The insurer said at the time that "despite every effort", it was unable to secure the necessary capital contributions from shareholders, who pumped $170m into CCI just 18 months earlier to help cover sex abuse claims amid significant losses.
The requirement for a further capital injection arose from a continuous surge in the number of new claims arising from historic abuse matters as well as the liability impacts of factors such as Australia's erratic weather.
CCI remains solvent and is managing claims for existing policyholders – including for abuse-related matters – using its capital reserves. However, it was announced earlier this month that the insurer was planning to enter a scheme of arrangement amid uncertainty over the quantum of long-term sex abuse and other claims and to avoid formal insolvency.
CCI chairman Joan Fitzpatrick said that further claims could possibly emerge that could threaten CCI's solvency, resulting in significant impacts on policy holders. A scheme of arrangement, she said, would seek to ensure that a formal insolvency process was avoided.
"Based on estimates of claims as at end of May 2023, CCI currently has sufficient assets to meet its liabilities as they fall due," Ms Fitzpatrick writes.
"However, the claims situation is uncertain both in respect of Professional Standards (abuse claims) and other lines of business underwritten by CCI and is subject to significant complexity".
Many industry insiders believe that CCI's decision to enter into run-off will considerably impact the market. Though CCI typically focused on specific business sectors, namely aged care, education and religious organisations, their departure leaves a void likely to result in major capacity constraints across the entire market.
For many organisations, CCI was one of the few insurers (both locally and abroad) willing to provide sexual abuse and molestation cover – a significant risk that many service providers require insurance for – after the royal commission into child sexual abuse triggered an insurance market collapse. Insurers began pulling out of the market due to a high frequency of claims and associated financial losses, causing significant capacity and pricing pressure in the market.
Certain organisations were forced to accept limited coverage comprising targeted exclusions at very expensive rates, while others could not maintain cover given the significant costs involved. This led to various groups, including disability support workers and other care providers, to terminate certain essential services which they could no longer afford to offer, given the high risks associated with such activities.
Sexual molestation cover is still available; however, markets are limited, coverage is expensive and contingent on an organisation's loss history, its exposure to these risks, and what risk management is in place to prevent sexual abuse from taking place.
For this reason, many organisations that previously utilised CCI will be heavily reliant on the performance of their insurance broker to find the most appropriate solution. Their ability to effectively canvass the market and execute the most effectual insurer engagement strategies will be critical to obtain the most competitive, viable long term solutions in the commercial insurance market due to CCI's exit.
Only the right process and the right people will achieve the right results.
Get regular updates plus all the latest Lion Partnership insights.
Our industry-leading consultancy team can help your organisation make the most out of its insurance costs.
"*" indicates required fields