CEO Connect #8: Managing through a challenging time, Unimutual services and benefits, and a market update

30th Anniversary Unimutual Conference
June 12, 2020
Unimutual works with Members to cover new business practices for COVID-19
June 23, 2020

CEO Connect #8: Managing through a challenging time, Unimutual services and benefits, and a market update

In these CEO Connect messages, Ty Birkett provides an oversight of high-level issues and developments.

Dear Member,

While restrictions are starting to relax, it is clear the whole country is operating in an environment of enormous uncertainty. National health outcomes to date are fortunately much better than initially feared, but uncertainty remains around the lifting of restrictions, re-opening of borders, length and depth of the impact, and risk of any “second wave”.

At Unimutual we are seeing the enormous pressure that our Members are under – with uncertainty about revenue over the next three or more years, significant cost cutting underway, and initiatives being put on hold.

We are also seeing the impact on our insurance and reinsurance partners, the broking community, and many of the service providers we interact with. There is much discussion about the (often positive) impact on productivity of remote working – I can safely say nearly everyone I speak to has never had to work harder!

I thought it was an opportune time to provide Unimutual’s thoughts on managing risk and protections through this challenging time, as well as a broader update.

Managing Resources and Costs in a Challenging Time

We know, more than ever, that Members are looking to reduce costs wherever possible. In addition, pressure is being placed on resources just as the workload increases due to the additional modelling and risk associated with a period of great change.

Managing Resources

I would encourage Members to take advantage of the services provided by Unimutual. In recent times we have provided FAQs on COVID-19 lockdown implications and a COVID-19 Safe Work Plan Checklist. We have also provided information on Protecting Your Research in Controlled Environments and continue to work with Members to manage these exposures.

We are currently assisting Members and brokers with gathering data for renewal. Please continue to ask questions as well as take advantage of the new video tutorials and user groups that are available. While still remote, we are constantly engaging with Members, and I would encourage you to reach out to the team wherever and whenever required.

Managing Costs

I will touch on the insurance marketplace below and the implications for our reinsurance costs. In my CEO Connect last August I spoke of the challenges in the market and that, while too early to comment on Unimutual, the July renewal had seen large loss free programs increasing by 20% or more. The 1 July renewal currently underway is seeing market increases that are even greater than last year and we are preparing for a very challenging Unimutual renewal.

Member’s risk profiles, exposures, claims experience and retentions vary; but we will continue to communicate expectations as we move towards renewal and welcome any discussion about individual circumstances.

With increasing contributions being contrary to the push to reduce operational expenses, we have been asked by a number of Members about keeping contribution costs down. Contributions are calculated based on reinsurance costs and expected claim cost. Unimutual maintains a reasonable level of free reserves but, as it is effectively Members’ money, these are not excessive and do not give the ability to subsidise contribution rates in these challenging times.

The most effective way to keep cost down is to transfer less risk. This could be done by retaining more risk. The retentions for most Members are very low relative to the size of their businesses. Contribution costs can be kept lower than they would be otherwise by increasing the level of risk retained. This could be the amount of risk retained by the Member on each claim or on annual claims in the aggregate. We can also consider other options such as a percentage deductible, where a percentage of every claim is retained (e.g. the Member pays 5% or 10% of any claim).

It is important to note that retaining more risk needs to be carefully considered. Higher retention levels will mean a reduced total cost when claims experience is good, but a higher cost when there are claims. The impact of this retained risk needs to be carefully considered in terms of volatility, but also operationally and in light of the need to manage and fund retained claim amounts.

We are happy to work with Members and brokers around different options and would suggest this is done well ahead of renewal so different options can be provided. If you think you might want to retain a higher level of risk this year in order to reduce your protection costs, please let us know and we can begin discussing your options.

A Tough Insurance and Reinsurance Market

I have spoken previously of the challenges which insurers and reinsurers have faced globally (with continued poor results), locally (last summer natural peril losses now exceed $5B), and within the sector (with significant losses at universities – whether or not with Unimutual).

This has been further compounded by the impact of COVID-19 which has given losses to a number of classes of business, but also had a big impact on investment performance and business volumes. COVID-19 has raised concerns about exposures going forward, particularly in areas like management liability.

1 July renewals are well underway and some common themes (carrying on from 1 April) are very apparent. In addition to pricing increases, decision making is slow with sign off required at head office. Reinsurers are looking to tighten cover where possible and this includes reacting by trying to exclude infection disease related claims from all covers and sub-limits on hail and bushfire. We are working with reinsurers to balance ensure that a reasonable level of cover is maintain.

With significant risk retained in the mutual (before reinsurance), a strong risk management approach, and long-standing relationships, Unimutual is well regarded in the market. However, general market conditions are tougher than they have been for many years, and losses in Australia, the sector and Unimutual will see continued upward pressure.

Benefits of a Mutual

The collective nature of the mutual brings a number of significant benefits to Members.

From a cost perspective, because the mutual is owned by Members and effectively operates on a “not for profit basis”, Members benefit from any surplus generated and there are no shareholders looking to gain profits. Unimutual still relies on reinsurance, but is able to present a well-risk managed portfolio to reinsurers – and in recent years you will have seen increased work on data quality and risk management to ensure the best possible result. Members also benefit from pooling their risk to increase their buying power in the market – especially important in times like these.

And of course, Members benefit from learning from each other’s experiences. While these are often shared via the Unimutual team, we continue to work on ways for direct sharing. Our quarterly Member Forums are heavily attended, and our latest initiative is Unipedia. Unipedia is an open source resource portal which enables Members to share and collaboratively develop resources based on real world learnings. We are grateful to the early contributors and would encourage Members to take advantage of being part of a community that shares a range of challenges.

Unimutual was established 30 years ago to enable a group of like-minded entities to tackle a challenging marketplace together. My comments from last year’s conference are now even more valid – if a mutual did not already exist, the current environment and challenges would likely lead to one being established!

I would encourage Members to continue to engage and take advantage of your mutual as we navigate what are no doubt the biggest challenges to the sector in the last thirty years.

Please do not hesitate to contact me, or any of the team, at any stage.

Annual Conference Postponed

You would have seen the decision to defer the 30th Anniversary Unimutual Conference until 2021 due to difficulties associated with organising and planning during this time of uncertainty.

The Conference epitomises the benefits of being part of a mutual in terms of networking and collegiality. We encourage Members and brokers to continue to take advantage of the opportunities that being part of the mutual brings in terms of collaboration with both Unimutual and each other.

We also are planning a series of webinars in September to communicate with Members some of the key messages and issues that are usually shared at the conference.

Regards,

Ty Birkett

Chief Executive Officer, Regis Mutual Management Ltd

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