Some industry sources say insurance capacity and competition in parts of the financial services market has improved compared to recent years but is still not what it was before the Hayne Royal Commission. The Commission, that reported its findings in 2018 and 2019, led to a major overhaul in regulation, including in the insurance sector. However, the recent launch of a financial institutions (FI) offering and other new covers, suggest the market has turned a corner - and with this, broker opportunities are returning.
“Post the Royal Commission in 2018 we saw a lot of authority, autonomy and capacity exit the Australian market and it hasn't fully recovered yet,” said Kym Beazleigh (pictured), head of professional and financial risks in Australia for Markel Insurance.
The global firm recently launched an FI insurance offering focused on corporate businesses, including private equity funds, mutual funds, credit unions, superannuation funds and investment trusts.
IB asked Beazleigh if the Royal Commission – six years after its final report – is still impacting insurers’ willingness to offer capacity to financial services firms, particularly FIs. “I think a lot of people reduced capacity and changed appetite off the back of the Royal Commission,” he said. “Obviously, there were some significant notifications and losses that flew into the market, both here and overseas.”
Beazleigh said the “natural response” from insurers to that was to restrict appetite in some areas, withdraw coverages and change appetites for certain types of risks. “When you look at the financial services industry in Australia, it's one of our top contributors as an industry to both employment and GDP,” he said.
The Markel specialist said given the risks dealing with people’s investments and savings, heavy regulations go hand in hand with the sector.
However, in recent months, Beazleigh suggested, the market has finally turned a corner. “We see now as a very good time,” he said
This means brokers have more offerings for their FI customers and the softening market is making premium prices more attractive. “Competition is definitely a challenge, there's certainly increased competition for us,” he said.
However, Beazleigh said his firm doesn’t worry too much about the state of the market.“We tend to focus on what's within our control and make sure that what we're doing resonates with our brokers and customers,” he said.
The “good times” he refers to in the market are also being driven by the improvements local financial services firms have made to their risk management since 2019. That’s partly a result of responding, not just to the Royal Commission, but to ongoing regulatory changes. Some of the most significant industry regulation has only come into play very recently. This month, CPS 230 became the Australian Prudential Regulation Authority’s (APRA’s) newest prudential standard impacting financial services, including brokerages.
“Post the Royal Commission, there's been a lot of changes,” said Beazleigh. “Firms have tightened up their regulation, their risk management, their corporate governance and we think it's a really opportune time to be launching these products.”
He said lending rules have changed and there are more regulations specifically concerning how firms deal with retail customers. Beazleigh said, in this context, FI risks are constantly evolving. This scenario suggests that specialist brokers who can explain the regulatory risks facing financial services clients and any insurance and risk management implications, would be in demand right now. “I think that's probably the highest risk that these companies face - keeping up to speed with increased and enhanced regulation,” said Beazleigh.
A further sign of this long process of market recovery after the Royal Commission: other insurers and underwriting firms have launched new broker offerings to the market, some of them very niche.
Stand Underwriting brought the first online insurance product of its kind to offer statutory liability, D&O and other protections under the same policy: balance sheet protection (BSP) coverage.
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