Show me the Money - Insights into PL and PI Claims

Experience Scott Duncan and Win-Li Toh

© Taylor Fry Pty Ltd

This presentation has been prepared for the Actuaries Institute 2014 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not

responsible for those opinions.

Agenda • NCPD overview • Our approach • Professional Indemnity • Public and Products Liability

NCPD Overview • Captures claims and policy data for professional indemnity, public and

products liability insurance. • The current release captures data up to 31 December 2013. • All APRA regulated general insurers writing these lines of business are required

to submit data where the risk resides in Australia. • Two levels of reports are publicly available. • The claims data includes:

• Claim numbers • Finalisations • Payments • Reported incurred cost

Our Approach Projection of claims cost 1) Project ultimate cost at the Australia wide level

• Professional indemnity: Underwriting year basis is used to better reflect the claims made nature of these policies

• Public Liability: Accident year basis

2) Allocate ultimate claims cost to industry / occupation group and state • Performed using the same suite of projection models as for the Australia

wide analysis.

Professional Indemnity Professional indemnity data captured in the NCPD covers:

• All policies that provide cover for a professional for actions taken against that person in tort and/or statute law (including legal expenses)

• Directors’ and Officers’ liability insurance • Medical Indemnity Insurance

The analysis that follows groups these covers.

Professional Indemnity Gross written premiums and risks written

Professional Indemnity Australia wide loss ratios Key Observations:

• The loss ratio estimated for

2013 is higher than over the four years prior.

• The 2008 underwriting year loss ratio has deteriorated further.

Note there have been some retrospective changes to the data that impacts this comparison.

Professional Indemnity Occupation group results

Best to worst average performance over the last 3 years: General ConsultantsEngineeringLegal & ParalegalFinanceReal Estate & Property ServicesMedical & ParamedicalOther

Professional Indemnity State results

Best to worst average performance over the last 3 years:

WATASNTQLDNSWSAACTVIC

Professional Indemnity Industry outlook • Capacity is high • Legal environment will continue to drive profitability

– Large number of new class actions raised over the last 1.5 years – Significant cases include :

• Dismissal of S&P appeal confirming that a ratings agency can owe a duty of care directly to investors

• Class actions involving “bank fees” • Several shareholder cases involving continuous disclosure obligations and/or misleading or

deceptive conduct • Case against the Commonwealth bank as a result of the losses suffered on account of

advice from their financial planners

• Some benefit from industry reductions in reinsurance premium rates

Public and Products Liability Public and products liability data captured by the NCPD covers:

• Legal liability to the public/or other entities for injury or property damage from the operation of the insured’s business

• Compensation for loss and/or injury caused by, or as a result of, the use of goods

• Environmental clean up costs caused by pollution spills if not covered by Fire & ISR policies

The analysis that follows groups these covers.

Public and Products Liability Gross written premiums and risks written

Public and Products Liability Australia wide loss ratios Key Observations

• The ultimate loss ratio for 2013 is projected to be similar to 2011 and 2012

• The peak in 2009 can be traced to the heavy Victorian claims experience following the Black Saturday bushfires.

Note there have been some retrospective changes to the data that impacts this comparison.

Public and Products Liability Occupation group results

Best to worst average performance over the last 3 years: MiningGovernmentAgricultureWholesalingServicesOtherTransportRetailConstructionManufacturing

Public and Products Liability State results

Best to worst average performance over the last 3 years:

NTTASWAVICNSWSAQLDACT

Public and Products Liability Industry outlook • Capacity is high – strong competition especially for larger corporates • Impact from changes to workers’ compensation benefits and employment

arrangements • Potential implications from Royal Commission into child sexual abuse • Some benefit from industry reductions in reinsurance premium rates

Profit Expectations Underwriters’ perceptions of class profitability in three years’ time

Overall % Respondents

weighted Very Moderately Breakeven Moderately Very

ranking profitable profitable unprofitable unprofitable

Domestic Motor Vehicle : In Three Years Time 1 13 88 0 0 0

Householders : In Three Years Time 2 10 90 0 0 0

CTP (NSW and QLD only) : In Three Years Time 6 0 25 75 0 0

Underwritten Workers' Comp. (WA only) : In Three Years Time 8 0 25 50 25 0

Underwritten Workers' Comp. (TAS, ACT and NT) : In Three Years Time 8 0 20 60 20 0

Fire / ISR : In Three Years Time 5 25 42 17 17 0

Commercial Motor Vehicle : In Three Years Time 4 11 56 33 0 0

Public & Product Liability : In Three Years Time 3 18 55 27 0 0

Professional Indemnity : In Three Years Time 7 0 40 30 30 0

Directors & Officers : In Three Years Time 8 0 50 13 25 13

Appendix - Professional Indemnity Further Industry Information

Appendix – Professional Indemnity Further State Information

Appendix – Public and Products Liability Further Industry Information

Appendix – Public and Products Liability Further State Information