1 00:00:05,960 --> 00:00:08,640 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Suan Alma. 2 00:00:08,760 --> 00:00:12,319 Speaker 1: Australia's insurance sector is under some pressure. Premiums have been 3 00:00:12,400 --> 00:00:16,360 Speaker 1: rising sharply, Natural disasters are becoming more frequent and severe, 4 00:00:16,960 --> 00:00:20,919 Speaker 1: and many households and businesses are finding insurance increasingly unaffordable. 5 00:00:21,120 --> 00:00:23,760 Speaker 1: I mean have broader cost of living crisis. I wanted 6 00:00:23,800 --> 00:00:25,520 Speaker 1: to take a bit of a one oh one on 7 00:00:25,560 --> 00:00:28,320 Speaker 1: the industry today. What we can then go on, what 8 00:00:28,320 --> 00:00:30,520 Speaker 1: can we expect from premiums over the next twelve months 9 00:00:30,640 --> 00:00:34,479 Speaker 1: or so, and how insurers work. Andrew Hall is the 10 00:00:34,680 --> 00:00:38,000 Speaker 1: CEO of the Insurance Counsel of Australia. Andrew welcome to 11 00:00:38,040 --> 00:00:38,600 Speaker 1: Fear and Greed. 12 00:00:38,960 --> 00:00:41,159 Speaker 2: Pleasure to be here, Sean Andrew. 13 00:00:41,280 --> 00:00:43,800 Speaker 1: A one oh one on insurance. For those of us 14 00:00:43,800 --> 00:00:48,760 Speaker 1: who just pay premiums and we claim when necessary, how 15 00:00:48,920 --> 00:00:52,400 Speaker 1: do insurance companies make money? Because it's not just the premiums, 16 00:00:52,400 --> 00:00:54,840 Speaker 1: it's investing as well. 17 00:00:54,040 --> 00:00:58,680 Speaker 2: That's right. So insurance prices risk. It collects the premiums 18 00:00:58,720 --> 00:01:01,000 Speaker 2: of the many, with the that it can pay the 19 00:01:01,040 --> 00:01:04,600 Speaker 2: claims of the few. In between all of that, insurers 20 00:01:04,720 --> 00:01:07,480 Speaker 2: take the premiums that are being collected and they invest 21 00:01:07,560 --> 00:01:11,720 Speaker 2: that in funds that can provide a return, but also 22 00:01:12,040 --> 00:01:14,960 Speaker 2: assets that are very liquid, so if they need to 23 00:01:15,040 --> 00:01:18,839 Speaker 2: draw down on that money quickly they can. They also 24 00:01:19,360 --> 00:01:23,840 Speaker 2: seek their own insurance offshore, which is called reinsurance, and 25 00:01:23,880 --> 00:01:27,160 Speaker 2: that's for when an event is so large that it 26 00:01:27,280 --> 00:01:30,800 Speaker 2: uses up all the domestic pool, they're able to claim 27 00:01:30,920 --> 00:01:32,680 Speaker 2: additional capital from overseas. 28 00:01:33,440 --> 00:01:36,119 Speaker 1: Okay, so we'll part reinsurance for the time being. We'll 29 00:01:36,160 --> 00:01:38,760 Speaker 1: come to that. How many big insurers are there in 30 00:01:38,760 --> 00:01:41,240 Speaker 1: Australia and how many insurers are there in Australia. We're 31 00:01:41,240 --> 00:01:43,800 Speaker 1: talking general insurance here, not life insurance. 32 00:01:44,240 --> 00:01:48,000 Speaker 2: Well, there's around about thirty general insurers that operate in 33 00:01:48,040 --> 00:01:50,240 Speaker 2: the home and content space, which is one of the 34 00:01:50,320 --> 00:01:55,960 Speaker 2: largest categories of insurance alongside motor. Within the market, there 35 00:01:56,000 --> 00:02:01,080 Speaker 2: are four major insurers, the two largest being and Suncorp, 36 00:02:01,120 --> 00:02:04,720 Speaker 2: and then QBE and Alliance. Then we have a group 37 00:02:04,800 --> 00:02:08,520 Speaker 2: of what we call a mid tier insurers. They range 38 00:02:08,560 --> 00:02:15,000 Speaker 2: from privately owned international insurers through to the motoring mutuals 39 00:02:15,080 --> 00:02:19,680 Speaker 2: like RCQ and rc in WA. And then there's a 40 00:02:19,720 --> 00:02:23,440 Speaker 2: whole raft of smaller monoline insurers. And then there are 41 00:02:23,560 --> 00:02:27,960 Speaker 2: underwriters who often will market their product like an insurance product, 42 00:02:28,880 --> 00:02:31,600 Speaker 2: and it can be popular in areas where insurance is 43 00:02:31,639 --> 00:02:32,160 Speaker 2: hard to get. 44 00:02:32,840 --> 00:02:37,040 Speaker 1: Okay, So that's the industry. What's the health of the 45 00:02:37,040 --> 00:02:39,760 Speaker 1: industry like at the moment, and I'm talking about the 46 00:02:39,760 --> 00:02:42,760 Speaker 1: financial health will come on to what it means for customers. 47 00:02:43,360 --> 00:02:46,160 Speaker 1: It's been a tough couple of years, it seems from AFAR, 48 00:02:46,960 --> 00:02:48,760 Speaker 1: given the level of natural disasters. 49 00:02:49,840 --> 00:02:53,600 Speaker 2: So the insurance industry has an interesting profile. It goes 50 00:02:53,720 --> 00:02:56,760 Speaker 2: up and down like a roller coaster. It is unlike 51 00:02:56,840 --> 00:03:01,160 Speaker 2: other financial services that often have a very consistent profit 52 00:03:01,440 --> 00:03:04,960 Speaker 2: gradual growth year on year. So with insurers, we're very 53 00:03:05,040 --> 00:03:08,840 Speaker 2: much event driven. And you can see over the last 54 00:03:08,880 --> 00:03:11,680 Speaker 2: five out of six years, some of the very large 55 00:03:11,680 --> 00:03:15,359 Speaker 2: extreme weather events like the bushfires and then the floods 56 00:03:15,960 --> 00:03:18,400 Speaker 2: had a real hit to the bottom line for insurers. 57 00:03:19,040 --> 00:03:22,080 Speaker 2: That's happened at the same time that I think risk 58 00:03:22,080 --> 00:03:27,320 Speaker 2: appetite for investing in insurance had become very tight, so 59 00:03:27,960 --> 00:03:30,840 Speaker 2: we had a perfect storm emerged there. In terms of 60 00:03:31,720 --> 00:03:34,160 Speaker 2: what we call a hard market, so we have hard 61 00:03:34,200 --> 00:03:37,040 Speaker 2: and soft markets. What we're seeing now is that we 62 00:03:38,080 --> 00:03:42,800 Speaker 2: actually have had a much quieter twelve months weatherwise. Putting 63 00:03:42,840 --> 00:03:46,320 Speaker 2: a side tropical Cyclone Alfred and the floods in North 64 00:03:46,400 --> 00:03:50,400 Speaker 2: Queensland and Western Queensland. It has been compared to the 65 00:03:50,400 --> 00:03:54,760 Speaker 2: previous years, relatively normal, if we can call normal normal. 66 00:03:55,280 --> 00:03:58,360 Speaker 2: And what we're seeing is that profits are coming back 67 00:03:58,480 --> 00:04:01,760 Speaker 2: quickly to the insurance sector, but they're really recovering two 68 00:04:01,880 --> 00:04:04,360 Speaker 2: levels that they were at ten years ago. And I 69 00:04:04,360 --> 00:04:08,040 Speaker 2: think that's the constant challenge for insurers when attracting investors 70 00:04:08,920 --> 00:04:12,360 Speaker 2: is how does it demonstrate a pathway to continual growth 71 00:04:12,480 --> 00:04:16,760 Speaker 2: rather than this constant yeing of profit and loss. 72 00:04:17,600 --> 00:04:19,799 Speaker 1: So I remember many years ago when I covered insurance 73 00:04:19,839 --> 00:04:22,479 Speaker 1: as a journalist, QB introduced this idea. I think it 74 00:04:22,520 --> 00:04:25,719 Speaker 1: was ten year rolling average profit to the whole idea 75 00:04:25,760 --> 00:04:27,520 Speaker 1: is because it is so volatile, what you need to 76 00:04:27,520 --> 00:04:30,960 Speaker 1: look is the trend is your friend. It's that kind 77 00:04:31,000 --> 00:04:33,360 Speaker 1: of concept. Do insurers still do that today? 78 00:04:34,200 --> 00:04:37,960 Speaker 2: Yeah, the trend is very important to understand the overall 79 00:04:38,000 --> 00:04:40,919 Speaker 2: health of the industry, but it is also critical to 80 00:04:40,960 --> 00:04:44,520 Speaker 2: know that within a twelve month period an insurer can 81 00:04:44,640 --> 00:04:49,000 Speaker 2: go from being in a very strong position to facing 82 00:04:49,120 --> 00:04:53,040 Speaker 2: very large payouts if they've got a concentrated risk that 83 00:04:53,480 --> 00:04:56,040 Speaker 2: has happened all at once and we do see that 84 00:04:56,080 --> 00:04:59,360 Speaker 2: from time to time. So I think the insurance sector 85 00:04:59,440 --> 00:05:02,480 Speaker 2: is very alive to the challenge it has around profit. 86 00:05:02,520 --> 00:05:05,760 Speaker 2: But equally we're alive to having to explain that not 87 00:05:05,920 --> 00:05:08,240 Speaker 2: just to invest as much of the community and consumers. 88 00:05:08,240 --> 00:05:11,800 Speaker 1: More broadly, is it that it's always playing catch up? 89 00:05:11,880 --> 00:05:15,120 Speaker 1: So you can't predict a bad weather event, you can't 90 00:05:15,160 --> 00:05:18,120 Speaker 1: predict a bushfire, But what you're doing is trying to 91 00:05:18,120 --> 00:05:22,120 Speaker 1: recover the losses for one of a bit of term 92 00:05:22,320 --> 00:05:24,560 Speaker 1: when it's happened, So it's the following year that the 93 00:05:24,600 --> 00:05:26,599 Speaker 1: premiums increase. Is that broadly correct. 94 00:05:27,600 --> 00:05:29,800 Speaker 2: Yes, it is a catch up, and I think it's 95 00:05:29,800 --> 00:05:32,400 Speaker 2: a catch up, but it's also a big bet. The 96 00:05:32,440 --> 00:05:36,640 Speaker 2: one thing about insurance is that we're constantly taking a 97 00:05:36,640 --> 00:05:38,760 Speaker 2: bet that your house will still be here next year 98 00:05:38,800 --> 00:05:42,000 Speaker 2: and be okay. And so these are the challenges of 99 00:05:42,040 --> 00:05:44,960 Speaker 2: the industry faces. Is it has to be able to 100 00:05:45,040 --> 00:05:48,200 Speaker 2: get the numbers right for taking that bet, and there 101 00:05:48,200 --> 00:05:50,039 Speaker 2: can be a lot of parameters that can shift in 102 00:05:50,080 --> 00:05:52,800 Speaker 2: the twelve months, not just the event alone, but in 103 00:05:52,839 --> 00:05:55,920 Speaker 2: the last three years, for example, the cost of building 104 00:05:56,480 --> 00:05:59,799 Speaker 2: has gone up for around about forty percent, and normally 105 00:06:00,000 --> 00:06:03,320 Speaker 2: when you're calculating the cost of a rebuild of a home, 106 00:06:03,839 --> 00:06:06,640 Speaker 2: it was about two to three percent every year. This 107 00:06:06,720 --> 00:06:09,520 Speaker 2: sort of double digit increases year on year has really 108 00:06:09,560 --> 00:06:12,640 Speaker 2: put a different lens to the ability to turn a 109 00:06:12,680 --> 00:06:13,719 Speaker 2: profit at the end of all. 110 00:06:13,600 --> 00:06:16,160 Speaker 1: That, Andrew, in a moment, I'll come back and will 111 00:06:16,200 --> 00:06:19,360 Speaker 1: might turn to the consumer and what you mentioned before reinsurance. 112 00:06:19,360 --> 00:06:29,599 Speaker 1: We'll be back in a minute. I'm talking to Andrew Hall, 113 00:06:29,800 --> 00:06:32,560 Speaker 1: CEO of the Insurance Council of Australia. Just before we 114 00:06:32,600 --> 00:06:37,080 Speaker 1: get onto consumers what it means for people going forward reinsurance. 115 00:06:37,120 --> 00:06:41,640 Speaker 1: You mentioned that concept for those that don't understand reinsurance, 116 00:06:41,640 --> 00:06:44,960 Speaker 1: it's kind of like ensuring the insurers on a global scale, 117 00:06:45,040 --> 00:06:45,480 Speaker 1: is that right? 118 00:06:46,040 --> 00:06:50,680 Speaker 2: That's right. It's where insurers can access more capital than 119 00:06:50,680 --> 00:06:53,960 Speaker 2: what might be available in Australia to be able to 120 00:06:53,960 --> 00:06:56,680 Speaker 2: meet the claims if and when they are due. And 121 00:06:56,960 --> 00:07:00,479 Speaker 2: in Australia, what happened over the last twenty years, particularly 122 00:07:00,560 --> 00:07:05,600 Speaker 2: post the collapse of HIH twenty odd years ago, was 123 00:07:05,680 --> 00:07:11,440 Speaker 2: our crudential regulators really encouraged or drove Australian insurers to 124 00:07:11,520 --> 00:07:14,560 Speaker 2: be able to access those global reinsurance polls to make 125 00:07:14,600 --> 00:07:17,800 Speaker 2: sure that we had the safety net of capital available 126 00:07:17,880 --> 00:07:19,880 Speaker 2: for when really large disasses strike. 127 00:07:20,440 --> 00:07:24,240 Speaker 1: Okay, let's bring it back to the consumer now. When 128 00:07:24,280 --> 00:07:26,160 Speaker 1: we talk about inflation, and have done for the past 129 00:07:26,200 --> 00:07:28,760 Speaker 1: couple of years, insurance premiums always seem to get a 130 00:07:28,840 --> 00:07:31,960 Speaker 1: run in that and I think you've explained why that's 131 00:07:32,080 --> 00:07:34,800 Speaker 1: the case. What's the outlook for the next six to 132 00:07:34,880 --> 00:07:38,440 Speaker 1: twelve months for things like home and contents, car insurance, 133 00:07:38,440 --> 00:07:39,120 Speaker 1: that type of thing. 134 00:07:39,680 --> 00:07:42,720 Speaker 2: Well, we are seeing a number of indicators moderate, which 135 00:07:42,760 --> 00:07:46,920 Speaker 2: is very good news in terms of premium increases. I 136 00:07:46,960 --> 00:07:51,440 Speaker 2: don't think we're going to see premiums reduce necessarily. I 137 00:07:51,440 --> 00:07:54,360 Speaker 2: think that there's been a structural readjustment in the home 138 00:07:54,400 --> 00:07:57,960 Speaker 2: and contents and also the motor market in Australia now 139 00:07:58,000 --> 00:08:00,960 Speaker 2: over the last three years. That is has really become 140 00:08:01,080 --> 00:08:03,720 Speaker 2: going to become the new normal. But what is good 141 00:08:03,800 --> 00:08:07,600 Speaker 2: is that we are seeing reinsurance costs actually decrease now 142 00:08:07,680 --> 00:08:11,440 Speaker 2: significantly because they have had fewer payouts in the last 143 00:08:11,440 --> 00:08:14,480 Speaker 2: twelve months, that got more capital in the commercial space, 144 00:08:14,640 --> 00:08:17,160 Speaker 2: small business and the like, a lot more money has 145 00:08:17,640 --> 00:08:21,280 Speaker 2: come back into that market and so we're seeing big 146 00:08:21,280 --> 00:08:25,640 Speaker 2: international players like Lloyd's and others really getting active again 147 00:08:25,680 --> 00:08:29,040 Speaker 2: in terms of underwriting. So there are positive signs that 148 00:08:29,040 --> 00:08:33,000 Speaker 2: we're going to see moderation in insurance premiums and we're 149 00:08:33,040 --> 00:08:35,840 Speaker 2: hopeful that that flows through as well to the consumer. 150 00:08:36,320 --> 00:08:39,000 Speaker 1: How competitive is that business market. 151 00:08:39,600 --> 00:08:42,680 Speaker 2: It is a competitive market, and it's one that it's 152 00:08:42,800 --> 00:08:47,920 Speaker 2: not as perhaps baked in as a mortgage market, for example. 153 00:08:47,960 --> 00:08:51,680 Speaker 2: And sometimes people think about banking and insurance in exactly 154 00:08:51,760 --> 00:08:55,560 Speaker 2: the same terms. And insurance policy is a twelve month policy. 155 00:08:55,640 --> 00:08:58,480 Speaker 2: You can cancel it at any time. It is becoming 156 00:08:58,520 --> 00:09:01,880 Speaker 2: increasingly easy to shop around online to get better quotes, 157 00:09:02,720 --> 00:09:05,080 Speaker 2: and as we're seeing more and more people are paying 158 00:09:05,160 --> 00:09:08,920 Speaker 2: close attention to their insurance settings, so they will call 159 00:09:09,000 --> 00:09:12,120 Speaker 2: up their insurer, they will reduce or increase their accesses, 160 00:09:12,880 --> 00:09:16,080 Speaker 2: they can take matters into their own hands. So what 161 00:09:16,120 --> 00:09:18,719 Speaker 2: we'll see, I believe, is as the market softens, you'll 162 00:09:18,760 --> 00:09:22,320 Speaker 2: see a lot more marketing activity come back from the insurers. 163 00:09:22,320 --> 00:09:24,480 Speaker 2: They'll be looking to grow their market share and recover 164 00:09:25,000 --> 00:09:27,240 Speaker 2: from some of the losses over the last couple of years. 165 00:09:27,840 --> 00:09:31,719 Speaker 1: Okay, what's the role of government in insurance in Australia. 166 00:09:31,760 --> 00:09:35,920 Speaker 1: Does it play the regulations particularly difficult for the insurers? 167 00:09:36,480 --> 00:09:39,640 Speaker 1: Do I mean, is it a bit like some infrastructure 168 00:09:39,679 --> 00:09:42,600 Speaker 1: plays where insurers are restricted on what they can do. 169 00:09:42,679 --> 00:09:43,640 Speaker 1: How's all that play out. 170 00:09:44,400 --> 00:09:48,480 Speaker 2: We are a very heavily regulated market in Australia. You 171 00:09:48,600 --> 00:09:51,800 Speaker 2: need an Apple license to be an insurer. That comes 172 00:09:51,800 --> 00:09:54,640 Speaker 2: with a lot of hefty regulations and requirements. We have 173 00:09:54,720 --> 00:09:58,559 Speaker 2: ASSEIC that monitors how product is developed, sold and then 174 00:09:58,679 --> 00:10:02,360 Speaker 2: how claims should be managed. And of course we've got 175 00:10:02,360 --> 00:10:05,880 Speaker 2: the ombudsman in the background for when there are disputes. 176 00:10:06,240 --> 00:10:10,079 Speaker 2: But the regulations are a good thing. Australia has a 177 00:10:10,200 --> 00:10:13,880 Speaker 2: very stable insurance market. We've got a high penetration of 178 00:10:13,960 --> 00:10:17,760 Speaker 2: insurance compared to other markets, and our insurance products are 179 00:10:17,800 --> 00:10:21,600 Speaker 2: very comprehensive. You can claim for a broken lamp under 180 00:10:21,600 --> 00:10:25,120 Speaker 2: your home policy in Australia, whereas often overseas we see 181 00:10:25,160 --> 00:10:29,040 Speaker 2: markets where you may have a ten thousand dollars deductible 182 00:10:29,120 --> 00:10:33,000 Speaker 2: upfront and those sorts of things. So we do have 183 00:10:33,040 --> 00:10:35,800 Speaker 2: a very good insurance market. It's one that we've got 184 00:10:35,840 --> 00:10:38,720 Speaker 2: to keep working on though we can't drown it in regulation. 185 00:10:38,880 --> 00:10:40,880 Speaker 2: We've got to make sure that it's competitive. We've got 186 00:10:40,880 --> 00:10:44,400 Speaker 2: to keep one eye on where technology is going. What 187 00:10:44,440 --> 00:10:46,200 Speaker 2: are the sort of advances that are going to come 188 00:10:46,240 --> 00:10:51,800 Speaker 2: into play for insurance moving forward, and not stifle that 189 00:10:51,880 --> 00:10:54,520 Speaker 2: because that's the sort of competitive pressure that will also 190 00:10:54,559 --> 00:10:55,960 Speaker 2: be added into the marketplace. 191 00:10:56,840 --> 00:10:59,880 Speaker 1: I want to finish on technology and potential for artificial 192 00:11:00,000 --> 00:11:04,280 Speaker 1: intelligence within the insurance sector. I would have thought, given 193 00:11:04,559 --> 00:11:10,520 Speaker 1: that it is an industry of probabilities, AI potentially could 194 00:11:10,559 --> 00:11:13,680 Speaker 1: be a real game changer for insurance for insurers. 195 00:11:14,320 --> 00:11:18,800 Speaker 2: AI presents enormous potential for insurers and consumers, but it 196 00:11:18,840 --> 00:11:21,640 Speaker 2: also is going to throw up some fundamental challenges for 197 00:11:21,720 --> 00:11:25,360 Speaker 2: us as in industry. If you think about what insurance does, 198 00:11:25,480 --> 00:11:27,960 Speaker 2: it pulls risk and it takes a whole heap of 199 00:11:28,040 --> 00:11:32,160 Speaker 2: risks that it generally known but that we're not that 200 00:11:32,280 --> 00:11:36,680 Speaker 2: granular about it. Often it was called postcode pricing. Moving forward, 201 00:11:36,720 --> 00:11:39,120 Speaker 2: an insurer is going to know, through AI and through 202 00:11:39,200 --> 00:11:41,760 Speaker 2: data and the like, almost more about your home than 203 00:11:41,800 --> 00:11:43,920 Speaker 2: you do, right down to the sort of nuts and 204 00:11:43,960 --> 00:11:46,840 Speaker 2: bolts that are holding the roof down. And as that 205 00:11:46,960 --> 00:11:49,720 Speaker 2: sort of data builds up a profile, insurers will be 206 00:11:49,760 --> 00:11:53,120 Speaker 2: able to better risks select who they want to provide 207 00:11:53,160 --> 00:11:54,839 Speaker 2: cover to and they don't want to provide cover to, 208 00:11:55,520 --> 00:11:57,760 Speaker 2: so that partnership with government is going to be even 209 00:11:57,800 --> 00:12:00,000 Speaker 2: more important moving forward because there is going to be 210 00:12:00,120 --> 00:12:04,480 Speaker 2: cohorted people who are living in unsafe homes in areas 211 00:12:04,480 --> 00:12:06,920 Speaker 2: that shouldn't have never been built in the first place, 212 00:12:07,520 --> 00:12:10,400 Speaker 2: for whom their premiums will be more while those that 213 00:12:10,480 --> 00:12:13,800 Speaker 2: live in safer areas may get cheaper premiums. Now, people 214 00:12:13,840 --> 00:12:16,120 Speaker 2: will be happy about that if you're in a safe area, 215 00:12:16,240 --> 00:12:18,160 Speaker 2: But we do have to have a conversation that as 216 00:12:18,200 --> 00:12:21,560 Speaker 2: we lose the effect of pulling, how does insurance work 217 00:12:21,600 --> 00:12:24,000 Speaker 2: as effective as it has done in the past moving forward? 218 00:12:24,520 --> 00:12:26,160 Speaker 1: Andrew, thank you for talking to Fear and Greed. 219 00:12:26,280 --> 00:12:27,079 Speaker 2: My pleasure, Sean. 220 00:12:27,400 --> 00:12:30,679 Speaker 1: That was Andrew Hall, CEO of the Insurance Council of Australia. 221 00:12:30,720 --> 00:12:32,800 Speaker 1: This is a Fear and Greed business interview. Join us 222 00:12:32,840 --> 00:12:35,160 Speaker 1: every morning for the full episode of Fear and Greed 223 00:12:35,480 --> 00:12:37,800 Speaker 1: Daily business years for people who make their own decisions. 224 00:12:37,800 --> 00:12:44,840 Speaker 1: I'm sure elm enjoy your day.