Willis Market Update - Aug 2015

INSURANCE MARKETUPDATE

WILLIS AUSTRALIA - HALF-YEARLY - 2015

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 BARBERDEPUTY CEO

WILLIS AUSTRALASIA

2

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


3

CO

NT

EN

TS


1 THE DIRECT MARKET – GENERAL LINESProperty 5-7

Liability 8

2 THE DIRECT MARKET - FINANCIAL LINESDirectors 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

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


RATINGREDUCTIONS

CONTINUES

CYBER, CLOUD,DRONES, TERRORISM –

ARE YOU PREPARED?

IS YOURINSURANCE PROGRAMME SUSTAINABLE?

5

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


SOUND RISK ENGINEERING

IS ESSENTIAL TOKEEP INSURANCE

COSTS LOW

6

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


7

DEPRESSEDCOMMODITY 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 NATURALCATASTROPHE LOSSES WERE

38% BELOW THE GLOBAL10-YEAR AVERAGE

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


8

RATESDECREASESCONTINUE

LIABILITYREDUCTIONSOUTWEIGHING PROPERTY

REDUCTIONS

LOWER DEDUCTIBLES/

BROADER WORDING

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


CONTINUED LEVELS OF CAPACITY FOR

D&O RISKS WITH GOOD CLAIMS

HISTORIES

9

KEY FOCUS & EXPOSUREFOR DIRECTORS & OFFICERS ARE

REGULATORY & LEGISLATIVE CHANGES

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


INCREASED NUMBER OF INSURERS WITH DEDICATED

CYBER RISKINSURANCE POLICIES

EVOLVING CYBER LANDSCAPE

10

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


PI CAPACITY CLOSELY MONITORED BY INSURERS

FOR FINANCIAL PLANNING, PROPERTY VALUATION & STRUCTURAL/CIVIL

ENGINEERING SECTORS

11

COMPETITIVEPI MARKET

CONTINUES

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:

lenvironmental liability

lcyber risk, particularly those in the volume residential

building market

lworkplace 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


CONTRACTORS TAKING

ADVANTAGEOF SOFT MARKET

12

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


PREMIUM SOLUTIONS

ENHANCEDAS MORE EMPHASIS

PLACED ON MULTI-LINEPARTICIPATION

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.

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


14

STATE GOVERNMENTS & PRIVATE INSURERS

CONTINUE TO

REVIEWWARRANTY SCHEMES

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


NUMBER OF LOCALSURETY PROVIDERS

TRIPLE

15

INTEREST

GROWSIN TIER 2 & 3

SURETY SPACE

SURETYPROVIDERS BROADEN

FOCUS

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:

lIncreased claims due to stress and mental illness.

lIncreased claims from events that occurred a long time ago,

as people become more aware of their insurance cover

within their super fund.

lHigher legislative capital requirements of insurers.

lLarge 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


LIFE INSURANCE RATES CONTINUE TO INCREASE

- SOME AS MUCH AS

75-100%

16

THE PERSONALACCIDENT MARKET CONTINUES TO BE

SOFT Insurers 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

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


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

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


AVERAGE CLAIM COST & REDUCED DISCOUNT RATES CONTRIBUTE TO THE MEAN

PREMIUM RATE INCREASE TO

2.65%

18

EMPLOYERS WITHPOOR CLAIMS RECORDS

WILL PAY HIGHER

PREMIUMS

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.


FIRST PARTOF BILL INTRODUCED IN

NT & SECOND BILL TO BE DEBATED

19

QLD HAS LOWESTWORKERS’ COMP

PREMIUM RATE AT

1.2%

COMMON LAWTHRESHOLD

TO BE REMOVEDIN QLD

South Australia Reforms to the South Australian scheme commenced

1 July 2015.

The key features of these reforms include:

lThe 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.

lUnder the new scheme, injured workers are eligible for

regular compensation payments for a maximum of two years.

lSeriously 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.


WORKERS’ COMPPREMIUM RATE IN SA

AT A RECORD LOW

1.95%

20

IN TASMANIARATE INCREASED BY

1% TO 2.3% IMPACTED BY A REDUCTION

IN DISCOUNT RATES

ASBESTOS FUNDLEVY DOWN FROM

4.0% TO 3.5%

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.


WORKERS’ COMPAVERAGE PREMIUM RATE

1.272%IN VIC

21

WORKERS’ COMP AVERAGE PREMIUM

RATE 1.483%IN WA

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.


22

About Willis

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Documents

Willis Market Update - Aug 2015