Hong Kong’s economic development over the last few decades has led to improved measures for dealing with natural disasters. With the installation of the Hong Kong Observatory in 1883, early storm warnings and procedures were gradually established to handle the region’s seasonal typhoons. The numbered Signal System, ‘T1, T3, T8 & T10’, promoted public awareness of typhoons and arranged a platform to notify residents of each storm’s potential severity. (When T8 is hoisted workers are released and encouraged to go home.) Now Hong Kong residents handle five or six typhoons annually, but there are growing concerns that many of them are severely underinsured for the long term effects of a natural catastrophe.
Price Reduction With Insurance Competition
As a direct result of competition and strategic partnerships, prices for insurance in multiple areas are decreasing throughout the world. Originating out of public outcry for lower prices, or companies aiming to provide better services to their clients, insurance seekers are experiencing lower prices and are contributing to increased profits for companies.
In New Zealand, two insurance companies have engaged into a partnership which will lower insurance costs in the building trade industries. The companies under discussion are HazardCo, a provider of health and safety insurance in the construction industry, and Plus4 Insurance Solutions (Plus4), an insurance brokerage and financial advisory group, who are working together to lower the costs of accidental insurance and to provide protection of income for self-employed workers in the building trade.
HazardCo has been in operation since 2006 and operates out of New Zealand and it boasts over 7,500 construction business clients. Plus4 has been established since 2008 and now operates out from 10 different locations and has over 25 advisors. Both have expanded significantly over the recent years, bringing innovation to the industry, such as HazardCo’s online training system, Learner Management System.
Utilizing the expertise of both of these companies, building trade workers are able to reduce the average cost of their premiums. Premiums in this industry are required under regulation and can be a significant cost to workers.
Due to Plus4′s knowledge in financial advisory, this agreement allows the insured to have direct access to Plus4′s financial advisors to review compensations and insurance coverage levels. As a result, insurees have experienced substantial savings and increased coverage. Workers in the building trade are required to have insurance, protecting workers from illness or when accidents strike.
Some workers are eligible for a 10% discount on their ACC Work Place Cover Levy with HazardCo, which represents significant costs savings. Under the partnership with Plus4, HazardCo’s clients are able to restructure their insurance coverage, tailoring it to their specific needs which suit their current situation and requirements.
HazardCo’s Mark Potter states that “The partnership with Plus4 has meant that many of our clients have made substantial savings on the cost of their ACC and, as a result, now have in place more comprehensive and appropriate insurance cover.”
In a separate case of lower insurance costs, competition is the main driver of lowering car insurance for residents of the United Kingdom, with price reductions in almost £100 (US$100) on average.
Utilizing the Confused.com and Towers Watson car insurance index, it is shown that prices are decreasing as a result of competition within the industry. A reduction of 7.1% is reflected within the index between Q2 of 2011 and Q2 of 2012.
The car insurance index receives a substantial amount of quotes, allowing for an accurate depiction of the market’s current condition. The index is comprised of over four million quotes, making it one of the most comprehensive indicies in the world for car insurance.
Due to historical statistics, car insurance companies have been offering asymmetries in insurance premiums. However, the European Union have decided that this type of price discrimination is not desirable and have decided to ban this practice. This order is to be enacted later this year and will see that women pay more for their premiums and men will see their premiums reduced.
Despite the EU gender directive soon to be enacted, United Kingdom is still seeing a disparity between price quotes, with men paying on average £110 (US$171) more than women.
Part of the outcry from the gender discriminatory prices had contributed to lower prices. However, sites like Confused.com have also contributed significantly to the lowering of insurance premiums. These sites amalgamate prices from various insurers, allowing competition to force prices lower. Customers have access to various providers, causing no one provider to have a domineering selling power.
In addition to lower prices, online insurance comparison sites have witnessed increase in profits due to higher competition. With higher prices, consumers look elsewhere to find alternatives that suit their budgetary needs, and they find their solutions online. As a result, online comparison sites such as GoCompare have seen double digit profit increases because of their wide array of offerings from various companies. This level of competition has allowed both companies and consumers to benefit, as well as allowed the insurers to service consumers they would have lost without pricing changes.
Both GoCompare and Confused.com offer quotes and showcase insurance policies to consumers from various insurance providers. Like many comparison sites, GoCompare and Confused.com are able to offer lower, on average, insurance premiums because of direct competition that is clearly visible to the seeker.
Consumers will experience progressively lower prices as competition continues to emphasize the need for companies lower their prices as a response.
Insurance Companies Mentioned
HazardCo provides health and safety resources, in addition to systems and support to the New Zealand residential construction trade. HazardCo has expanded significantly since it’s creation in 2006, with over 7,500 construction business clients. Many of HazardCo’s clients are top performing housing companies. HazardCo also provides online training for heath, safety and compliance related subjects.
Plus4 Insurance Solutions operates on a national level in New Zealand as an insurance brokerage and a financial advisory group. Since 2008, Plus4 have grown to 10 locations throughout New Zealand and has over 25 professionals servicing top clients. Plus4 offers an unbiased consultation to small and medium sized enterprises, as well as individual and small business clients.
Today, fraudulent claims pose greater costs to the insurance industry than ever before. Unfortunately, these costs will only continue to rise unless the sector begins to utilize the mountains of data within its access to curb consumer fraud. After all, it is the policyholders who pay through hikes in premium prices. As a result, retaining loyal customers while managing unnecessary costs remains the most difficult challenge for insurers.
In the United Kingdom alone, consumer fraud costs the insurance industry EURO2 billion (USD3.13 billion) annually, which roughly amounts to EURO44 (USD 55) added to each policyholder’s annual bill.
The extra premium costs originate primarily from the motor sector, and continue to increase despite insurers attempts to regulate them amidst modern compensation culture, according to a report by the financial services and investment media company Clear Path Analysis.
Clear Path Analysis’ report also placed stress upon EU insurers to maintain clientele confidence, and to solve the issues of “reducing operational overheads” and “instigating smarter technologies to identify and reduce risk.” Failure to address these problems, coupled with poor customer focus due to disjointed resource and information databases could very well compel clients to change insurers.
The Association of British Insurers (ABI) revealed that within the motor sector, roughly 1,200 whiplash claims are fabricated daily, constituting the largest proportion of excess payment, leading to increased premiums and reducing consumer confidence.
Now, EU insurers are attempting to develop ways to both reduce the amount of fake claims and comply with Solvency II requirements. Nevertheless, fake claimant methods are becoming increasingly effective, forcing claims-management departments to respond quicker to address customer concerns.
Jamie Hutton, Head of Insurance Practice at Detica NetReveal, a world renowned financial loss and crime prevention solution, shared her advice on the path insurers should take to curb fraud. Hutton noted that insurers need to tap into the vast amounts of data its businesses keep, and turn that information into “actionable intelligence”. Next, they need to shift focus from simply detecting fraud to also preventing it. Through analysis of the data held, insurers would be able to piece together patterns and better calculate risk for claims and policies, and therefore learn more about the clients they serve, while distinguishing the loyal customer base from the frauds.
In a recent example, the Supreme Court dismissed an appeal by insurer Zurich UK to discard a claim in its entirety because parts of it were fraudulent. Shaun Summers, the claimant, sustained significant injuries while working on a forklift truck for Fairclough Homes, and exaggerated a claim to ‘entitle’ himself to EURO838,000 (USD1.05 million) compensation from Zurich.
Although multiple components of Summers’ claim were false and “guilty of a serious abuse of process”, the Supreme Court could not deny his entire request because it declared such an action not “proportional or just” to the injuries he did receive, dismissing Zurich’s appeal.
If the opposite occurred and Zurich’s appeal was passed, it would have set a positive beginning for future insurers to reject liability claims on the basis that parts of the claims are false. The court’s verdict was no reason for despair, however, as the Supreme Court unanimously confirmed its power to dismiss fraudulent claims in exceptional situations, but declined to do so in this case.
More importantly, Summers ended up receving only EURO88,716.76 in damages once it was revealed that his claim was blown out of proportion, most of which would pay for his multiple legal fees.
Regarding the ruling, Zurich UK Chief Claims Officer Tony Emms, shared that his firm was disappointed with the final verdict of the case, yet content that the Supreme Court at least, sided with his legal perspective. Emms went on to affirm that Zurich will not rest in the battle against insurance fraud, and that fraudsters should now think twice before trying to scam insurers after the Court advocated its support for sending those convicted to jail.
As is evident, insurers are beginning to get a grip on the resources available to them, and take stronger stances to curb the plague that is insurance fraud. With more innovative security measures to be taken, and more insurance companies to join the effort, fraudsters are sure to be deterred from fabricating liability claims in the near future.
Insurance Companies Mentioned
Zurich Insurance Group
Zurich is a leading global insurance group, with 60,000 employees in over 170 countries. Its goal is to help its customers, ranging from individuals to international corporations, understand and protect themselves from risk. Zurich offers a wide range of insurance products, solutions and advisory services.
The Lloyds of London insurer Brit Insurance reported that profits in 2010 were hit by high payouts on catastrophe claims resulting in pre-tax profits of £119.2 million (US$191.9 million) reflecting a fall of 30 percent compared to the £171.3 million (US$275.7 million) achieved in 2009.
Brit Insurance, which was bought by private equity firms Apollo and CVC Capital last year, said that profits in 2010 were adversely affected by substantial claims paid out during the year; the most notably claims arising from the earthquakes in Chile – which cost the firm £29.9 million (US$48.1 million) – and the September quake which struck New Zealand resulting in a £27.9 million (US$44.9 million) outflow of funds. The two events alone costing Brit Insurance a combined total of £57.8 million (US$.93.0 million).
However, Brit’s profit after tax improved by 26.2 percent to total £110.5 million (US$179.9 million) in 2010 – up from £87.5 million (US$140.8) reported in the previous year. There was a slight increase in written premiums of 1 percent in 2010 compared to a 4.8 percent uplift in 2009.
The US-based investment companies Apollo Global Management and CVC Capital Partners were attracted by the future potential in Brit Insurance’s balance sheet and strong market position, which were considered to present huge opportunities for the insurer; these factors prompted the takeover bid. The new owners acquired Brit for £880 million (US$1.4 billion) after their bid was accepted by shareholders in October 2010; the transaction was one of the biggest takeover deals completed in 2010.
Apollo and CVC Capital, who will take full control of Brit Insurance in March 2011, said that the steep decline in the pre-tax profit margin was primarily due to Brit’s high exposure to catastrophe risk coupled with a high number of claims and the low level of new written premiums during 2010.
Brit Insurance’s position was not unique as rival insurers have seen profits dented by high payout claims for catastrophic events occurring in 2010 – insurers such as Hardy and Beazley – which specialize in insurance coverage for large scale events, have experienced difficult operating conditions over the last year.
Earlier this year, Brit Insurance’s Lloyds of London competitors – Beazley Insurance – reported that the cost of the Chilean earthquake in February 2010 resulted in a minimum payout for them of £34.1 million (US$55 million) in claim payments; Beazley also incurred a cost of £21.7 million (US$35 million) as a result of the devastating earthquake in New Zealand in September 2010.
Brit Insurance has a presence in Europe, North America, Asia and Australia and is an international expert in the reinsurance market. The London based insurer, specializes in risks in sectors such as marine, contingency, aerospace, liability, accident and health insurance. Within the reinsurance sector, Brit is recognized as a multi-class and multi-territory portfolio insurer.
The major German based re-insurance specialist – Munich Re – reported that 2010 was one the worst years on record for natural catastrophes, with the effects of earthquakes, heat waves and floods contributing towards the £23 billion (US$37 billion) paid out in claims for insured losses during the year.
Natural disasters which took place in 2010 included the earthquakes in Haiti, Chile and Central China, floods in Pakistan and a heat wave in Russia. These devastating natural events during the last year influenced insurance company profits, with many insurers and reinsurers having high levels of exposure to these events.
Despite being less than a third way through 2011, large scale natural disasters have already hit Australia and New Zealand. At the start of the year devastating floods struck Australia and, more recently, another earthquake hit Christchurch in New Zealand – this one being even more devastating than the similar event in 2010. With political and social unrest now spreading across North Africa and the Gulf region – resulting in damage to infrastructure – global insurers and reinsurers would appear to be heading for another year of major payouts. Nevertheless Brit Insurance is well placed to move forward in 2011 with the new ownership set to exploit its reputation and strength in the insurance industry.
Risk management is the essential role for insurance companies. Consequently getting the risk-reward ratio correct is the key to profitable trading. While international insurers have been adversely affected by natural disasters in 2010 – which have impacted on profits during the year – the most important factor for insurance companies is to ensure year-on-year trading and new written premiums deliver results to achieve long term profitability.
Brit Insurance Holding
Brit Insurance Holdings is a general insurance and reinsurance group, provides commercial insurance products. The company offers accident and health, contingency, marine, aerospace, professional risks, trucking, commercial motor, liability, personal lines, property and packages, small business, war and terrorism, and horses insurance policies. It also provides agriculture, casualty, marine, aviation, and property reinsurance policies.
Apollo Global Management
Apollo Global Management (“Apollo”) is a contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate. Apollo raises, invest and manage funds on behalf of some of the world’s most prominent pension and endowment funds as well as other institutional and individual investors.
CVC Capital Partners Ltd
CVC Capital Partners (‘CVC’) was founded in 1981 and is a leading global private equity and investment advisory firm, with it’s headquarters in Luxembourg with a network of 20 offices across Europe, Asia and the USA.
Beazley plc, was founded in 1986 and is a specialist insurance company, provides underwriting and claims services. Beazley operates in five insurance segments: Marine, Political Risks and Contingency, Property, Reinsurance, and Specialty lines. The company has operations in Europe, the United States, Asia, and Australia.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
Hardy Underwriting is a specialist insurer and reinsurer underwriting in the Lloyds market and other worldwide locations. Through its subsidiaries, Hardy is in engages in underwriting insurance and reinsurance products internationally. Hardy is included in underwriting aviation, marine, and non-marine risks on reinsurance and direct basis.
It has emerged that Chartis Insurance, formerly American International Underwriters, was the underwriter for the travel insurance policies held by 4 of the victims in the recent Philippines hostage crisis. Tour operator, Hong Thai Travel, has promised to provide additional compensation to the remaining families not holding travel insurance coverage. The incident on Monday, August 23, left 8 Hong Kong tourists dead, and spurred mass outrage across the South-East Asian region.
Hong Thai Travel has promised HK$ 320,000 (US$ 41,025) in compensation to each victim’s family. Of the total compensation being paid out by the tour operator, HK$ 300,000 (US$ 38,461) is travel accident compensation, while the remaining HK$ 20,000 (US$ 2,564) is a death gratuity.
However, of the families of the 8 victims receiving the Hong Thai Travel compensation package, 4 families stand to receive an additional HK$ 1,000,000 (US$ 128,205) due to the fact that they had purchased extra travel insurance coverage from Chartis Insurance, Hong Thai Travel’s official insurance partner.
Chartis Vice President, Wong Fu-Tat, said “the level of compensation for victims has been doubled, from HK$500,000 to HK$1 million, under insurance covering accidents caused by public transport.” As such, the insurance company had labeled the situation as “special.” Additionally, Chartis has said that “Special Arrangements” were in place to help the survivors of the tragedy, with the company providing up to HK$ 1,000,000 in Philippines Medical Benefits, and covering further medical treatment in Hong Kong up to HK$ 100,000 (US$ 12,820).
Under a typical Chartis/AIU travel policy, the victim’s family would only be able to claim up to HK$ 500,000 (US$ 64,102) due to the fact that all the victims were on a tour, organized by a tour agency. Under the Chartis policy, “Accidents while in a Common Carrier” can be indemnified up to HK$ 1,000,000. However the policy wording states:
The Benefit will be payable to the Insured Person who suffers an Injury while riding as a fare paying passenger, and not as pilot, operator or crew member in or on, boarding or alighting from any Common Carrier, or the carrier as arranged by a travel agent, or while the Insured Person is riding in an automobile at the time of Injury during the insured Journey outside Hong Kong which, directly and independently of all other causes shall result in any Event provided in the Benefit Table…
In this case, as the victims were on a tour, they would normally be excluded from coverage under the “Accidents while in a Common Carrier” benefit, and covered under the policy’s “Other Accidents Benefit;” where the company is only liable for up to HK$ 500,000 in compensation. However, Chartis, recognizing the extremity of the situation has doubled the total amount for which families of the victims can claim.
This affair only serves to highlight the need for comprehensive travel insurance coverage. As we have previously illustrated, travel insurance is one key component of a vacation which often goes overlooked. However, in the event of a serious situation, such as the hostage taking incident, it is important that coverage is in place. The differences between the compensation being received by the families who had insurance coverage in place and those who did not is HK$ 1,000,000 (US$ 128,205); and should serve to highlight the importance of adequate insurance coverage while overseas.
The last victim of the Philippines Hostage crisis was the Hong Thai Travel tour guide, Masa Tse Ting-Chunn, who has been widely praised in Hong Kong for phoning colleagues in Hong Kong and alerting them to the crisis. Tse’s family will receive the HK$ 320,000 accident benefit and death gratuity from Hong Thai Travel, in addition to his annual travel insurance benefits and labor insurance coverage.