Probe uncovers failings in commercial insurance market

The widely anticipated review into areas of concern in the commercial insurance industry has been released.

Seasoned insurance regulator John Trowbridge has released his co-authored review into industry problems. Photos: Chris McKeen

Industry heavyweights have proposed 16 potential options to resolve ongoing issues in the deeply troubled commercial insurance market.

The Insurance Council of Australia was handed the report by two industry heavyweights after commissioning the review in February this year.

The independent strategic review into the commercial insurance market scrutinised the role private insurance providers play.

The review, conducted by vaunted insurance regulator John Trowbridge and University of Sydney economist Michael Blythe, proposes three main areas of fixes.

The industry heavyweights find small and medium businesses are grappling with severe issues around affordability and availability of public liability, professional indemnity, directors and officers insurance, and business interruption cover.

The review comes after almost three months of interviews by Mr Trowbridge and Mr Blyth with regulators, small businesses, business representatives, brokers, and senior and frontline figures in the insurance industry.

The review was originally set to scrutinise personal and home and contents insurance policies but that discussion was pulled out after the Morrison government announced a $10bn reinsurance pool to cover flood and cyclone damage in North Australia.

Findings from that will be used to inform discussions between the ICA and the government.

The options to consider, proposed by the two, fall into the categories of consumer awareness and options by the insurance industry and government to reform areas that increase cost or reduce coverage.

The Australian Small Business and Family Enterprise Ombudsman report on insurance last year, which Mr Trowbridge and Mr Blythe nod to in their review, goes even further in its call for standardising documentation and definitions and expanding the Australian Financial Complaint Authority’s rules to cover all insurance products assessed at under $1m.

The ASBFEO said self regulation in the insurance industry has failed, with standards rarely enforced and not taken seriously by industry.

The review to the ICA recommended the industry examine the potential for industry association accreditation and standards as well as recommending insurance providers look to form an underwriting consortium to spread risk.

Mr Trowbridge and Mr Blythe also suggest the government look to remove or step back the level of taxes and charges which significantly add to the cost of insurance policies purchased by businesses and strata.

Mr Trowbridge said it was important that stakeholders be better matched with the capacity of the industry to provide coverage.

“Nothing much like this has gone on for a while,” he said.

“What I’m suggesting, this will not fix the June 21 renewals, hopefully they will have an impact on the industry by the end of the year,” he said.

The report writers also say the controversial area of business interruption policies needs to be reviewed after the 2019-20 bushfire season and the COVID-19 pandemic.

“Aside from problems that are currently before the courts, a wider question has arisen as to how well is BI insurance ‘fit for purpose’ in an advancing economy, how suitable is it in its current form for the protection of businesses in the event of physical damage or other circumstances that limit or prevent the business from operating normally,” the report says.

“Current experience is indicating that it can be difficult to determine whether a claim is payable or not. There can also be uncertainty over the quantum of a claim and whether the buyer has understood correctly and assessed properly the level of cover purchased.”

ICA CEO Andrew Hall said the insurance industry was serious about engaging with issues affecting the industry.

“As risk increases so do insurers’ costs, and as a result premiums may rise impacting the availability and affordability of some categories of insurance for certain sectors,” he said. “While some small businesses are facing challenges in accessing the insurance they need to operate, in many of these categories insurers are under pressure to provide a profitable product so solutions are often difficult to determine.”

The release of the report follows a roundtable held by the ICA with the Council of Small Business Australia with a presentation by Mr Trowbridge.

Over the coming month industry figures will be consulted in a series of roundtable events with more conclusive recommendations to follow.