A Year in Review

It has been 12 months since I arrived in New Zealand to take up the role of Country Head for Marsh.

I have thoroughly enjoyed my time here, getting to know the local business landscape and talking to clients, insurers and, of course, our people.

During my tenure, so far, I have observed many similarities to what is happening in global markets as well as some notable differences, which I thought I would share with you.

Health & safety

It is a huge positive that New Zealand legislation has caught up with countries such as Australia and the UK, to more strongly address health and safety risks here.

Earlier this year, we released our annual Directors’ Risk Survey. The results from this showed that the new health and safety legislation was encouraging directors to take a more active role in managing the risks of their business, which is a very positive result.

It is however just the beginning of a very big shift away from a "she'll be right" attitude to a far more active and, dare I say, cautious approach to safety.

Even after all of the publicity, events and papers about the new legislation, people don't just go to work automatically thinking about health and safety. It is behaviours and ultimately culture that need to change.

Whilst overall fatalities appear to have dropped from 50 to 39, according to WorkSafe NZ’s October report, this is only a year-to-date figure (and does not include deaths in the maritime or aviation sectors or fatalities due to work-related road crashes).

There are still many large accidents causing death and serious injury throughout the country, in a range of industries, with large fines being handed out to the companies concerned.

In fact, in the first year of legislation WorkSafe had issued more than 3,400 prohibition, improvement and infringement notices to employers.

Suffice to say, we still have some way to go but the progress is encouraging. 

Catastrophe exposure

Following a spate of global natural catastrophe events, New Zealand has become a lot more exposed in regards to its insurance losses and the potential for very challenging property renewals in 2018.  Like New Zealand, Australia has its fair share of natural catastrophes but they tend to be more predictable and in lower asset concentration locations like North Queensland or country Victoria.  Whilst New Zealand had one of the worst flood loss years on record, it is the earthquake exposure and relatively small premium pool that drives the market cycles.   

The estimated $3b insured losses for the Kaikoura earthquakes may seem like small fish in a big global insurance capital pond, however that loss event will wipe out our commercial premium pool for the year and has spooked global reinsurers following the failure of Wellington buildings that, according to trusted engineering standards and sophisticated loss modelling tools, should not have failed. This has led to deepening concerns about the Wellington property loss potential; the result being capacity restrictions and rising prices. 

Traditionally, this would be remedied by international markets such as Singapore and London who provide a geographical hedge for New Zealand buyers; however this year’s spate of hurricanes and other disasters have generated 15 events that have caused in excess of $1b of damages each in the US alone with aggregate total insured loss estimates currently exceeding US$100b.  This ties the record for the most disasters in a single year and easily eclipses the total annual aggregate record of US$54b in 2016, according to Swiss RE, for individual disaster losses for the entire globe. There is also potential for the loss estimates to significantly increase, making this an unprecedented capital loss ratio event. This is particularly concerning for New Zealand due to the high reliance on offshore reinsurance capital that underpins the ability to buy full limit earthquake protection.

Social and political challenges

I wrote an article in February noting the importance for New Zealand businesses to take a global perspective when considering future risks and that New Zealand was not immune from the trends shaping the world’s risk landscape. Rising income and wealth disparity, social media and “fake news”, anti-establishment populism, a lack of trust for political leaders and big business, intensifying national sentiment, and deepening concerns about the environment all determined election outcomes across the globe. There has been a very clear message for change, which we saw in our recent local election. “Jacindamania” took over - a phenomenon reminiscent of the UK Brexit vote, US presidential election, the far right making a strong bid for power in France and a referendum in Turkey. 

This trend was bought to our attention in The World Economic Forum Global Risks Report, released in January, and 2018 is not likely to be any different. 

These waves of political and social instability could create a range of disruptions to business activity, not only in regards to regime change but also from civil disturbance, to regional conflict and government policy reversals – for example the TPPA (Trans-Pacific Partnership Agreement).

New Zealand can no longer be complacent in thinking it is an isolated island nation far away from the rest of the world – a safe haven to live and do business.  The world of risk is now more interconnected than ever and our clients are increasingly turning to us for advice to assist them with succeeding in this challenging environment.

As professionals in our field, we need to consider all of the risks, the potential impact on businesses here and then share these insights with our clients.  Only then will we have done our job to the best of our ability.

December 2017

Knowledge Base

Where members can access industry Resources & Media Content

Click here