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Standing Committee on Economics
29/04/2020
Australia's four major banks and other financial institutions: Insurance sector

DRANSFIELD, Mr Gary, Chief Executive Officer, Insurance, Suncorp Group

MILLER, Mr Michael, Executive General Manager, Motor, Property and Specialty Claims, Suncorp Group

CHAIR: We now resume this hearing of the House of Representatives Standing Committee on Economics. Before us, we have representatives from Suncorp appearing for today's hearing. Thank you, gentlemen, for being here on time, early and set up so that we could remove any technical obstacles. I remind you that, although the committee does not require you to give evidence under oath, hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I also remind all members and witnesses that they must set their microphone to mute unless given the call to speak. I now invite you to make an opening statement.

Mr Dransfield : Thank you very much, Chair. I apologise to the committee. I'm sure it's very frustrating having to deal with this mode of meeting to interact with us. On behalf of Suncorp, I welcome the opportunity to update the committee on how we're looking after our customers, our people and our communities, both today as we face the extraordinary circumstances of COVID-19 and every day as our customers navigate life's difficult circumstances.

Suncorp Group is a leading financial services provider of general insurance and banking services, with nine million customers across Australia and New Zealand. I lead the Australian insurance arm, which offers insurance products through our well-recognised brands, including Suncorp, AAMI, GIO, Apia, Shannons and Vero, as well as those from our partners.

Supporting our customers and giving them peace of mind is why we exist. Every day, our people make this happen by delivering on our promise to customers when they make a claim. The royal commission showed that the insurance industry needed to do better for its customers. In response, Suncorp acted quickly, putting in place a range of measures which have resulted in improved outcomes for our customers. We are well underway with a range of initiatives relating to culture, risk, dealing with vulnerable customers and consumer complaints and working with government to design and implement key reforms.

Suncorp have delivered an industry-leading claims response to the past summer of natural disasters. As we know, this included catastrophic bushfires but also significant storms. Our customer support teams were deployed to fire affected communities as soon as it was safe. These teams included an army of Suncorp claim specialists who spent many weeks living in bushfire affected areas speaking with our customers face to face. Being based alongside our customers in these communities was invaluable to help them lodge their claims, access emergency funds and temporary accommodation and get their lives back on track as quickly as possible.

Both Michael and I visited a number of these devastated communities to meet with our customers, including as part of community forums where customers could meet their dedicated client managers. I'm pleased to say that we have settled 70 per cent of our property claims and almost 80 per cent of motor claims, which has led to a $160 million injection into bushfire impacted local economies. All Suncorp home building insurance products are designed to preserve the sum insured for rebuilding costs, or, in the case of the AAMI complete replacement cover, there is no sum insured limitation on rebuilding costs. Our customers who sadly lost their homes, on average, received around 25 per cent above their sum insured, representing allowances such as the removal of debris and temporary accommodation.

Turning our response to the COVID-19, pandemic, Suncorp has been proactive in developing SME and consumer-relief measures to help those navigate the unfolding economic harm. Last week we announced a peace-of-mind package for our car- and home-insurance customers, which acknowledged both the financial and emotional strain the situation is having on many Australians. Those customers experiencing financial hardship can access discounts of up to 20 per cent or three-month premium waivers. We're also providing free counselling sessions for our customers and their families. Accompanying this package was our AAMI free roadside-assist offer for medical staff and first responders, including for noncustomers. Our small-business relief measures include a six-month insurance premium deferral for SMEs, together with continuity of cover for unoccupied premises.

Finally, Suncorp remains a strong advocate for measures that improve the affordability and accessibility of insurance. These include the removal of taxes and duties from property insurance policies; greater investment to strengthen natural disaster resilience of buildings and communities; changes to planning laws to reduce construction in high-risk areas; and requiring improved resilience measures for new construction. We believe investment in economic infrastructure that reduces the impact of natural disasters will result in a stronger economy and safer communities, and will reduce cost-of-living pressures through lower insurance premiums.

Government investment in public infrastructure can have a real impact on insurance affordability. Following the construction of the flood levy in Roma, for instance, Suncorp customers received premium reductions of up to 90 per cent, and we routinely reduce premiums where specific public and private resilience works are undertaken. We welcome any opportunity to work with all governments on these initiatives. I hope this insight has been useful and I welcome any questions. Thank you, again.

CHAIR: Thanks very much for your testimony. I guess I want to start with the royal commission, in terms of the actions that Suncorp has taken since the royal commission and some of the issues that arose out of it—particularly around cultural change within the organisation. Can you give us an outline of what has been done by Suncorp to adjust its cultural change practices, the reporting mechanisms that are in place, any trajectory for improvement and how it is being reported up to a board level?

Mr Dransfield : I might start with the board level question first, if that's okay, because I think that brings it into sharp focus. Our board, before the conclusion of the royal commission and its final report, instituted a new committee of the board, a board customer committee. That was in recognition of the need for the board to have more direct visibility of the detail of customer experience. I think one of the key lessons from the royal commission for all financial services organisations was that it was easy to take comfort from statistics around customer satisfaction that had high percentage numbers, but what was missed in that was the outlying very poor outcomes for a small percentage of customers. Our board was very keen, through the new customer committee, to bring into sharp focus not only an understanding of the experiences customers were having, including by immersion directly into the customer-facing operations in those meetings, but also to understand the nature of value that is delivered through our products to customers—so an elevation of their involvement in understanding the delivery of financial and customer value to customers through our products. At a more detailed level, we instituted, in the executive team I'm part of, a non-financial risk committee, again recognising the need to sharpen focus in licensed entities around our monitoring, management and response to non-financial risk and to give that a sharpened focus beyond the focus that management teams had, typically, around financial risk.

In terms of organisational culture, we're in the throes at the moment of reporting back on an organisation-wide culture survey, culture-measurement survey, not only to assess engagement, which we do frequently, but also to assess the culture of the organisation against our objectives in terms of customer-outcome delivery, risk management and around our performance. So that's an ongoing journey for us.

CHAIR: When was the last time that report was done?

Mr Dransfield : This is the first whole-of-organisation survey on culture. We always survey engagement annually, which many organisations do, but this is the first census version of this deeper understanding of culture that will emerge from this survey. And we aim to set objectives and targets out of that.

CHAIR: Can I get clarity? What is the difference between the annual engagement and the whole-of-organisation cultural assessment?

Mr Dransfield : The engagement metric and the model, through the vendor we use, measures three key areas to come to an engagement metric. It can be benchmarked globally. The three are 'say', 'stay' and 'strive'. Say: there are two questions that reference the extent to which our people talk positively about the organisation. Stay: there are two questions that reference our people's intent to remain with the organisation. Strive: there are two questions that reference the extent to which the organisation motivates people to go above and beyond the day to day of their jobs to deliver.

CHAIR: I get that, but does any of that include measures or systems and judgements in place by employees about reporting of misconduct?

Mr Dransfield : That is the new dimension, the culture questions. They are the extent to which, against the risk dimensions of our desired culture, our staff feel comfortable to raise bad news—to report misconduct. That's just one of quite a large number of questions that form the culture dimension of that survey. We expect to have those results in coming weeks for the culture dimension.

CHAIR: Is that going to be a new annual exercise?

Mr Dransfield : Yes, it is, and it's one that the board is very intensely focused on. While they care, clearly, that we have an engaged workforce—because the data shows engaged workforces drive better performance—they care equally about the culture, in terms of the impact of it on our customers and the community more broadly.

CHAIR: Is that report going to be made public?

Mr Dransfield : We certainly would speak publicly about the engagement results, because they are able to be benchmarked globally, and we'd hold ourselves accountable for our performance there. I can't comment on where the board's deliberations are on releasing the culture dimensions, but I would suspect that they would have a desire to be quite transparent on that in the context of our need to be transparent about where our culture is going more generally.

CHAIR: I'm going to put questions now on notice for not just this year's but next year's report of that. The question will be whether you want to submit it on the basis of confidence, which you are entitled to do, and that will be honoured by the committee unless otherwise notified. I'm putting that request formally now, because tracking and improving cultural engagement, particularly around reporting of misconduct, is particularly important in terms of any recommendations associated with the royal commission. Before I go to other committee members, I want to quickly touch on the issue you raised around customer relief. I want to say, I guess, congratulations on providing the free roadside assist that you did under AAMI, I think it was.

Mr Dransfield : Yes.

CHAIR: But what other adjustments have you made, in terms of different products? A lot of businesses have taken out different types of insurance products related to ongoing activity that has since been shut down—for instance, different types of insurance products for bars and restaurants where they now face the fact that they are not operating. Has there been any financial relief provided? I know you talked about a six-month deferral, but that's only a deferral. That doesn't address the fact that they're currently paying for a service for which they are not effectively able to claim, because the risk has essentially evaporated for Suncorp or its subsidiaries.

Mr Dransfield : I think you're referring to business insurance and, in that case, to some degree, to business interruption. The response to the six-month deferral was one where we responded to the federal Treasurer's request to provide some consideration in that way. There is still risk, even in unoccupied business premises and non-operating businesses. Quite a bit of the coverage for those small enterprises, where their property base relates to the premises, is for the likelihood of fire. There is an increased risk, sadly, of fire and vandalism to unoccupied and inoperative premises. Along with the premium deferral for SMEs, we did recognise that normally an unoccupied premises would attract a premium uplift to reflect the increased risk of it being unoccupied and inoperative. So, for the period of this relief package, which was authorised by the ACCC, we removed the ability to increase premium. We feel our brokers—and a fair proportion, probably in the order of two-thirds, of SME insurance is written through brokers—as they will for other insurers, will be working with their clients to address what their needs are and whether they, in fact, take a complete pause in premium payment because the business has gone into a state of hibernation. For our direct customers—and they tend to be at the small end of SME, those that come to us through AAMI and GIO—we're finding that fewer of them want to pursue a deferral than to cancel a policy and get a refund for any unused premium, and then their plan is to call us back when they come out of hibernation. So they are, in effect, taking advantage of an ability to freeze the insurance components of the cash flow. Again, as part of the relief package, we undertook not to impose any form of cancellation fee or penalty for that activity.

CHAIR: So, if you want to, effectively, defer your insurance product or cancel the product, there's no penalty associated with doing so?

Mr Dransfield : That's correct.

CHAIR: Alright. I've got more questions, but, in the interests of time, I'll hand over to the deputy chair.

Dr LEIGH: In January you stopped selling insurance across a range of postcodes during the bushfires. My understanding is there were 41 postcodes in Victoria and six in New South Wales where you ceased selling insurance. Why did you do that and how long did that cessation last?

Mr Dransfield : It varied on a daily basis throughout that period of the bushfires but also other natural disaster perils that were perceived to be imminent; so on a given day it could be three postcodes in Victoria and 20 in New South Wales. That's based on warnings from emergency authorities and weather advice services of an imminent peril. The term is typically 'embargo' and that can apply across a range of classes of business for different reasons, and it is because of the imminent nature of the peril. So, for our existing customers, if they wanted to or needed to increase their sum insured, if they were changing properties, we would provide cover. But under an embargo we would not take on risk from new customers while that peril was imminent. The simple rationale is that we think the fair thing—and this is typically the broad view of the industry—for those customers who have paid for insurance all year, or the bulk of the year, when there was not necessarily an imminent risk to them, is that we then create moral hazard by enabling people to take out cover as a fire is literally coming over the hill.

Dr LEIGH: I think you mean 'adverse selection' rather than 'moral hazard'.

Mr Dransfield : It's both dimensions, but the moral hazard is: if people know that they are able to take out cover as a peril is imminent, that creates the opportunity to not pay premium all year and contribute to a pool of premium.

Dr LEIGH: True, but 'moral hazard' is typically where the insured changes their risk profile as a result of having insurance. I don't think anyone's suggesting that the probability of a house being burnt down is going to change as a result of taking out insurance. Nonetheless, we're splitting economic hairs. How long did these embargoes last? Are we talking a day, or did they last for weeks or months?

Mr Dransfield : In certain locations they could last for weeks—again, depending on the nature of the weather and the hazard circumstances in that local area. Some could be days. In the case of very localised bushfire, it can be a very short period of time before it passes through an area. In the case of a large geographic area, where the fire is encroaching on an isolated area, that can be weeks. It occurs in riverine flood as well, where a flood is imminent on a slow-moving river downstream.

Dr LEIGH: Beyond that, are there postcodes in Australia where you don't provide home and contents insurance or parts of Australia you won't insure?

Mr Dransfield : Broadly not. We take a very broad view of insurability across the country. There is a postcode in Central Queensland where the flood risk is almost certain, because of a lack of resilience in building activity that could have been undertaken but hasn't been, so we don't take on new risk in that area, but—

Dr LEIGH: Which postcode is that?

Mr Dransfield : I'd have to confirm it to you. It could be Emerald, I think.

Dr LEIGH: Okay.

Mr Dransfield : In Central Queensland, there is that area around Roma, Emerald and Charleville. Roma, as I mentioned in my opening statement, had undertaken some significant flood mitigation works and we did have an embargo there for a period of time, and so we were able to release that reduced premium. But I'm almost certain it's Emerald.

Dr LEIGH: Given the rapid increase in premiums in some parts of Australia, are you worried that we'll ultimately move into a situation where insurance becomes a luxury—where, for some people, it's just not possible to buy home and contents insurance on a regular wage?

Mr Dransfield : I am quite genuinely concerned about affordability and the intersection of that with accessibility. At a certain point for certain socio-economic groups, even if insurance is accessible, if it's really not affordable then it's, in essence, not accessible to them. What we do see across the country is that the highest-risk areas—typically northern Australia, due to cyclone, flood and storm—pay significantly higher-risk based premiums than the rest of the country. So I am concerned by it. Our view at Suncorp is that it need not be so. We focus quite extensively with all levels of government, as does the Insurance Council, on trying to promote resilience investments that can reduce risk and, therefore, bring price down. If we can see risk reducing, we can bring the price down and make insurance more affordable in those high-risk areas.

Dr LEIGH: Your definition of fire was recently rated 'Bad' by CHOICE. The definition that I have in front of me says that there is an exclusion for loss or damage arising from:

… heat, ash, soot and smoke when your home or contents have not caught on fire unless it is caused by a burning building within 10 metres of the insured address.

In other words, you're not covered for flying embers and smoke damage. Does that seem fair to you?

Mr Dransfield : I would say in the first instance that I totally agree with CHOICE wanting to promote a discussion and a resolution around standard cover and a standard core-cover for fire. What CHOICE didn't really dig into and seek to understand with us is the practicality of how we actually handle claims. If there is fire damage to a building, the 10 metres, for us, is just something that is indicative. When it comes to the point of lodgement of claim, there will be claims that we fully settle where the fire was 100 metres away or 500 metres away from the building. The number could be a different number. We have a number there so that we're not exposed to, and our customers are not exposed to, paying for claims for, say, cleaning a roof 50 kilometres away from a fire. Clearly, if an ember hits a building and causes damage, that will be covered, and that is indeed what we do. In the case of the bushfires over Christmas, the only claims we denied in relation to soot, ash and the like, where there was not immediate fire damage to the home, were at distances one kilometre, 10 kilometres and, in some cases, 50 kilometres away from an actual fire.

Dr LEIGH: But the ash and smoke damage can still be pretty considerable, even at that distance. It seems rough for your customers to have to rely on your grace and favour rather than having a definition of fire in the insurance contract that would match most people's reasonable notion.

Mr Dransfield : I think the challenge is what that reasonable notion is. We very much support moving for these core elements of event definition and coverage because there are some other elements that go to coverage, such as whether your septic tank gets replaced or not by the insurer, that we think need to be dealt with in a standard cover. So we'd be very happy to work to a standard cover definition and a standard event definition, which is really what CHOICE are talking about.

Grace and favour cuts both ways, though. For us, the PDS, product disclosure statement, sets a minimum of what we're going to do for our customers. There were things that we did in this most recent fire season that were not included in the product disclosure statement as coverage and that were not priced for. We paid $2,000 for cleaning fire retardant from homes that were, thankfully, in the end, nowhere near a bushfire. We paid for filling swimming pools, where the pool water was used to support fire hoses and the property was not damaged. Similarly, we cleaned out water tanks where there was soot and ash damage where, again, the water had been used for firefighting purposes. So, again, the product disclosure statement for us is a baseline. Inevitably, at the point of claim, we do what is logical and pragmatic for the customer, including things that are not in the PDS at all.

Dr LEIGH: Certainly, I commend you for doing that. The suffering in those bushfire communities was severe and is ongoing. To your product disclosure statements in general: do you think anyone actually reads them? Yours is 29,000 words, which, if I were reading it as a bedtime story to one of my kids, would presumably take me past midnight. Have you given much thought to how you might simplify those documents?

Mr Dransfield : Yes, we have. I think I'd probably say at the outset that it is clear that disclosure hasn't worked for consumers. Product disclosure statements are a function of a disclosure regime that requires us to say everything. That is clearly not working for consumers, because I don't expect that a consumer is going to read the product disclosure statement. They may take it out and have a look at it at a time of claim, but even then we still would want to be talking to our customers about what we can do for them at the time of claim.

One area we've been working on lately is home insurance, which is, I think, where the greatest complexity arises. Because of the breadth of things that can occur to somebody's home and the infrequency with which they can happen, it is less likely that a consumer is going to have an understanding, broadly, of what home insurance should do for them. At the moment, we—or one of our brands—are working on a gamified video explanation of the broad elements of the cover and how they apply to different parts of the home. But I do think home is the core area of challenge. Motor is, I think, downstream from that.

I think, generally, the industry agrees that disclosure isn't working. ASIC have that view. I think they use the term 'effective choice architecture'. I think the 'choice' word is the key one in there, along with 'effective'. We're very committed to trying to lift the level of understanding of our customers and not just be anchored to a very long product disclosure statement.

Dr LEIGH: Your landlord provider, Terri Scheer, has a whole section on coverage of loss of rent, including in circumstances of tenant hardship. Terri Scheer has, effectively, written on its website that the policy offers no coverage for tenants who can't pay rent or who take a rent reduction due to COVID-19. Do you think that's reasonable?

Mr Dransfield : I'd say a couple of things in response to that. Firstly, we're expecting a significantly elevated volume of default claims at the end of the moratorium period, and for a greater sum than they would have been but for the moratorium. Having said that, the moratorium makes sense. That seems to be the fair thing to do. That product has been built around the default of a tenant, not a situation where there is a renegotiation of rent. Of course, one of our challenges in a renegotiation scenario is that we don't want to enable and create a situation, by us changing that cover, where the tenant and the landlord create a loss that wouldn't otherwise have been there, in terms of agreeing an outcome that may not be what they really need to achieve but looking to the insurer to stand behind it. So we're expecting—

Dr LEIGH: I would sense right now that an unscrupulous landlord would be tempted to try and figure out a way of evicting a tenant. They'd look at the Terri Scheer website, figure out that they couldn't get any coverage if they played nice and try to look for a backdoor way of getting rid of the tenant.

Mr Dransfield : We have confirmed in recent days that we will not void a policy for lack of eviction in the case of ultimate nonpayment of rent.

Dr LEIGH: You won't void a policy, but would you pay—

Mr Dransfield : We won't void a claim if there is not an eviction, because, clearly, a landlord cannot evict during the moratorium. There will be cases—and I think a lot of cases, sadly—where there will be a vacation, whether it's voluntary or involuntary, at the end of the moratorium. What that will do in the case of Terri Scheer, because it provides a very high level of cover in terms of the number of weeks of rent lost, is significantly expand the dollar value of those claims relative to the norm. That's life. Again, I think the moratorium makes sense. We will see a lot more claims, and they'll be for a higher-than-average value because of that. You will have noted, if you've looked at the product disclosure statement for Terri Scheer, that there is a hardship component, with a four-week sublimit on it for rent, so I'm anticipating we'll see some claims under that dimension of the cover as well as under the 20-week vacation limit.

Dr LEIGH: Do you intend to pursue tenants for unpaid rent?

Mr Dransfield : We don't do that as a matter of course today, and we would not be intending to do that in the COVID-19 situation.

Dr LEIGH: Have you advised your landlord insurance policyholders that they should abide by the moratorium—that they shouldn't attempt to evict as a way of improving their odds of getting money back on a policy?

Mr Dransfield : Yes. We have updated our website. We've updated the frequently asked questions on that. Quite a lot of our landlord business under Terri Scheer—in fact, the majority of it—comes via property managers in real estate agents. We're finding that they are a good source and a good avenue and conduit to the landlords. We're updating that information, as soon as it changes, on the website, and we are finding the landlords and their property managers are coming to that with high frequency.

Dr LEIGH: Are you putting in place hardship provisions for people who are unable to pay their premiums? Will they, effectively, be able to continue to get coverage?

Mr Dransfield : Across the board. We trialled—by announcing it above the line in advertising about a month ago—a set of hardship arrangements for our personal insurance customers across our main brands. We've relaunched that, as I mentioned in the opening statement, as a peace-of-mind package late last week and added some extra features to it. The reason we trialled it in the first instance was to make sure that we could cope with the level of inbound inquiries. The nature of that peace-of-mind package for our personal customers is that we want them to call us—we're stimulating that by advertising, a lot of advertising, as well as online—to discuss their situation, their particular hardship. Our frontline staff have a range of options. They work through a health check with the customer to see if there is any coverage that they don't currently need and that we can remove from the policy for them to lower the premium going forward. It could be the number of kilometres driven, as a rating factor, but it may also be hire car and some other policy options. If they're in a serious state of hardship, with no cash flow, our frontline staff can move to a three-month premium waiver. For personal customers, that's a waiver rather than a deferral. Where it's not a complete drying up of cash flow, either that health check or a 20 per cent discount can then be used. We had quite a significant flow of customers calling us about that. You can imagine somewhat of a bow wave of that through the early days of COVID-19 and the adjustments during the various lockdowns.

Mr FALINSKI: Gary, how are you today?

Mr Dransfield : I'm very well, thanks, Mr Falinski.

Mr FALINSKI: Going back to the question that Dr Leigh was asking you—the question of disclosures in contracts—you're quite right: Commissioner Chester released a report, I think late last year, where she talked about the 'sludge' in the marketplace. But one of the things that that report seems to highlight is that most of the sludge is created because of laws and regulations that the parliament has instituted and the interpretation that regulators, including ASIC, then apply to those laws and regulations. What is your ability to communicate clearly to customers on issues that actually matter to them versus what the parliament has decided you should have to?

Mr Dransfield : It's not a strong ability to communicate, clearly, through a dense PDS, a product disclosure statement. Even the existence of what's called the PED guide—the premiums excesses and discounts guide, which does articulate some claims sample scenarios—again, is a six- or eight-page document that not everyone will have the financial capability to necessarily grapple with. So, again, I think for us as an industry we've got to be able to try to lift out of the disclosure regime and try to communicate the really key things for customers so they really get what they're buying and how it performs. I think that is probably the nub of the issue.

Mr FALINSKI: Mr Dransfield, I guess what keeps springing to mind is that you are misleading the committee because you can't do that—you can't do that because we won't let you; because we've instituted laws and regulations that force you to throw everything at the customer, including the kitchen sink. The result of that is that they just go, 'Yeah, okay; we'll have to trust you'; otherwise, as Dr Leigh pointed out, they would be up past midnight getting through it all. Isn't that the problem?

Mr Dransfield : That is a fair characterisation of it, I think, Mr Falinski.

Mr FALINSKI: Thank you, Mr Dransfield. They are the only questions, I have. Thank you, Mr Chair.

CHAIR: I have never seen such a placatable allegation of misleading the committee before! Mr Bandt, do you have any questions?

Mr BANDT: Yes, I do; thank you. Yesterday, when I was asking them questions about climate change, the Insurance Council gave evidence that a four-degree rise in temperature would be catastrophic. The Insurance Council said that a four-degree rise would be catastrophic. The Bureau of Meteorology has given evidence to a Senate committee that that's what we're on track for in Australia. All of the world's emissions pledges add up to a target of up to 3.4 degrees—four degrees in Australia—and we're talking about this potentially happening in the lifetime of today's primary school students. You've made a number of statements about the impact of climate change on your business and on your ability. Do you accept that that's what we're on track for at the moment? If so, what does it look like to try and insure against risks in a four-degree world in Australia?

Mr Dransfield : Firstly, Mr Bandt, I accept all of that science; and we see, as you can imagine, through very large global reinsurers and their research teams, similar kinds of data in terms of temperature rise. In terms of the impact on our business and the industry more broadly, we are currently working with our global partner Aon, who is our reinsurance broker but also a large global insurance entity, to try to model the outcomes and the implications of a three to four per cent scenario on our portfolios and on the geographies that we operate in. Again, I accept that that level of impact would be catastrophic in terms of the insurability of a number of the geographic areas that we operate in today. So we look forward to receiving the outcome of that modelling work that we're doing with Aon to understand precisely where that will be and what severity it could be for sea level rise, cyclone severity or bushfire severity.

Mr BANDT: When do you expect to get that?

Mr Dransfield : It's only a few months away. It is work that we do to model and stress-test our own current portfolio configuration. So certainly within the course of this year.

Mr BANDT: I want to come to reinsurance in a moment. But, based on what you have planned for so far, your analysis so far and your understanding of the science so far, is the science telling you that some of the events that you're having to pay out on now, especially in Queensland, have been made worse or made more frequent or made more common—that is, you're having to deal with more claims—as a result of being fuelled by climate change?

Mr Dransfield : Certainly the frequency—more frequent events. We look back over a period of time in our portfolios for claims experience, but there is no question that, over the last 10 years, we've seen a level of increase in frequency. The severity of the events in terms of insured loss grows in particular because we have got more dense built environments. So there are high-value assets there for those events to impact. Perhaps at the moment the bigger dollar impact is the increased cost of the built environment that those more frequent events are hitting into. We do know that research quite recently is indicating a higher frequency of cyclones but at a slightly lower intensity and increasingly appearing further down the east coast. Today, cyclones are predominantly, from an east coast point of view, a Central Queensland and North Queensland occurrence. The expectation based on the current modelling is further south but of a lower category of severity—so maybe more in the four than, say, a five further north.

Mr BANDT: Have you made or are you in a position to give us any assessment, even if it's a ballpark assessment, about the additional cost that is arising for your business as a result of these climate fuelled events in these broad categories that you have spoken about?

Mr Dransfield : We have to the extent that there are two ways in which that emerges in our financial arrangements. One is the amount of money that we set aside in our budget for what's called natural hazard allowance—the amount of money we budgeted for the effect of weather and earthquakes, which thankfully is a very infrequent peril in Australia—but then also the nature of the reinsurance arrangements that we purchase that protect us beyond that natural hazard allowance. In the last couple of years we have increased our natural hazard allowance by about $100 million. That's a matter of external record that we disclose to our investors. It has increased from $720 million to $820 million. That will reflect two things: the frequency effect as well as the higher cost to repair homes today than three or four years ago, with the type of contents in them and the quality of building materials. With respect to reinsurance, we work with and model with our reinsurers and what they see as that frequency risk and then have to buy reinsurance accordingly for that.

Mr BANDT: What's the cost for that?

Mr Dransfield : Our reinsurance costs are comprised of a series of factors, some of which are related to catastrophe and others not. There's not a single number you can put on it. But there's no doubt that, in the nature of the types of reinsurance that we buy, we've been buying more protection. So it's perhaps not that the protection we've had is more expensive, but that we've bought more protection. So the volatility of our financial results is not what it has been over recent years.

Mr BANDT: When you add on the $100 million that you mentioned first, plus the additional reinsurance that you've had to buy, is that cost ultimately getting passed on in the form of increased premiums, or is that totally absorbed by you?

Mr Dransfield : I should say that, at the same time as the extra $100 million in the natural hazard allowance, we also disclosed the cost of some extra cover that we bought, and that was $45 million. What we said to our investors at the time was that we would not be able to pass that on to customers immediately, but over time we will have to, as it does form part of a pricing signal around risk. That's something we are working through our portfolios now.

Mr BANDT: So it's been $145 million so far—a high price tag. One of the other insurers told us that they've been hearing talk of double-digit costs [inaudible] for the cost of their reinsurance, and that that's generally the approach that's been taken towards Australia and that's been taken towards them. Are you seeing double-digit increases in the cost of reinsurance because of the climate fuelled extreme weather events we've seen in Australia?

Mr Dransfield : No, not necessarily at this point in aggregate across our total reinsurance buying arrangements. There is no question that large reinsurers have contributed heavily to payment of claims in Australia in recent years. They are looking at their risk models and they will continue to do that. These are one-year arrangements, as our customer policies are, so they can send price signals quite quickly when they think it's appropriate to do so.

Mr BANDT: You don't have reinsurers say to you that we're increasing costs in Australia?

Mr Dransfield : The different reinsurers—and it is a large global market—have differing risk appetites, depending on their profile of risk around the world. So the price they would seek to charge at any point is very much a function of their own individual risk appetite relative to their global portfolio. So, yes, there are some who have a risk appetite that means Australia will be more expensive if you buy from them than from someone else.

Mr BANDT: Either through your insurers or within [inaudible] given the trajectory that we're currently not on track to meet the Paris goal of two degrees and that we'd need to have [inaudible] by 2030, if we were to do that, do you support increased emissions cuts?

Mr Dransfield : I'm sorry, Mr Bandt, we can see you, but the sound was tricky. If I play back to you what I think you're asking—can you hear me okay?

Mr BANDT: Yes, I can, thank you; you can do that.

Mr Dransfield : I think you're asking: given the emission reduction profile, are we seeing reinsurers taking a tougher view or foreshadowing a tougher view?

Mr BANDT: My question is: do you support increased emissions reduction by 2030, given that we know we're not on track to limit global warming by two degrees [inaudible] and that in order to minimise the damage [inaudible].

Mr Dransfield : We lost half of that again. Maybe if I say something and then you can see if it is the response to what you're asking. The reinsurance industry will certainly be sitting in their offices around the world modelling what they think is longitudinal risk and trying to get their heads around, globally, all the types of perils that materialise in their portfolios. They will certainly take views based on what they see as the emerging risk in those portfolios, and they will manifest in the price they seek to have risk transferred to them by us or whether they're prepared to have risk transferred to them by us, and they will have different views. It's a very diverse market.

Mr BANDT: Given the risk to your business and given that we are not on track to limit global warming to less than two degrees, and given [inaudible] by 2030, if we wanted to limit it to two degrees, do you support increased emissions reduction over the next decade?

Mr Dransfield : Certainly as an organisation, Mr Bandt, we support action on climate change. There's no question that we see that as a real financial, operational and human risk to the organisation. I would say, again, because of the nature of our business, which is rolling one-year insurance policy renewals, we tend to focus our action with government around resilience investment so that that nearer term affordability and accessibility is able to be impacted. But we do recognise that more work and better outcomes are going to change that longer term profile in terms of severity and frequency risk.

Mr BANDT: I'll try one more question—because of the problems with the audio, this will be my last one. [inaudible] getting out of underwriting coalmining, largely because of climate and climate risk reasons [inaudible] significantly more emissions intensive to start fracking the Beetaloo Basin. Would your company rule out providing any assistance or underwriting the fracking of Beetaloo?

Mr Dransfield : We lost you in and out, but I think you were drawing the distinction between coal and other kinds of fossil fuel intensive activities.

Mr BANDT: I'm asking specifically whether you're [inaudible] the proposed fracking of the Beetaloo Basin.

Mr Dransfield : I'm not aware that we've addressed specifically the question of Beetaloo, Mr Bandt. We certainly clearly did in the case of Carmichael and Adani, but we haven't tackled any other geographically specific or project specific domains to take an organisational view on it at this point.

Mr BANDT: Thanks. I'll leave it at that.

CHAIR: Dr Mulino, do you have questions?

Dr MULINO: Yes. Thanks, Chair. Thank you both for attending today to give evidence. My first question relates to the number of cases in dispute. I'm interested in both the bushfires and any cases that might be in dispute in relation to COVID—for example, travel claims. You referred to the fact that a high proportion of claims coming out of the bushfires had been resolved. I'm just interested in how many claims are still in dispute there, and also in relation to COVID.

Mr Dransfield : I will start with the bushfires and I will refer to Mr Miller as we go along, given that he has carriage of the overall claims response for bushfires, motor vehicles and homes generally. I think that we, and AFCA perhaps as well—I didn't hear their evidence yesterday—are really pleased with the low level of dispute that we've seen in the bushfire situation. We have had, in the low single digits, disputes with customers, typically in most cases where there was either no cover—where they might have lapsed nine months, 12 months ago and not been covered—or in some cases, in the 72-hour period leading up to the fire event, they have taken out a policy where there is an embargo clearly in existence. But, in terms of bushfire, Michael, have you got a view on the number of claims in dispute, specifically?

Mr Miller : In terms of claims we've declined, there are 27 claims in total out of the 4,300. Twenty-two of those claims are around soot, which Mr Dransfield talked about before, and quite long distances from where the fire was, up to 50 kilometres away, which is too far in terms of the impact. Some are around lodging a claim, but they were away, and actually nothing had occurred. There are always disputes ongoing with these fires. There will be disputes over the length of time it's taking, because the process to actually make sure that we pay the right amount out for a bushfire can take some time. We need to get plans with council, and bushfire attack levels need to be very clear because they have a big impost on the cost. So, really, some of our clients would like us to move more quickly, but we need to make sure that we have rigour around that process to make sure we pay the right amount out right now rather than have disputes later on. But, as Mr Dransfield said, the number of disputes is very small for the bushfires, because we put a lot of people on the ground very early, and we're very keen to get those fires resolved as quickly as we can, because they have had very large impacts on those communities. Both Mr Dransfield and I have been there, and those regional communities are hurting, and I think having those claims finalised sooner rather than later helps the individuals and our customers but also the community.

Mr Dransfield : On the travel claims, we're a very small travel insurer; we're about one per cent of the market in our travel insurance business. We've had 420 incidents raised where customers have advised us they may need to make a claim. Of those, we've declined 26 because they relate specifically to COVID—the policy was bought after the pandemic was declared on 31 January. With the bulk of those we're working through processing at the moment, through the normal course of claims handling. So it was a relatively small proportion of those we received that we had to decline.

Dr MULINO: Thanks. This is only emerging, and it's a very fluid situation—it's the effect of the economic impacts of COVID on renewals and take-ups. To some degree, that will be muted by the fact that you've offered a lot of flexibility—deferrals and so forth—but it would be great if you could provide us with an update, say, in a couple of months on both the impacts on renewals and any impact in terms of the change in the rate of take-up. I'm interested in the extent to which we might see people not being able to take out insurance or the extent to which the economic impacts of COVID might have an impact on underinsurance going forward.

Mr Dransfield : Yes, we're certainly happy to provide information to the committee on that. In the immediate period of the lockdown, what we saw in the SME marketplace, the small and medium enterprises, particularly with very small operators—say a wedding videographer on the weekends—is that there was just no business. That's where the cancellation of policies is coming from. Their business just doesn't operate. Particularly at the micro SME level, they may be people with other jobs—again, the weekend wedding videographer. We will monitor really carefully, but we'll also try to stimulate those people coming back into the insurance market as the lockdown progressively diminishes, because their businesses will start to be able to operate again. There's no question that, at the micro end or small end of SME, we have seen significant impacts of business closures—certainly a reduction in motor vehicle new business. That can come from two sources: (1) customers with existing insurance policies with other insurers not shopping around; and (2) we can all see what's happening with car sales being down. So there's a very clear impact in motor new business. Home insurance, not so much—people protect their homes ahead of most other things. We'd be very happy to give you that kind of insight as things evolve.

Dr MULINO: That would be great, thanks. As Mr Falinski alluded to, and I think Dr Leigh as well, there is a trade-off, in a sense, in any disclosure regime. On the one hand, one instinctively feels more information is better. But, obviously, it gets to a point where it gets confusing. This is an active debate—and again, as Mr Falinski alluded to, there's recent research coming out of ASIC—and I remember when there was an attempt to provide a degree of protection for consumers with a one-page key facts statement in relation to home and contents. One of the challenges there is that arguably improves comprehension, but it distils products down to the point where maybe some things are missed. Do you have any internal research you could make available on where you see some of the trade-offs? That might be something which is informing the video that you're preparing, which I think you alluded to.

Mr Dransfield : Yes, we do, and we'd be happy to share that. The Insurance Council, as well, has done quite a big piece of work and a study around the effectiveness or otherwise of disclosure. We can make sure you get that information so you can see where the trade-offs occur. I agree with you on the key facts sheet; it comes up to too high a level, perhaps, for people's comprehension. Where we see a lot of friction emerging is at AFCA, with disputes, where a customer has an expectation that a product will perform in a particular way that it was never intended to do—but of course that's detailed in a product disclosure statement. So we think the more visual, gamified mechanisms may help people to understand the really key elements that frustrate them the most.

Dr MULINO: Thanks. Thanks, Chair.

CHAIR: Thank you, Dr Mulino. Dr Leigh, do you have any questions? No. I have a series of questions which I want to ask which relate to a meeting which occurred on 15 November 2019 in Townsville relating to insurance to the northern part of Australia. Were you a participant in that meeting?

Mr Dransfield : Yes, I was, Chair.

CHAIR: What is your understanding of the outcomes of that meeting?

Mr Dransfield : My understanding is that the industry agreed to work constructively with the Assistant Treasurer and other stakeholders to explore whether a pool—a cyclone pool, as it were—could be effective in lowering premiums for people in northern Australia.

CHAIR: And how has that progressed?

Mr Dransfield : Work was done with Treasury. I think the Insurance Council has been interacting with Treasury and, to a degree, the Assistant Treasurer's office. One of the areas where work was to be done in the context of resilience investments was to provide a list of priority projects in particularly risk exposed areas. I think that work has been ongoing between the Insurance Council and Treasury. Certainly at Suncorp we've engaged with Treasury officials to detail what we think are the considerations that need to be explored in a pool arrangement. I believe that Treasury had been working through that and the input that they have received since the meeting.

CHAIR: For clarity: when you say a pool arrangement, that's essentially an insurance pool arrangement which different companies can draw down to offer insurance to people in those geographic regions?

Mr Dransfield : Yes. I think the model people typically refer back to is the ARPC, the Australian terrorism pool, where an entity pools reinsurance against a particular risk to then enable insurance to be sold by insurers to individual customers.

CHAIR: So what's a time frame that you're aware of that's associated with that proposed insurance pool?

Mr Dransfield : I don't think we particularly committed to a time frame in the meeting, other than that we would work at the pace that the government needed, or that the Assistant Treasurer was seeking, to try to establish whether that would be a model that would work. So my understanding at the moment is that Treasury have that in process. But I haven't seen a time line for that total piece of work and a conclusion to be drawn.

CHAIR: Right. So it's in progress but there's no resolution; there's nothing concrete, merely development of proposals between Treasury, the Insurance Council and the sector, and there'll be some clarity which leads to action at a future point?

Mr Dransfield : Yes, Chair.

CHAIR: Does anybody else have any questions? No. Gents, you get to go seven minutes early. Thank you for appearing before the committee today. The committee secretariat will be in touch with you in relation to any matters arising out of today's hearings. A copy of a transcript of your evidence, to which you can make corrections of grammar and fact, will be sent to you. I will now suspend proceedings.

Pro ceedings suspended from 11:24 to 11:32