More insurers joining market

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Last updated 05:00 22/06/2014

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The launch of a new insurer could be the start of a reaction against the concentration of the insurance sector.

Ian Pollard, whose Delta Insurance has just opened its doors for business, said that concentration, with two insurers controlling around three-quarters of the New Zealand market, opened opportunities for new players.

The launch follows the Commerce Commission giving the green light to IAG to take over smaller rival Lumley, which provides the house, contents and car insurance to Westpac customers. IAG owns the NZI, State and AMI brands and is behind cover provided by ASB, BNZ, and Cooperative Bank, and Warehouse Travel.

Market chatter suggests other new insurers may follow as this county now has one of the world's most concentrated insurance sectors.

South African insurer Youi, which specialises in home, contents and car insurance for families, is seen as likely to launch here. It already has an Auckland base from which it supports its Australian business.

And in the business insurance market, several American insurers are being talked of as potential new entrants here, including Liberty Mutual and FM Global. Both operate across the Tasman. In its home country, Liberty Mutual also provides home, contents and car insurance to households.

Delta is a specialist liability cover insurer, so while its launch won't change much for householders, it will interest professionals and business directors as it provides cover when they, or their companies, do something wrong.

It's product lines include professional indemnity cover, which the likes of auditors, lawyers and accountants use to cover their backs in case they make a mistake, and company directors, who can find themselves on the end of civil law suits from angry investors or shareholders.

These are areas of growing risk with the Financial Markets Authority now able to take civil actions against directors on behalf of investors, and the national health and safety crackdown lifting the risk for directors and company bosses for any safety failures in their companies.

Delta also provides cover for businesses for some fairly specialist areas, such as falling victim to cyber crime. Hefty costs can be incurred through cyber crime, including handling security breaches and paying specialist public relations firms to help deal with any crisis that results.

Pollard, a former high-ranking AIG executive who worked for the global giant in London, New York and Auckland, said the recent consolidation among the large insurance companies in New Zealand had been largely driven by overseas forces.

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"We have a fairly healthy $400 million premium liability insurance market here which I believe has potential to grow. However, we now have essentially an oligopoly of generalist insurers which cannot meet the needs of many businesses and leaves them exposed over the longer term."

"Not only is the market contracting and becoming more generalist, we feel that insurers are not doing enough to educate and raise awareness about business risks, and provide the type of information that would empower companies to make informed decisions on insurance," he said.

Pollard launched Delta with another former AIG exec, Craig Kirk, who worked with Lumley, which is now a rival in the indemnity market.

The company will initially focus on small to medium-sized businesses, which they claim are currently not well-served by other insurers. They will do deals with risks of as little as $100,000 and as much as $25 million. Its policies will be backed by New York Stock Exchange-listed insurer Allied World.

Premiums for and uptake of professional indemnity cover have risen as a result of the big claims paid out in the wake of corporate failures like the collapse of the finance companies.

Companies paid professional liability cover for directors and officers of $369 million in the year to the end of September, Insurance Council figures show, up 32 per cent on the same period to the end of September 2009.

Claims lag the economic cycle, as in good times companies tend to get away with risks that are more cruelly exposed when the boom times end and firms' finances come under pressure.

In the year to the end of 2009, claims were $114.6m, but that rose to $164m the following year, followed by $127.5m, falling back to a more ordinary level of director liability of $116m and $119.5m in subsequent years.

- Sunday Star Times

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