth Bank’s broad distribution, and our complementary values and commitment to customer focus and innovation, mean that a partnership between us will create an even better experience for our customers, in a more efficient way for our shareholders.”

AIA Group Chief Executive and President, Ng Keng Hooi, said: “The acquisition of CBA’s life insurance businesses and the new 20-year bancassurance partnership with CBA will strengthen AIA’s protection market leadership and expand our distribution capabilities in these markets. We look forward to welcoming our new customers and colleagues, and working with CBA to deliver innovative insurance products and services that meet the growing financial protection needs of customers across Australia and New Zealand.”

The Transaction will deliver important strategic benefits to Commonwealth Bank, contributing to the Group’s vision to secure and enhance the financial wellbeing of customers whilst creating value for shareholders.

The sale price is $3.8 billion, a multiple of 16.9x FY17 pro forma earnings and 1.1x the embedded value of CommInsure Life and Sovereign. A pre-completion dividend is also expected to be received by Commonwealth Bank (amount subject to the timing of completion, business performance and regulatory approvals).

Under the terms of the partnership, Commonwealth Bank will continue to earn income on the distribution of life and health insurance products.

The Transaction is expected to release approximately $3 billion of Common Equity Tier 1 (“CET1”) capital and result in a pro forma uplift to the Group’s FY17 CET1 ratio of approximately 70 basis points on an APRA basis. Due predominantly to the carrying value of goodwill, the Transaction is expected to result in an indicative after tax accounting loss on sale of approximately $300 million, net of separation and transaction costs.

The Transaction and partnership do not include general insurance and the CommInsure brand will be retained. The Transaction is subject to certain conditions and regulatory approvals in Australia and New Zealand and is also conditional upon the transfer of Commonwealth Bank’s equity interest in BoComm Life Insurance Company Limited (“BoComm Life”) out of CommInsure. Commonwealth Bank is considering a range of strategic alternatives for the BoComm Life equity interest, which would be conditional on approval from the China Insurance Regulatory Commission. The Transaction is expected to be completed in calendar year 2018.


Blockchain Prototype Is Credit Positive for P&C Insurers and Reinsurers

The Blockchain Insurance Industry Initiative (B3i) has unveiled a prototype application that streamlines contracts between insurers and reinsurers using blockchain technology according to Moody’s. Once the technology becomes mainstream, they expect that it will significantly reduce policy management expenses and speed up claims settlement for insurers and reinsurers, a credit positive.

B3i’s application gives insurers, reinsurers and brokers a shared view of policy data and documentation in real time.

Blockchain’s shared digital ledger has the potential to increase the speed and reduce the friction costs of reinsurance contract placements. Reinsurers would use the common platform to streamline claims analysis, potentially reducing significantly their administration and management costs.

Blockchain technology is a chain of blocks of encrypted data that form an append-only database of transactions. Each block contains a record of transactions among multiple parties, each of which has real-time access to a shared database. As a block is encrypted with a link to the previous block, it cannot be altered, except by unencrypting and amending all subsequent blocks.

PricewaterhouseCoopers estimates that blockchain technology will reduce reinsurer non-commission expenses by 15%-25%, including data processing efficiencies and reduced chance of overpayment because of data errors. For illustrative purposes, the exhibit below shows the potential effect on annual pre-tax earnings for some of the world’s top reinsurance companies, all of which are included in the B3i consortium. We also expect the technology to decrease the time between primary insurance claim and reinsurance reimbursement, a credit positive for primary insurers.

B3i launched in October 2016 with five original members, including Aegon N.V., Allianz SE, Munich Reinsurance Company, Swiss Reinsurance Company Ltd. and Zurich Insurance Company Ltd. It now has 15 members. Beta testing for B3i’s program is scheduled for October and is open to any insurers, reinsurers or brokers that wish to pilot the technology, regardless of their membership status in the consortium. Although the initial pilot was for property-catastrophe excess-of-loss policies, B3i plans to broaden its application to other types of reinsurance, catastrophe bonds and other insurance- linked securities.

CBA credit card scandal ‘just the tip of the iceberg’

From The New Daily.

The Commonwealth Bank credit card insurance scandal is the “tip of a very large iceberg”, legal experts have warned.

Philippa Heir, a senior solicitor at the Consumer Action Law Centre, welcomed the bank’s promise to repay $10 million to 65,000 students and unemployed people sold dodgy credit card insurance.

“Unfortunately it’s very widespread,” she told The New Daily.

“We’ve seen misselling of this sort of insurance on a large scale.”

On Monday, corporate regulator ASIC revealed that CBA – already mired in a money-laundering scandal – had agreed to refund about $154 to each of the 65,000 affected customers, who were sold ‘CreditCard Plus’ insurance between 2011 and 2015 despite being unable to claim for payouts.

CBA told the market it “self-reported the issue” to ASIC in 2015, and that the insurance was “not intentionally sold to customers who were not eligible”.


It was an example of what Consumer Action calls ‘junk insurance’, which is where inappropriate insurance policies are slipped covertly into the paperwork for car loans, credit cards and other financial products, or where the salesperson pressures the customer to buy unsuitable coverage.

Ms Heir said the CBA example was by no means an isolated case, and that many victims were poor.

“People who’ve spoken to us say they were told they had to [pay for insurance] or they would not qualify for finance for the car they needed to support their family. So this is affecting people on lower incomes significantly.”

Last year, ASIC published the results of a three-year investigation of add-on insurance sold by used car dealers. Its sample group paid $1.6 billion in premiums for only $144 million in payouts.

This amounted to an average payout of nine cents per dollar of premiums, compared to 85 cents for comprehensive car insurance, ASIC reported.

Consumer Action has set up a website to help Australians claim refunds from insurers. More than $700,000 has been claimed so far.

Here are the potential warning signs that a policy may be unsuitable.

Be wary of pressure selling

Consumer Action’s Ms Heir said high-pressure sales tactics were a danger sign.

“The key is, if you’re being put under pressure to buy insurance, that might ring alarm bells that you should shop around.”

An independent review of the banking sector, released in January, contained shocking revelations from bank staff who reported being forced to oversell financial products, including unnecessary insurance.

One anonymous bank teller said: “If I do not meet my daily sales target I have to explain how I will catch up at morning meetings of the team. I am behind in sales of wealth and insurance products and need to catch up to keep my job.”

Be wary of add-on insurance

ASIC’s recent investigation related specifically to add-on general insurance policies sold by used car dealers. It found “serious problems in the market”.

These add-on policies cover risks relating either to the car itself, or to the car loan. Examples include ‘consumer credit insurance’ and ‘tyre and rim insurance’.

Consumer Action agreed it was a high-risk area.

“One person we spoke to spent $20,000 for add-on insurance on a $60,000 car loan, so it took that loan from $60,000 to $80,000, which is hard to even comprehend,” Ms Heir said.

Be wary of insurance for small losses

An expert on investor behaviour, Dr Michael Finke of Texas Tech University, warned in a recent financial literacy series that fear of losing money temps consumers to buy unnecessary insurance.

Buying a policy is “rational” only when the probability of losing money is low and the size of the potential loss is high, Dr Finke said.

“It’s a good strategy to make sure that you let the small ones go so you can focus on insuring bigger losses.”

He recommended setting a “risk retention limit” – a dollar figure below which you don’t insurance yourself.

“This limit should be based on your wealth and your ability to cover a loss if it happens,” he said. “This may mean keeping a little bit more money in a liquid savings accounts just in case.”

Insurer report card would be ‘disastrous’

From Investor Daily.

A consumer-driven report card of life insurer claim denials, as proposed by ASIC, would result in “disastrous outcomes” for the industry, says an industry consultant.

Professional Opinions director Doron Samuell says a consumer report card highlighting the claim denial rates of life insurers is “ill-conceived” and would be “a pointless and potentially dangerous exercise”.

ASIC and APRA launched the pilot phase of a project in early May to collect and publish life insurance claims data, including claims handling time frames and dispute levels, on a per insurer basis.

Mr Samuell said ASIC is changing the drivers of insurance decision from accuracy to popularity, and it is “inviting disastrous outcomes”.

“While it is perfectly appropriate for regulators to monitor the life industry, they make no mention of the potential consequences of their costly meddling,” he said.

“Executives in every insurance company will be devising strategies to focus on performing well in those tables. The most obvious way to achieve those outcomes is to pay more claims.”

Mr Samuell said insurers will understand that the lowest decline and complaint rates will be most popular with consumers.

He said the only parties who could complain about such an outcome are shareholders and their views won’t be heard.

“Insurers would be wise to replace their claims departments with an enlarged accounts payable service,” Mr Samuell said.

“Disability insurance premiums continue to rise. With ASIC’s new initiatives, it is foreseeable that it will be a giant nudge towards market unsustainability.”

ASIC last year released the findings of its industry-wide life insurance review, saying it found “a clear need for public reporting on life insurance claims outcomes at an industry and individual insurer level”.

Suncorp wealth arm placed on ‘negative watch’

From InvestorDaily.

Suncorp’s life insurance and superannuation division has been placed on ‘negative watch’ by S&P after the bank revealed it is considering “strategic alternatives” for the business, including divestment.

In a statement released yesterday, S&P Global Ratings said the strategic importance of Suncorp Life and Superannuation Limited (SLSL) has “weakened” following statements made in Suncorp’s annual result.

In last week’s annual result announcement, Suncorp revealed it is implementing an “optimisation program” for its Australian life insurance business as well as “exploring strategic alternatives”.

In response, S&P has lowered its financial strength and issuer credit ratings on SLSL to ‘A’ from ‘A+’, which it said “reflects a reduced level of uplift in the rating from group support”.

S&P said it has also placed Asteron Life’s ‘A+’ rating on watch with “negative implications, reflecting uncertainty as to the level of integration of the entity with the group”.

The research house said Asteron Life is now only “strategically important” for Suncorp – a downgrade from its previous “core status”.

“This downgrade follows Suncorp’s announcement that it has undertaken a strategic review of its Australian life insurance operations, which includes potential divestment of the operations. As such, we no longer consider SLSL as being highly unlikely to be sold,” said S&P.

“The weak operating performance of the life operations relative to group expectations has  triggered the group’s strategic review. This weaker performance also contributes to our assessment of slightly lower group support for SLSL compared with that for Asteron Life,” said S&P.

“We expect the continued strength in [Asteron Life]’s inforce premiums, operating experience and emergence of planned profit margins to support the financial contribution of the group’s New Zealand life operations, in contrast to SLSL’s weaker operating performance.”

Forcing insurers to reveal rejected claims a win for consumers

From The Conversation.

Companies offering life insurance will now disclose the outcomes of claims, under a new reporting regime in a bid to increase transparency in the industry. This information won’t only be used by individual customers but also by financial advisers and in the case of many of us, by our superannuation fund, via a group policy.

If super funds consumers and financial planners use this data, it will likely place considerable pressure on insurers who have high rejection rates to improve internal practices, terms of insurance policies and better inform consumers about the scope of the insurance coverage. A history of high rejections would suggest that there is a relatively high risk the insurer would reject future claims. Awareness that an insurer has a high rate of rejections would lead to business being diverted away from them.

Australian Securities and Investments Commission

The new disclosure regime arises from an ASIC review of life insurance claims. As part of the review ASIC looked at the histories of 15 insurers that provide life, total and permanent disability (TPD), trauma and income protection insurance.

The review found the highest rejection of claims rates were for TPD (average declined claim rate of 16%) and trauma cover (14%). The rejections were lowest for life cover (4%) and income protection cover (7%).

Disconcertingly, the rejection rates vary substantially as between insurers. For TPD, three insurers had rejection rates of 37%, 25% and 24% respectively, compared to an industry average of 16%.

ASIC provided a comparison of rejection rates among the insurers it examined, but it kept the insurer names anonymous. For example the reporting on TPD rejections ranged widely.

ASIC’s reluctance to name names in this review is understandable. It found that making comparisons was difficult, partly because the insurance policies have different terms and definitions. Sometimes these differences are subtle, and at other times substantial.

What is heartening is that ASIC proposes reporting on the conduct of individual insurers – that is, it appears ASIC intends naming names. The sooner this is done, the better.

It is in the mutual interests of consumers, superannuation funds managers, financial planners who advise clients on the purchasing of insurance, and the insurance industry itself that there is an improved capacity for purchasers to make informed choices.

Purchasing the right insurance policy is fiendishly difficult. Making anything resembling a rational and informed choice requires knowing which future events are covered by the insurance, and the likelihood of the insurer paying up if a claim is made.

Finding out which events are covered by a policy often requires wading through lengthy and complex product disclosure statements (PDS). In addition, making any reliable assessments about whether the insurer is likely to pay up on a claim is next to impossible. It is somewhat ironic these uncertainties exist as a reason for insuring is to buy peace of mind, and an assurance that if things go wrong we will receive money to compensate for some or all of the insured loss.

The difficulties consumers face in making comparisons when shopping for the right product contribute towards an inadequately competitive marketplace and a lack of consumer trust in insurers. This in turn is fuelling public disquiet that led to ASIC review of the industry.

ASIC found that overall the life insurance industry accepts 90% of claims in the first instance if a decision was made to about whether or not to make a claim. For death claims, an average 96% of claims are paid.

ASIC is concerned, however, that in some cases claims are being rejected on technical or contractual grounds that are not in accordance with the spirit or the intent of the policy. This presents a challenge for insurers to decide how to deal with that small number of claims that may not be covered under the fine print, but under any reasonable consumer or community expectation should be paid.

This sort of information is already published in the United Kingdom where the Association of British Insurers publishes data on claims payouts.

In Australia ASIC proposes working with the Australian Prudential Regulation Authority, the insurance industry and stakeholders to establish a consistent public reporting regime for claims data and claims outcomes. ASIC will report on claims handling timeframes and dispute levels across all policy types.

Enhancing the capacity for consumers to make better informed choices will help build trust in the industry and a more competitive marketplace. It will also help bring greater peace of mind for those purchasing insurance.

Author: Justin Malbon, Professor of Law, Monash University

Insurance outlook: in an era of increasing competition technology will make the difference

From The Conversation.

Volatility in financial markets globally and competition from smaller “challengers” like Youi (an Australian registered company owned by South Africa’s Rand Merchant Investment Holdings) have been driving down big insurance companies’ profits, putting pressure on these companies to find ways of cutting costs.

Figures released by the Australian Prudential Regulation Authority (APRA) reveal the performance of the Australian insurance sector as a whole.

APRA figures show that revenue is declining across the sector. For the 110 insurers in the Australian market, bottom line profit after tax declined substantially from a combined $4.1 billion to $2.4 billion in 2015, a drop of 73%.

The total cost of claims made by policyholders was effectively flat for 2015, so the main driver of the slump in profit was the downturn in global financial markets. When policyholders pay their insurance premiums, insurers don’t hold these as cash. In fact, of the $119 billion of total assets of Australian insurance companies, less than 2% is held as cash. Instead, a substantial portion – $68.4 billion (57%) – is invested, with over $50 billion held as interest bearing assets such as bonds.

For the 2014 calendar year, investment returns for the sector as a whole were slightly over $4.2 billion, whereas in 2015 investment returns nearly halved to $2.2 billion. In the year ahead there may be more of a threat to insurance companies from investments in the markets.

In the first months of 2016 in Australia, the All Ordinaries Index has fallen nearly 8% and there are indicators that returns for both global bonds and shares may not improve much in the short term. Australian insurers may have to look elsewhere for returns on investments.

Increasing competition

Insurers will need to both increase revenue and decrease expenses to ensure sustainable profitability. The major insurers have embarked on cost cutting plans, which do seem to be having the desired effect.


This is important, as challenger companies the likes of Youi and Budget Direct are taking a small, but growing, portion of the $16 billion personal insurance market (which includes home, content and motor), currently dominated by IAG and Suncorp Group. This level of competition is seen in the APRA figures, which indicate that the while total premiums increased by just under 4%, the number of policyholders also increased (by over 4%), so the premium per policyholder actually declined by 1% from $612 to $605.

This increase in competition doesn’t necessarily mean a price war in the insurance sector. Gary Dransfield, personal insurance chief executive at insurer Suncorp says his company won’t look to recover its lost market share by reducing premiums.

“We don’t think that’s the way to deal with the competitive environment.”

However, if competition continues to intensify, the ability for insurers to increase premiums is somewhat limited.


Insurers may be able to make savings by improving the use of technology that gives these companies insight into customers’ actions. These technologies include telematics and Big Data. Telematics is the use of communications devices to send, receive and store information relating to a remote object, such as a vehicle. Big Data relates to large amounts of data creation, storage, retrieval and analysis. Both of these technologies allow insurance companies to better understand their customers.

Which is important, because the purpose of insurance companies is to collect premiums for those they insure, and to pay out to those few who do have to call upon their insurance protection (i.e. for hail damage to a car, or flood damage to a house). A major impact on profitability is the ability of an insurance company to properly assess and price the risk that the company will have to pay out. This is why the premiums for younger drivers are higher, as they judged to be a higher risk of having an at-fault claim.

More detailed information about policyholders improves the ability of insurance companies to do that, and this can occur in a variety of ways. Rather than simply base the risk of the policyholder on general category information such as age, gender, or the postcode where the vehicle is garaged, factors such as the number of kilometres driven, the time of day and location of the driving, and even speed zones provide valuable insights to insurers.

AAMI’s safe driver app uses a smartphone to provide such data, while overseas Subaru is one of the first manufacturers to link inbuilt telematics to provide data.

Gathered information on customers also assists insurers in other ways. In 2013 IAG purchased Wesfarmers’ insurance business for close to $2 billion, allowing it to get a better grasp of consumer choices through rewards cards purchases and permitting it to tailor insurance products accordingly.

The insurance sector is inevitably at the mercy of natural disasters – and Australia has experienced increasingly intense storms, bushfires and cyclones in recent years. But it is also facing stormy conditions on investment markets and in the competitive landscape. Those insurers that innovate – making the best use of sophisticated data science and financial tools – will weather difficult times best.


Authors: David Bon, Senior Lecturer, Accounting Discipline Group, University of Technology Sydney;  Anna Wright, Senior lecturer, University of Technology Sydney.


Automating the insurance industry

From McKinsey Quarterly.

The insurance industry—traditionally cautious, heavily regulated, and accustomed to incremental change—confronts a radical shift in the age of automation. With the rise of digitization and machine learning, insurance activities are becoming more automatable and the need to attract and retain employees with digital expertise is becoming more critical.

Our colleagues at the McKinsey Global Institute (MGI) have been exploring the implications of workplace automation across multiple industries. Although their preliminary report cautions that “activities” differ from “occupations” (the latter being an aggregate of the former), it presents some stark conclusions: for example, automation will probably change the vast majority of occupations, and up to 45 percent of all work activities in the United States, where MGI performed its analysis, can be automated right now with current technology.1 This figure does not reflect the precise automation potential for each of these specific occupations, because activities are scattered across them, and different activities will be automated at different rates. But significant changes are clearly approaching in many industries, including insurance, whose potential for automation resembles that of the economy as a whole.

We’ve been studying the impact of automation on insurers from another angle. Drawing on our proprietary insurance-cost and full-time-equivalent (FTE) benchmarking database, we focused on Western European insurers, forecast the outcomes for about 20 discrete corporate functions, and aggregated the results.2 Our work indicates that some roles will undoubtedly change markedly and that certain occupations are particularly prone to layoffs; positions in operations and administrative support are especially likely to be consolidated or replaced. The extent of the effect differs by market, product group, and capacity for automation.

Steeper declines will occur in more saturated markets, products with declining business volumes, and, of course, the more predictable and repeatable positions, including those in IT. Other roles, however, will experience a net gain in numbers, especially those concentrating on tasks with a higher value added. The broader corporate functions including these roles will lose jobs overall. But some positions will be engines of job creation—these include marketing and sales support for digital channels and newly created analytics teams tasked with detecting fraud, creating “next best” offers, and smart claims avoidance. To meet these challenges, insurers will need to source, develop, and retain workers with skills in areas such as advanced analytics and agile software development; experience in emerging and web-based technologies; and the ability to translate such capabilities into customer-minded and business-relevant conclusions and results.

The net effect of such position-by-position changes is harder to determine with certainty. Numerous variables affect each role’s outcome—whether job creation or contraction—which means that the sum of these potential outcomes could shift significantly. To analyze these outcomes, we have factored in variable growth rates across separate regions and product groups, as well as the possibility of increasing cost pressures (including those arising from a low-interest-rate environment). Our most probable outcome for insurers sees up to 25 percent of full-time positions consolidated or reduced as a net aggregate, occurring at different rates for different roles over a period of about a decade.

That’s neither a negligible amount of job loss nor an unimaginably distant time frame. On the contrary, given the magnitude of these changes and the looming future, it’s important that insurers begin to rethink their priorities right now. These should include retraining and redeploying the talent they currently have, identifying critical new skills to insource, and retuning value propositions in the war for new talent and capabilities. That competition will almost certainly increase as the digital transformation takes hold. The first waves are already hitting the beach.