Show me the Money - Insights into PL and PI Claims Experience

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2 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.

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

4 NCPD Overview Captures claims and policy data for professional indemnity, public and products liability insurance. The current release captures data up to 31 December 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

5 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.

6 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.

7 Professional Indemnity Gross written premiums and risks written

8 Australia wide loss ratios Professional Indemnity 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.

9 Occupation group results Professional Indemnity Best to worst average performance over the last 3 years: General Consultants Engineering Legal & Paralegal Finance Real Estate & Property Services Medical & Paramedical Other

10 Professional Indemnity State results Best to worst average performance over the last 3 years: WA TAS NT QLD NSW SA ACT VIC

11 Industry outlook Capacity is high Professional Indemnity 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

12 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.

13 Public and Products Liability Gross written premiums and risks written

14 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.

15 Public and Products Liability Occupation group results Best to worst average performance over the last 3 years: Mining Government Agriculture Wholesaling Services Other Transport Retail Construction Manufacturing

16 State results Public and Products Liability Best to worst average performance over the last 3 years: NT TAS WA VIC NSW SA QLD ACT

17 Industry outlook Public and Products Liability 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

18 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 Householders : In Three Years Time CTP (NSW and QLD only) : In Three Years Time Underwritten Workers' Comp. (WA only) : In Three Years Time Underwritten Workers' Comp. (TAS, ACT and NT) : In Three Years Time Fire / ISR : In Three Years Time Commercial Motor Vehicle : In Three Years Time Public & Product Liability : In Three Years Time Professional Indemnity : In Three Years Time Directors & Officers : In Three Years Time

19 Appendix - Professional Indemnity Further Industry Information

20 Appendix Professional Indemnity Further State Information

21 Appendix Public and Products Liability Further Industry Information

22 Appendix Public and Products Liability Further State Information