BUSINESS Insurers still a safe bet

INSURANCE companies are unlikely to suffer a significant hit to earnings as a direct result of recommendations from the financial services royal commission, industry experts say.

But increased scrutiny from regulators will lead to a modest rise in costs, analysts at investment bank Macquarie have forecast.

In a report for investors, Macquarie analysts said insurers might need to change cash settlement procedures, improve customer communication and stop payment arrangements that encourage products to be sold inappropriately.

But such changes were unlikely to have a material impact on industry profitability, the report said.

Still, the analysts expected higher internal audit and compliance expenses and extra costs to improve communications with customers.

It comes after the royal commission revealed details of extensive industry misconduct, including long delays in paying out claims and sales of policies to customers that had no need for them.

“A constant theme of the royal commission was the lack of regulatory oversight, lack of penalty powers from industry bodies, lack of resourcing and lack of awareness of avenues of recourse by consumers,” Macquarie said.

Macquarie said that if the royal commission’s final report, due in February, recommended limits on commissions, it could challenge the incumbency position of major insurers in certain distribution channels.

If the royal commission looked to limit full cash settlement of home claims, it could add between $ 150 million and $ 350 million in additional claims to the industry, the investment bank said.

It could also strengthen the arm of the corporate regulator, the Australian Securities and Investments Commission, the analysts said.

“There is a chance claims handling becomes included in the definition of a financial service, giving ASIC stronger oversight powers,” the said.

They noted Federal Financial Services Minister Kelly O’Dwyer ( pictured) had asked Treasury “to scope the financial impacts of such a change”.

Macquarie said fundamental issues would be the focus, with the royal commission now a smaller risk.

They added: “We expect resourcing and investment in brand awareness will be bolstered across all governing bodies, and that sanctions for breaches will be imposed more strictly by industry bodies.” report