AUG/SEP 2019 - Insurance News (the magazine)

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Lloyd’s retreats Poor performers feel the bite

Laughter and tears Behind the scenes at the Dual fraud trial

GRIBBO’S MOVE How and why Gary Gribbin led IBNA to Steadfast

...AUB moves on Mike Emmett has a new post-IBNA agenda

August/September 2019

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Contents 6 Newsmakers » 10 Gribbo and the last big move »

Here’s how and why IBNA’s chairman led his members out of the AIMS joint venture and into Steadfast

16 AUB’s new agenda »

Mike Emmett explains his vision for the group, the opportunities post-IBNA and his outlook for the broking industry

22 Beyond belief »

Humour, tears and incredulity as a jury hears evidence in the $17.4 million Dual fraud trial

28 Hard times in the insurance business »

Brokers say the June renewals have resulted in insurers playing even tougher when it comes to non-vanilla risks

32 The buck stops there »

Australia’s construction industry had been faltering for a long time, but when PI insurance dried up governments were forced to pay attention

36 Capacity overboard »

Lloyd’s retreat from poor-performing business has been sorely felt in the Australian market

64 Readying for a 5G revolution in 4, 3, 2, 1… »

You think the insurance industry is already immersed in a digital transformation? 5G will accelerate the speed and scale of the challenge we face

68 Passing the torch »

Sean Gallagher wants his family’s passion for the insurance industry to inspire future generations

72 Frayed nerves »

A biennial survey finds insurers are rattled over cyber hackers, Google and anything to do with technology

companyNEWS 77 Keeping it simple »

IUA holds true to founder’s philosophy

77 Rebranded »

CBN launches distinctive new website, logo

77 Risk radar »

Sparke Helmore contributes to major report


40 On the right track »

79 Speaking up for inclusion »

46 We need to talk about emissions »

80 CQIB celebrates annual awards »

Despite the bumps and occasional potholes, John Nagle’s icare is changing things for the better Insurers lobby governments to spend more on mitigation as damage from severe weather increases, but remain largely silent on the underlying cause

specialFEATURE 50 Delivering on the promise »

Winners of the Mansfield Awards highlight the insurance industry at its best

The Lloyd’s-inspired Dive In festival continues to grow – and it’s more important than ever to show support

82 HDI gives taste of homeland » 85 Brisbane expo breaks records » 86 CBN conference hosts gala dinner » 88 Suncorp in perfect Synergy » 90 maglog »

52 Time for a claims revolution »

The digital transformation of claims processing is gaining traction, but it’s slower than it should be

58 Hayne’s claims conundrum »

The royal commissioner left questions hanging in the air with his recommendations. Now the race is on to devise some sensible answers Pictured: Gary Gribbin

August/September 2019

Credit: Joseph Feil


August/September 2019


In June/July we published 506 articles online. These were made up as follows:

Suncorp goes back to its knitting Suncorp Acting CEO Steve Johnston says the company has confused investors by trying to be the “Amazon of financial services” and it’s time to refocus on its insurance and banking identity. Over the past three years or so the group had lost a little bit of that core focus as an organisation and had highlighted a more retail-centric narrative, he told the Suncorp Synergy event in Melbourne yesterday. “We have had a very aspirational narrative. We wanted to be the Amazon of financial services and we wanted to be a supermarket for financial services products,” Mr Johnston said. “When I talked to a lot of investors they didn’t quite understand what we were. Were we a bank, were we an insurance company, were we a technology company, were we a

65 Local




Regulatory & Government


Life Insurance


The Professional

Suncorp’s Marketplace CEO exits as strategy revamped, 0 7 August


“They’ve pocketed the premiums while they thought it was low risk, but when the risk profile changes they’ve walked away.”


Federal Industry Minister Karen Andrews shoots from the lip after insurers decline to provide building surveyors with exclusion-free professional indemnity policies, which pay out $3.73 in claims for every dollar in premium.



Raid brokerage sold

99 Daily


Breaking News More than 29,900 news articles – including 330 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. 0


platform business.” Mr Johnston took over as Acting CEO in late May from Michael Cameron, who departed the company. “We are an insurance company and a bank. That is what we are going to get back to, that is where we are refocusing the organisation,” he told the Synergy event, which was attended by intermediaries. A few days later Suncorp announced that Marketplace CEO Pip Marlow will leave the business as the group shifts its strategy. Lisa Harrison, who has been responsible for delivering the business improvement plan, will take on the new role of Chief Customer and Digital Officer. Suncorp Acting CEO rejects ‘confusing’ retail narrative, 31 July


PSC Insurance Group will buy the broking business of Shepparton-based Griffiths Goodall, which was the target of an Australian Securities and Investments Commission (ASIC) raid earlier this year. The $48 million acquisition includes the broking portfolio and other key business assets of Griffiths Goodall. The business will continue to operate out of its Shepparton and Melbourne premises. Its key managers will continue to oversee the day-to-day operations of the business, while all staff will be offered new employment agreements with PSC. “The current owners have built a very good client-centric

August/September 2019

business with a great broking team, and this will significantly increase our regional presence in Victoria,” PSC CEO Rohan Stewart said. reported in May that the brokerage was “undertaking a review of its structure” and exploring options including a sale of the business. ASIC and Australian Federal Police officers raided its offices in northern Victoria in March, seizing a number of files. Director Ben Goodall said at the time that the raid was “not a police search or criminal investigation”. PSC buys Griffiths Goodall 0 brokerage, 9 July

Chubb expands its reach Chubb has set up a new small commercial and mid-market division, to be headed by former Calibre CEO Mike Hooton, as it reports rapid growth in SME business. The insurer also announced today Jason Hawksworth’s promotion to Head of Distribution Australia & New Zealand. Mr Hooton left Calibre last year after it was folded into the new commercial division at Hollard, which had bought Calibre from Munich Holdings Australasia in August 2017. Chubb Country President Australia & New Zealand Jarrod Hill says SME business has been growing fast with annual revenue up to $10 million. Chubb unveils new division, key 0 appointments, 25 July

Rebuilding after the schism AUB Group has announced a restructure of AIMS, its former joint venture between Austbrokers and independent broking group IBNA. The changes follow the decision by IBNA in June to leave the Austbrokers and IBNA Member Services joint venture and join Steadfast. AUB says that after IBNA departs in September, AIMS GM Glenn Schultz will also leave the joint venture after four years in the role to take up a new post at Steadfast. Angie Zissis, who heads up AUB’s Sura underwriting agency business, will become CEO of AIMS and also Group Head of Underwriting and Placement, with continued responsibility for Sura. AUB will take a 100% stake in AIMS,

which will be rebranded “Austbrokers Insurance Member Services”, thus retaining its acronym. The group says in a statement that the redesign expands its scope “to deliver all services required by AUB Group’s broking and underwriting agency partners including product sourcing and capacity placement, partner support services, technology and claims servicing”. “The decision is aligned to AUB Group’s strategy and growth ambitions to drive increased control, accountability and ownership of key capabilities through the consolidation and expansion of services across the network.” AUB resets AIMS mission after 0 IBNA exit, 29 July

Klemt goes to TravelCard Broker-focused insurer TravelCard Australia has appointed Peter Klemt as CEO. He starts today, taking over from Michael Tauber. Mr Klemt was most recently QBE’s interim GM sales and distribution management. Before that he was GM business development, but the position was made redundant under QBE’s revamp to produce a more customer-centric staff structure. “The appointment of [Mr Klemt] to this role is the culmination of an Australia-wide search to find someone with not just a high degree of professionalism but also the hallmarks of empathy and care that speaks to the DNA and values of TravelCard,” Chairman Alon Ketzef said. Former QBE GM named as TravelCard 0 CEO, 17 June

Home water damage claims up 72% The size of household internal water damage claims has risen 72% in the past five years and the issue is now a more common and costly risk for properties than burglary or fire, Chubb says. The average claim size received by Chubb Australia jumped to $30,361 last year from $17,627 in 2014 as changing home design and appliance fittings have increased risks, according to research released by the

insurer. Water damage now accounts for 34% of Chubb property-related claims by homeowners, compared to 16% for fire and 9% for burglary. Personal Lines Underwriting Manager Australia and New Zealand Michelle O’Dowd says the issue has flown under the radar compared to natural catastrophe risks and the fear of burglaries. “Australians




aware of the damage caused by floods and fire, yet few are prepared for the threat from water damage to their homes,” she said. One of the main causes of damage in Australian homes is burst flexi hoses, often used on mixer taps, washing machines, dishwashers, plumbed-in fridges and water filters. Water damage claims topping fire, 0 burglary: Chubb, 8 August

Same old flawed ideas An inquiry into northern Australia’s premium affordability problem is revisiting “flawed ideas” that are destined to fail, warns the Insurance Council of Australia (ICA). The Australian Competition and Consumer Commission (ACCC) yesterday released an update to its interim report, published in December, finalising 13 previously draft recommendations. It also outlined ongoing consultation on “measures to improve affordability and availability” including reinsurance pools, mutuals and direct government subsidies. ICA CEO Rob Whelan says these options have been considered by previous inquiries and found to be “unviable and too expensive”, and the industry is “disappointed” to see the ACCC examining them again. “These initiatives have been tried in other countries and have failed to address the fundamental issue of reducing the risks through better planning, building and mitigation,” he said. “Insurance in northern Australia should not be subsidised by the rest of the nation; this would be unfair and unsustainable.” The 13 recommendations finalised yesterday are added to 15 already confirmed – making 28 in total. Flawed focus: ICA slams ACCC for covering old ground, 0 31 July


August/September 2019


From the


Unwilling target goes to court AUB Group’s bid to acquire Coverforce Holdings will depend on the outcome of a case before the Victorian Supreme Court. The company said on Friday it had an agreement to buy a 49% stake held by private equity investor Pemba Capital Partners, and intended to also acquire the remainder of Coverforce in a deal expected to be completed in the fourth quarter for around $150-200 million. But Coverforce’s managers say they hold 56%, that Pemba can’t drive through a sale and the matter will be resolved in court. AUB CEO Mike Emmett told his company is aware of the legal issues but announced its deal with Pemba following representations that the firm was entitled to complete the sale and given Australian Securities Exchange disclosure obligations. “We have protections and rights in terms of our due diligence and walkaway rights in the event that it transpires that what they represented isn’t accurate,” he said. “We will obviously honour the court process.” Coverforce was established in 1994 and is the largest privately owned insurance broker in Australia, focusing on the SME, mid-market and large corporate clients. It is expected a hearing might not take place until October, with the court action centring around the contents of disputed shareholder agreements. AUB Coverforce deal hinges on court outcome, 0 5 August

Terry McMullan




Insurance News Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 PO Box 116, Ivanhoe VIC 3079 Australia





It’s not unusual to hear insurance maligned by politicians. The industry is often spoken of in ways that are designed to direct community distrust away from them. What surprises many people at lower levels of the insurance industry is the way in which unfair and often malignant criticism is most commonly brushed off or simply ignored by the industry’s leaders. The insurance industry has an old-fashioned – and some would say outdated – dignity about it that can frustrate those who don’t understand what’s happening. Often referred to sharply by regulators, defamed by the media and treated with contempt by opportunistic politicians, insurance leaders stand above the tumult because they know that without insurance, pretty much nothing can operate. That was brought into unusually plain sight in recent weeks when insurers, looking at the chaos that state governments have unleashed through their light-touch – or non-existent – supervision of the construction industry over a long period, took aim at the surveyors and certifiers who are the lynchpin of the building game. The last remaining insurer willing to provide surveyors and other building professionals with unrestricted professional indemnity left the market and no one would stand in its place. The construction industry has too many rogue members with low standards, supervised by a regulatory system which seems to agree that near enough is good enough. As Bernice Han outlines in this issue of Insurance News, the minister and her state counterparts were forced to accept that the insurers were not going to allow, for very good business reasons, to let that state of affairs continue. Having sat for a year on a report that detailed how to reform the construction industry, the ministers met and agreed with every suggestion the report contained. Insurance is the modern equivalent of the canary in the coalmine; where governments fear to fix the problems they have allowed to develop, it’s insurance that will demand action. Insurance alone looks at the world from the perspective of risk, and it’s the ability to measure, manipulate and in some cases transfer risk that keeps our society powerful. Without insurance, things don’t happen.


August/September 2019

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Gribbo and the last big move Here’s how and why IBNA’s chairman led his members out of the AIMS joint venture and into Steadfast By Terry McMullan


ary Gribbin retired from active broking in July, leaving behind him a radically changed broking industry landscape brought about by his final act – leading the Insurance Brokers Network of Australia out of the AIMS joint venture and into the arms of arch-rival Steadfast. IBNA brings together 90 independently owned member companies with a combined annual gross written premium of about $1.4 billion. Its joint venture with the second-largest local broking player, Austbrokers, formed a heavyweight with a combined membership of more than 150 brokerages and $3.8 billion in GWP. The move to Steadfast, announced on June 26, was a typically “audacious but practical” move for the man known throughout the insurance industry simply as Gribbo. He is notable for many more reasons than the Hawaiian shirts he habitually wears that make him obvious in any room full of suits. A networker’s networker who is known across the industry, Mr Gribbin is respected as much for his huge intellect as his ability to indulge in colourful outbursts of plain speaking. And he has been an influence on IBNA’s direction for many years. He was on the board when AIMS was formed in 2007, and as chairman for the past seven



August/September 2019

years his last major role was to guide it back out again. In mid-July Mr Gribbin headed overseas for a break at the start of his retirement. His career of nearly 50 years saw him become an underwriter at a ridiculously young age, a broker in the financial centres of London and New York, and an educator who fought the battle to develop university-level qualifications in Australia. For now he’s content to sit well back as the formalities take place that will see IBNA disappear as an entity and become part of the increasingly vast Steadfast network. If all IBNA members join the network – as they are expected to do – Steadfast can expect to see its gross written premium grow to well over $6 billion. While Insurance News will feature Mr Gribbin’s thoughts on his career and the industry in a future edition, the decision by his board to agree to the move away from AIMS was still dominating his attention in midJuly as he quietly packed up his office at Melbournebased national brokerage Insurance House. The negotiations with Steadfast took place over a couple of years. Mr Gribbin and Steadfast Managing Director and Chief Executive Robert Kelly are longtime friends, and things like this can’t be rushed, at least initially. The time has to be right and there has to be a good reason for even considering breaking up a

Going out with a bang: Gary Gribbin

partnership as successful as AIMS. After all, the discussions that saw IBNA join up with Austbrokers dragged out over seven or eight years. In the case of the Steadfast move, the time was right when chance brought Mr Kelly and Mr Gribbin together at an industry function – neither will say exactly where or when. Perhaps ironically, one of the reasons Mr Gribbin gives for the formation of AIMS was that it was “an appropriate response to the growth of Steadfast. It allowed us to better our position in ourselves in terms of leverage and we thought it would provide an ideal opportunity to address the key issues going forward.” He describes the AIMS joint venture as “the marriage made in heaven” – a marriage that lasted 12 years before ending in an abrupt divorce. “AIMS served the interests of the members of IBNA very well indeed, and Ausbrokers was a good partner,” Mr Gribbin tells Insurance News. “But it’s like all relationships of that sort. It was indeed virtually a marriage, and occasionally marriages get stale.” What changed in the relationship with Austbrokers that caused talk of a move to develop from casual to serious? Mr Gribbin says that in recent times AUB and IBNA found themselves adopting different views on

some issues that IBNA regarded as vital. “We had sought to collaborate very closely with Austbrokers on technology and they’d shown no willingness to engage,” he tells Insurance News. “My view was we had to have a joint position on IT. For IBNA and Austbrokers to be separately presenting connectivity systems to insurers was just ridiculous. As an insurer I would say, get your act together – we don’t want 15 different connectivity bases. Three times we were rebuffed.” Mr Gribbin says that several months ago INBA sought to “change the AIMS ecosystem in an arrangement that would see Austbrokers and IBNA subrogate their identities in favour of AIMS as the market-facing, market-negotiating brand – to be very much closer”. “And again we were rebuffed. They showed no inclination to do that. The manner of the response, given the 12-year relationship, was very poor. That’s the kindest thing I can say about it. “What drove me to talk more seriously to Robert was what I saw as a failure to collaborate in respect of the really key issues that are going to drive the future prosperity of insurance brokers – technology, brand, strategy.” The pace picked up from there. The final Steadfast


August/September 2019


“I became very concerned over the previous six or seven months that Robert might make a move on AUB, and that would leave us at the party with no-one to dance with.” proposition “was developed really very quickly” before Mr Kelly went overseas for an extended period. Mr Gribbin says the need to secure the long-term future for individual IBNA members was top of mind. Just as Steadfast’s growing market influence back in 2007 led to the AIMS joint venture, that same reason was still relevant in 2019. “One of the issues that concerned me was the significant gap in market capitalisation between AUB and Steadfast. I became very concerned over the previous six or seven months that Robert might make a move on AUB, and that would leave us at the party with no-one to dance with. “I couldn’t allow that situation to occur – not if I was genuine about looking after my members’ interests.” The IBNA board members negotiated with Mr Kelly and Chief Financial Officer Stephen Humphrys, but the speed of the negotiations and the need for secrecy caused difficulties. Although he called as many members as he could once the deal was done, Mr Gribbin says the continuous disclosure regulations of the Australian Securities Exchange got in the way. “The minute we signed the binding indication of offer, Steadfast had to go public. That defeated my planned communication strategy, so some members discovered about it through the public announcements. To a significant extent they have been very understanding.” Since then he and the board have met with members across the country to discuss the motivation behind the deal and answer questions. Mr Gribbin says that AUB Managing Director Mike Emmett was disappointed with IBNA’s decision. Although the joint venture agreement specified 12 months for a separation, AUB agreed to a deadline of



August/September 2019

September 30 this year. “Michael recognised that the decision had been made. When I told him he expressed to me his disappointment that I hadn’t discussed it with him. My point was the time for that was long past and the reality was I was ringing to tell him, not to discuss it. “Operationally, we benefit hugely in terms of the gain in operational efficiency from the use of the SCTP [Steadfast Client Trading Platform], which will be made available immediately for IBNA members when they join Steadfast.” Mr Gribbin believes Steadfast’s Insight broker system and the SCTP are technological steps up from the Ebix-owned Winbeat broking system and Sunrise transaction platform that are the present IBNA standard. He says Insight “provides a much greater granularity of reporting [and] it’s far more amendable to portfolio analysis and dissection than we currently have available to us”. Another factor that made the deal a good one is financial. “We have the upfront deal, so we are effectively capitalising the IBNA revenue stream – the professional services fees as we now call them, or over-rides as we more commonly know them.” IBNA also paid its members a rebate of 70-75%, which Mr Gribbin says is much higher than Steadfast offers. However, “if we looked at it at the 75% level, the $76 million price that I agreed with Steadfast represents an excellent multiple when related to the rebate. It will be a scrip-for-scrip share transaction, so provided we get 80% acceptance from our members – which I believe we will – we will get capital gains tax rollover release. “Arguably that represents a de-risking of that

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August/September 2019


“We on the board of IBNA want this to be a win/win. I can put my hand on my heart and say I believe Steadfast is doing very well out of this.”

income stream. [IBNA members] are getting a multiple that they couldn’t possibly get if they were selling their businesses.” There’s also the percentages that IBNA members will gain from using the Steadfast system. “We will get three points extra in bizpak. Just changing from Sunrise to SCTP and keeping the same insurers, on the IBNA global bizpak portfolio if 60% [of IBNA members] move to the Steadfast platform the IBNA network as a whole will benefit to the extent of an additional $4.5 million in income.” Under the deal IBNA members using the Steadfast platform will also get 26.5% on liability, 26.5% on professional indemnity, 14.5% on commercial motor and 18.5% on industrial special risks. “The income stream being sacrificed to obtain the $76 million upfront payment in shares means that effectively members are getting $76 million for nothing,” Mr Gribbin tells Insurance News. Nor are there any overhanging issues like professional indemnity (PI) problems or changed wordings that could follow the IBNA members into Steadfast. “Steadfast has excellent policy wordings, and we all know the advantage with policy wordings is entirely temporal. Half an hour after I’ve issued or negotiated a new whizzbang policy with insurers everyone else wants access to it as well. That’s how it is.” The deal includes full retrospective cover in the Steadfast Erato PI system, which Mr Gribbin says has comparable costs and coverage to IBNA’s existing system. “We’ve got access to all the major insurers and all the major agencies, so strategically the arrangement speaks for itself.”



August/September 2019

While the final proposition could be seen as a coup for IBNA members, Mr Gribbin insists Steadfast is getting a considerable boost for itself. “We on the board of IBNA want this to be a win/ win. I can put my hand on my heart and say I believe Steadfast is doing very well out of this.” IBNA will cease to exist. An extraordinary general meeting in August will [presumably] see adjustments made to various membership and constitutional arrangements that will allow Steadfast Group Ltd to buy all the shares of IBNA. The IBNA members will then collectively own 2.9% of Steadfast shares. While the vote to sell to Steadfast isn’t strictly necessary from a legal or Corporations Law perspective, Mr Gribbin says it should be done this way “so everyone feels that they have been given the opportunity to express a view”. “We’ve got to apply for membership of Steadfast, but all IBNA members will be offered membership and I hope that will occur on or around August 31. There may be slippage because it’s a complex transaction.” With all this complete, IBNA’s members will be members of the Steadfast network with a handy parcel of shares each, and their former chairman will be out of a job and in retirement. Sort of. He will be the non-executive Chairman of Insurance House – “at the pleasure of the board, of course” – for the next couple of years. “I’ve entered into a consulting contract with Insurance House, and other than that we will see. But I’m afraid I’m not well-adjusted in terms of just riding into the sunset. I hope I will have something else. We 0 will wait and see.”


August/September 2019


AUB’s new agenda Mike Emmett explains his vision for the group, the opportunities post-IBNA and his outlook for the broking industry By John Deex

Changing tack: AUB’s Mike Emmett 16


August/September 2019

Shift away from diversification


or a long time AUB Group was banging the diversification drum. The message from Mark Searles, who led the group for six years until early this year, was clear – expanding beyond broking enables advisers to provide total risk solutions to clients, and at the same time reduces exposure to the vagaries of the insurance cycle. As a result, the Risk Services division was born, and acquisitions of support service companies followed. But new Chief Executive and Managing Director Mike Emmett has a different view – almost the opposite, in fact. Mr Emmett, who took up the role in March, sees broking as the company’s core function, backed up by its Sura underwriting agencies. Everything else, he says, is a distraction. It’s a sharp change in direction but Mr Emmett’s justification is forthright – insurance is a complex product and clients need sophisticated brokers to help them purchase the right cover. “Trying to make things easy for the customer isn’t always the right path,” he tells Insurance News. “Insurance is complicated and needs to be given the respect it deserves. “Increasingly the focus has been around how you make products easy for customers, particularly SMEs, but that’s quite dangerous in a world where sophistication of the products is increasing. The reality is, a

small complex business and a big complex business are both complex.” For Mr Emmett, focusing on aspects outside broking and underwriting risks distracting from its core function at exactly the time when it needs to be enhanced. “AUB Group has such a strong heritage around broking and the value proposition to customers. This is AUB Group’s strength, and it must continue to be so. There is so much opportunity for us to grow our core business.” But what about the other justification for diversification – that relying too heavily on revenue from broking will come back to bite you when the market turns soft? Mr Emmett is not convinced. “People talk about the cycle, but even in a soft market brokers still do well. It’s an industry which is profitable, it’s one we are well represented in, well regarded in, and we see opportunities to grow further.” It’s clear that acquisitions of more brokerages in Australia is a priority. However, that doesn’t necessarily mean adding extra partners, but more likely helping the existing network expand. “Currently we have 93 operating entities. This is not about buying numbers 94, 95 and 96. This is about appropriate bolt-on acquisitions that complement one of our existing businesses, and using the group’s balance sheet to fund that, so we help our existing businesses to grow. “We can grow our core business through organic growth, acquisition and possibly

through some geographic expansion. We should stick to the pieces that we understand and are good at, and strengthen our capability, strengthen our brand, strengthen our expertise, rather than straying off into other pieces.” Mr Emmett believes owning adjacent services isn’t just a distraction – it can create conflict. “We need to give advice about availability of services, and we should be able to source those on an objective and impartial basis. “If you start owning the parts delivering those services can you genuinely hand-on-heart say that you’re objective and impartial? “Identifying that a client may have a workers’ compensation exposure and that one of the ways of mitigating that exposure is to put in place a service arrangement with a workers’ compensation adviser is one thing, but it doesn’t mean we need to own that adviser.” Mr Emmett says his view is supported within the network. “Brokers are pleased that broking is the primary focus again. There has been positive feedback around us sticking to our knitting. “There is a reason why we are good at running insurance broking businesses – because we understand them. Health and rehab, while there may be some overlap, in reality is a different industry, a different way of making money.”


August/September 2019


Evolution of the regulatory landscape

IBNA separation With growth in Australian broking a key focus, surely IBNA’s decision to quit the Austbrokers and IBNA Member Services (AIMS) joint venture was a significant blow? On the contrary, says Mr Emmett. While AUB Group did not instigate the IBNA brokers’ move to Steadfast, it is not unhappy with the outcome, he says. AIMS – with a subtle name change to Austbrokers Insurance Member Services – continues and is now able to focus purely on the needs of AUB Group brokers. “I genuinely think this is a good thing for us, a good thing for IBNA and a good thing for Steadfast,” Mr Emmett tells Insurance News. “AIMS was a joint venture arrangement where we outsourced our capacity sourcing and planning. But it was trying to support a huge range of needs. To try and deliver a generic set of products through AIMS that meets the needs of the smallest brokers and the biggest brokers is almost impossible. “Hence as a result you end up pitching it in the middle, which means you are not delivering to either. “We do about $3.2 billion of premium. Only about $1.9 billion of that went through



August/September 2019

AIMS. When you have a buying group representing you but they are only attracting 60% of your spend then you have to say that something is not working. Our first choice was always to retain and take control of AIMS.” AUB Group announced in July that a restructured AIMS will continue under new leadership. General Manager Glenn Schultz is leaving for a broker services role at Steadfast, to be replaced by Angie Zissis as Chief Executive of AIMS and also Group Head of Underwriting and Placement, with continued responsibility for Sura. “AIMS stays with AUB. We will become 100% shareholder and owner and it will continue to be our member services entity and deliver services to the partner network. The difference is that it will be directly under our guidance and control.” Focus on underwriting agencies Mr Emmett sees AUB’s Sura underwriting division as a crucial part of the group’s insurance offering, and is keen to develop the way the brokers and agencies work together. “I see the brokers as specialist, professional advisers, complemented by the

As the Hayne royal commission prepared its final report earlier this year, the industry waited anxiously to see what lay in store for general insurance brokers. Many feared that bad consumer outcomes in the add-on insurance market could lead to a wider ban on broker commissions. As it turned out, the issue was pushed to one side to be tackled by a further review. Mr Emmett believes change may still be coming – but that it doesn’t necessarily have to be bad news. “The challenge for the broking industry is that as soon as you earn something called commission, people think that you are trying to feather your own nest by selling as much as possible at as high a price as possible,” he says. Mr Emmett says even if commissions were replaced with other types of fees and remuneration models, it would be grossly unfair if this resulted in clients paying for the whole cost of the services brokers offer. “Insurers get value from brokers too, and must pay for it – if not through commissions then through another mechanism. The first step is acknowledging that insurers get value and benefit from brokers,” he says. “That doesn’t compromise the broker, and we shouldn’t let the insurers off the hook. It is unfair to make the client pay for all of it. If we are transparent to clients around, ‘look, I’m getting paid so much by the insurer and I’m getting paid so much by you’, then it’s clear. “We should focus on finding ways for insurers to compensate brokers that appropriately recognise the value generated by the brokers in terms of data, technology, risk expertise and claims assistance. “The challenge is that commissions work because in most cases the premium is a convenient proxy for the complexity and level of effort required from the broker.” Mr Emmett believes his focus on sophisticated brokers giving sophisticated advice will stand AUB Group in good stead as scrutiny ramps up. “Our whole strategy is to try and increase the complexity and sophistication of the services and advice we give because the more sophisticated you get, the better advice you give, the more you can stand up and justify being paid a fair price for it.”

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ability of the Sura agencies to develop specialty products. To be successful you need strong advisers with strong product,” he says. “The critical opportunity for us is to align the brokers’ knowledge about what is needed by our clients, with the underwriters’ ability to design and manufacture products that match these specific criteria. “Our underwriting agencies are our ability to deliver that. They give us the ability to have specific, unique and, ideally, exclusive products that we can then offer across a range of selected industries. That is the way we become more specialist, more competent and move up the value chain.” Austbrokers member companies are not forced to use Sura products, however. “What we are trying to do is source products through Sura that have specialist aspects, that they can get from Sura but couldn’t get from another underwriting agency. “It’s not saying please use Sura, it’s saying we’ll try and make sure Sura offers a product that is better, or different, to anything else you can get in the market.” Ambitions for global expansion While Australia and New Zealand are the priorities, Mr Emmett has an eye on further geographical expansion. “We have expanded into New Zealand quite successfully and there is more to go on that. “In Australia, apart from buying up more of our stake in Adroit we have had no

significant expansion through acquisition for several years. There is more to be done in Australia. “Once we feel that we have reached a saturation point in terms of our market potential in those two, naturally the question would be what the third market would be.” It wouldn’t necessarily be Asia, he says. “You’d evaluate the whole world in terms of which markets haven’t been overly disintermediated, where margins are still strong for the broking industry, where there are mid-sized brokerages that you could acquire.” Current state of the market Mr Emmett has an interesting take on the current hardening market, preferring to focus on “effective rate increases” rather than the much talked about 6-8% rises that, he believes, don’t accurately reflect reality. “Businesses are operating in an economic environment that is not growing double digits – their revenues are growing by 2-3%. When [clients] get an insurance renewal for 8%, the first thing they say to their broker is, ‘find me another insurer that is going to charge less’. If you can’t, the second thing they are saying is, ‘well tell me how I can get the insurance rise down to 2% or 3% by reducing coverages’. “The reality is that our clients aren’t willing to accept 6-8% rises. It doesn’t matter what insurers want, they are just one side. The effective rate increase, I think, is likely to be 3-4% across the market.”

The partnership model While Mr Emmett wants to steer away from diversification, another key message from the previous leadership – adherence to the owner-driver model – remains central. The policy is that while AUB Group owns equity in the members of its network, the principals are left to run the business. While Mr Emmett backs the theory, he doesn’t follow it blindly. “The owner-driver model works brilliantly as long as the owners have got drivers’ licences. “However, not every strong broker is a strong business manager, a strong rainmaker, and we can’t always expect them to do all of that in isolation,” he says. “So really what we try to do is make sure that we complement them as appropriate. “I absolutely believe that a big part of our model is this notion of a partnership. “Whether we own 40% or 60%, it doesn’t really matter. “I believe in the value of the partnership model where we are investing and assisting a business to be able to leverage our scale, but we are also leaving them to get on with things and run themselves, relying on the entrepreneurship and the drive of the local principals.” While Mr Emmett’s tenure as Chief Executive promises a fair amount of change, some things look set to remain – not least a determination to provide the highest quality advice in an ever-changing insur0 ance world.

Long and winding road to insurance Mike Emmett’s career was initially inspired by a courtroom TV show – but he later found insurance offered more inspiration. “It’s a bit embarrassing but I was contemplating my career around about the time LA Law was on television. It looked really glamorous and I really enjoyed the cut and thrust of the courtroom,” he says. However, the reality was not all it promised to be. “When I studied law it soon dawned on me that it would probably entail a career of reviewing detailed contracts and property conveyancing.” So he moved on to chartered accounting. “I thought it sounded a little bit more



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interesting. It wasn’t.” Next up was mergers and acquisitions corporate finance – where Mr Emmett worked on a transaction in the insurance arena. “I found insurance fascinating – the whole concept of risk transfer. Insurance initially sounds boring but then you realise that it is a critical part to the way the economy works. “I had found a niche which brought together my interests in numbers, legal aspects and complex deals.” Then followed a period in consulting and professional advice, with an insurance focus. South African by birth, Mr Emmett also spent many years working in the UK before moving to Australia with Ernst & Young. One of

his first clients was QBE, which soon offered him a role. He worked up to become group executive of operations before joining travel insurer Cover-More as chief executive in July 2016. “It was fun to take Cover-More and lead it through several years of transformation, which ultimately led to us de-listing and selling to Zurich,” he tells Insurance News. “When I joined, Cover-More was operating in six countries, and by the time I left we had expanded that to 22.” Zurich brought in its own leadership for Cover-More, with the AUB Group role becoming available as Mr Emmett was finishing up. “The timing was perfect,” he says.

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Beyond belief Humour, tears and incredulity as a jury hears evidence in the $17.4 million Dual fraud trial By Wendy Pugh


ny doubts that Josie and Alvaro Gonzalez would be found guilty of defrauding Dual Australia of $17.4 million were fading by the time Prosecutor Andrew Grant made the jury laugh. Josie was the only witness called by her defence barrister, but her time in the witness box probably proved more helpful to the prosecution. Mr Grant sparked amusement as he mimed Josie switching hats and jumping between desks in a home office shared with her husband Alvaro as she sent invoices from the couple’s legal firm and received them as Dual Australia’s National Claims Manager. By that stage the jury had heard plenty of evidence outlining the financial rewards the couple received from the fraud, how it took place and its discovery. Her explanations were straining credulity. Josie, small and slender and with long light brown hair, appeared at court most days in a pants suit. Her evidence was given with self-conviction and sometimes with considerable passion. Alvaro, by contrast, always wore a dark suit that seemed in keeping with his rarely changing mournful expression. He said little and did not give evidence.



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The trial before Judge Paul Lacava in a small courtroom on the eighth floor of the County Court of Victoria in Melbourne initially got off to a false start. A 12-person jury was empanelled on Tuesday June 12, Mr Grant made an opening statement and barristers Alan Hands for Josie and Peter Kilduff for Alvaro gave responses. Dual Australia founder Damien Coates was on the stand and in full flight, prompting Judge Lacava to request greater control by the prosecution as “the witness is prone to want to make speeches”. On the Thursday, the court was told a juror had to drop out, proceedings were halted and the jury dismissed. The trial restarted from scratch the next day with a larger 14-member jury, providing reserves to be balloted off at decision time. Barristers had honed their material for the second start. Mr Grant opened more succinctly and Mr Hands declared, “Welcome to the arcane world of insurance underwriters” as the defence relaunched. It was undisputed that more than 400 invoices were sent from the Gonzalez’ company Jaag Lawyers to Dual from March 2011 until Josie took maternity leave in early May 2013.

The prosecution contended Jaag was not authorised by Dual to complete any legal work, the firm was set up with the sole purpose of conducting the fraud and no work was ever done. The defence said Josie joined Dual as national claims manager on the basis that Mr Coates had agreed to the couple setting up a firm that could do Dual legal work. It said services were provided by the firm and there was no deception. Dual Australia launched in 2004 after Mr Coates returned to Sydney from the UK to set up the underwriting agency, which is owned by London-based Hyperion Insurance Group. Dual specialised in professional indemnity insurance with capacity from Lloyd’s. In the early years Dual’s claims were outsourced to Proclaim, where staff handling the work included Melbourne-based Josie Gonzalez, a qualified solicitor. She remembers first meeting Mr Coates in early 2006 at a function thrown by his company. Mr Coates told the court that Dual staff, brokers and insurers enjoyed working with Josie, that she was exceptional at her job and her work ethic was outstanding. He had socialised with Josie and her husband, she had attended his 40th birthday party and he

AAP Facing justice: Josie and Alvaro Gonzalez arriving at Victoria’s County Court

trusted her. “She was part of the Dual family, so we asked Proclaim if she could work almost exclusively for Dual,” he told the court. Claims handling expenses soared as the underwriting agency grew and it made sense to bring the function in-house and to ask Josie Gonzalez to move across from Proclaim. The concept became a real proposition at two coffee meetings in mid-2010 at the Intercontinental Hotel in Melbourne. Mr Coates and Gonzalez were the only ones there and the details of those conversations were disputed. Gonzalez arrived at the first meeting with a document showing how Dual could cut costs on claims handling and legal work by using the services of her and her husband. Alvaro was not working as a lawyer at that time, but had gained his solicitor’s practising certificate the year before and she was keen to help him obtain work. A proposed arrangement would have seen the couple provide claims services and legal work for Dual in a one-stop shop. Mr Coates told the jury he emphasised that employing Gonzalez to replicate the Proclaim processes and bring claims inhouse was the only option on the table. The two met again at the Intercontinental

about a month later, where Gonzalez presented a second version that still involved outsourcing legal work to her husband’s proposed firm. Mr Coates says he told her there would be a conflict of interest in Gonzalez sending work to her husband and there were reasons for using a range of legal firms. Nevertheless, he left the way open for Dual to look at how it might more efficiently use lawyers in future. Gonzalez maintains “middle ground” was reached at the second meeting, with agreement that she would join Dual as national claims manager and the agency would use legal services provided by a firm to be set up by her husband. “Damien’s words were ‘go for it’,” she told the court. “I remember going home and telling my husband that Damien was sold on the idea.” Gonzalez joined Dual in November 2010 on an annual salary of $145,000, compared to around $125,000 at Proclaim. Jaag Lawyers – the name was an acronym of Josie and Alvaro Gonzalez – was also registered that month. “The incentive to go to Dual was that we could start our own law firm as agreed with Mr Coates,” she told the court. The couple,

who had married in 2006 and who had a young daughter, had always intended to start their own business, she said. Mr Kilduff suggested the pay difference alone wasn’t enough to entice her to Dual, while Mr Coates countered that she also liked the people and “wanted to work at a company that was growing and going places”. Gonzalez spent her first months at Dual setting up the claims handling system. The transition from Proclaim was completed by March 2011 and that was also when Jaag sent through its first invoice. Josie had arranged to work from home, and says she was there alongside Alvaro in his role as Jaag Lawyers solicitor. They shared a laptop and desktop computer and worked from their property in Rathdowne Street, Carlton North, which Josie had bought in 2004, according to her evidence. At Dual, no-one would have known such an arrangement existed. Josie didn’t mention that she was a director of Jaag or that her husband was a legal expert providing advice for the company. Her instructions meant that while wellknown firm names such as DLA Piper were shown in the system, Jaag Lawyers wasn’t. Dual staff were told that Jaag should be


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Josie wrote furiously, perused documents and over-stepped Judge Lacava’s boundaries after expressively shaking her head at the jury and at witnesses.

entered as “counsel” under payee, although normally payments to barristers are included as disbursements on solicitor invoices. Gonzalez checked and approved invoices related to claims and emailed them for system entry. They would go through the finance department and be paid after a double signatory process involving senior executives. The trial bogged down on detailed evidence on those processes, and questions over whether Dual had a legal panel and whether it contained Jaag, testing the patience of Judge Lacava. The great question hanging in the air was how Josie and Alvaro could justify their contention that they had provided authorised legal services “Who is going to give evidence that no work was done?” Judge Lacava said after sending the jury out of the room. “I have been waiting here with bated breath.” The trial was halted regularly as he suggested barristers were pursuing unhelpful details, heading down rabbit holes or even not running the case particularly well. Often he urged them to “get to the point”. There were battles with the volume of invoices and documents, shown on screens in the court. Laptops failed to charge, there was stumbling over invoice numbers and finding the right material at the right time. Names were mis-pronounced. Mr Coates remained in the court as other Dual employees took the stand, and made a couple of impromptu contributions from the public seats as legal teams struggled with details. Josie, 45, and Alvaro, 51, sat a metre



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or two apart in the dock at the back of the court, presenting a study in contrasts. Alvaro was impassive and sat relatively still, turning up each day in a dark business suit. Josie wrote furiously, perused documents and over-stepped Judge Lacava’s boundaries after expressively shaking her head at the jury and at witnesses. “I will not permit that,” he said. Often she would gesture to her legal team to attract their attention, either whispering to a legal team member who came to the dock or providing a note. She was never less than fully engaged. At one stage Josie scribbled a question for her barrister to put to one of the Dual staff who uncovered the fraud. It pointed out that the witness was an administrator, not a claims manager, and if she looked at a claim “would not be able to make head or tail of it”. It was more cutting than any other question asked during the cross-examination. The couple stood and hugged on occasion over the course of the hearing as the court took a break and as the case against them continued to be laid out, and progressed toward the moment she would enter the witness box. During the time Josie Gonzalez was at Dual the firm’s professional indemnity claims work was surging in the wake of the global financial crisis, while other changes were also occurring at the company. Mr Coates had been appointed Dual International Chief Executive in late December 2011, splitting his time between Sydney and the UK. Peter Bailey then assumed operational responsibility for the Australian business as the company grew.

It appears the first concerns emerged in 2012 when capacity provider Arch expressed alarm over the exorbitant level of legal spending, asking for answers mid-year and in December. Gonzalez issued instructions that some payments listed for counsel should be recoded as “insured’s own costs”, but alarm bells were starting to clang more loudly. “Can it really be the case that over $9 million was spent on counsel? This seems extraordinarily high for a 12-month period,” Arch’s Jiyan Zora wrote in an email to Dual’s Australia General Manager Leo Abbruzzo in December. Josie assured colleagues that the high spend was a “legacy” issue that related to old claims before the firm employed her, but tighter controls had been put in place as files were managed in-house. Asked for a breakdown segregated by law firm, she produced a bar chart listing 10 other firms. Jaag Lawyers was not named but she suggested in court that the term “counsel fees” heading the chart was a reference to Jaag that could be easily understood. In the meantime, the financial prospects of the Gonzalez family were on the rise. In late 2012 Alvaro paid $4.4 milllion in cash for a French provincial property in the leafy Melbourne suburb of Kew that boasted a home theatre, salt-water pool, six-car parking and a cellar. According to Josie’s evidence to the court, his income was hard-earned over long hours in his role with Jaag. Alvaro had worked 16,500 hours in a little over two years providing legal work for Dual, and was “probably working up to 18

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August/September 2019


“No person who thought they had a legitimate claim to the money would just agree to sell and return the money. It’s not plausible.”

hours a day, seven days a week”, she said. Despite little experience he was paid up to $1000 an hour, even though Josie considered a senior associate in a major legal firm should be paid $400, and that rates of $550 and $515 for two partners at that firm were too high. Legal spend issues came to a head in 2013 when Dual underwriter Frances Land was floored by some odd figures. Gonzalez had gone on six weeks’ maternity leave in early May. Ms Land was unable to find documents explaining legal expenses in excess of $50,000 in a number of cases when she pored over claims databases. These included a charge of $76,542 in fees related to one matter that she understood to have incurred only $2640 in claims management fees. Barrister John Larkins testified that he had never been retained or received payment from Jaag Layers, despite a $78,430 payment advice letter from Jaag Lawyers’ virtual office at 480 Collins Street to Josie Gonzalez at Dual’s 520 Collins St office. Claims administrator Olga Karakotina was asked to look into issues while Gonzalez was on leave and decided to email Jaag Lawyers about discrepancies. That same day she received a text message from Josie saying she had received a phone call from a barrister, there was an error on a name and a new invoice would be sent. Another enquiry to Jaag was similarly answered. Then Gonzalez told Ms Karakotina to delete an email with a revised attachment as



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the barrister’s office had warned of “internal systems problems with phones and emails, including virus issues.” A new version was sent by post, also warning of the dangers of opening the email. Ms Karakotina started looking further into Jaag. She conducted an Australian Securities and Investments Commission search on the firm and was stunned to find that Josie and Alvaro were its directors. She alerted Mr Bailey on the Queen’s Birthday holiday weekend and they held an emergency meeting with Mr Coates. She brought documents including the ASIC search result and a printout of payments made to Jaag Lawyers, which Mr Coates said he had never heard of before then. Mr Coates flew to Melbourne that night, gaining freezing and search orders from the Supreme Court of Victoria. Computers were seized and civil proceedings started to recover the funds. The couple signed a civil deed that saw them sell their Carlton North and Kew properties and empty bank accounts, while funds were also recovered from the tax office. “No person who thought they had a legitimate claim to the money would just agree to sell and return the money. It’s not plausible,” Mr Grant told the criminal hearing. Josie Gonzalez broke down in tears as she spoke of her trauma when the case was highlighted in Melbourne newspaper the Herald Sun and other media. “It has had a devastating affect on me as a mother, wife and professional. I don’t think anyone could recover from seeing these

allegations and lies printed, and a photo of a family member, for the world to see,” she said. She maintained there was no deception and that work done by Jaag mostly involved verbal advice from Alvaro. “It was always face-to-face as we would both be working in the same home office,” she said. “I needed someone I trusted who could work around me and condense the material in a manner I could use for my requirements.” Throughout the hearing Alvaro was the silent partner. He was spoken about continually but never entered the witness box and no witnesses were called on his behalf. “As he sits in that dock he is an innocent man, “ Mr Kilduff thundered early in the trial, in a rare moment when Alvaro was in the spotlight. “Mr Gonzalez denies that he made any false representation to Dual.” The jurors were given final instructions and retired to consider their decision at 10:25am on Wednesday July 3. Those connected with the case lingered in the vicinity of the courtroom as the afternoon passed. Deliberations continued into the next day, Gonzalez supporters gathered again, and then the jury was back around noon to announce its verdict. Josie and Alvaro were each found guilty of 14 counts of obtaining a financial advantage by deception. Josie’s hands went to her face and she bowed her head in seeming disbelief as the decision on each charge was pronounced, Alvaro remained impassive, and the couple 0 were taken into custody.


Hard times in the insurance business Brokers say the June renewals have resulted in insurers playing even tougher when it comes to non-vanilla risks By Bernice Han


sk brokers how the recent June renewals went and the responses are unanimous: it’s a brutally painful market out there right now. Not only have prices hardened substantially, building on the patchy recovery that began 18 months ago, but insurers are hanging tough on terms and in many instances refuse to even consider the business brokers have brought to the table. Renewals for extremely troubled lines like professional indemnity (PI) for construction clients are easily seeing premium rises in excess of 100%. And more often than not, the new policy comes with higher excesses, tighter terms and additional exclusions. Greg Evans, a private building certifier in north Sydney, knows exactly what brokers are saying. The premium for his PI policy increased to $19,000 last year from $5000 three years before that. The fact that he has a clean claims history meant nothing. He was recently offered just a 31-day extension for his PI policy, which was up for renewal in July. Attempts to secure cover from another underwriter came up empty. “I’m an A2 unrestricted certifier,” he tells Insurance News. “I have no claims against me. I’ve been operating



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since 2010 and even I can’t get insurance.” The extension offer is a “stay of execution at best,” he says. “It’s probably the best way to describe it.” Brokers Insurance News spoke to for this article would say that what Mr Evans is going through just about sums up the overall state of the liability market, particularly in loss-making lines like professional indemnity. They say that right now insurers are keen to reduce their exposures and shore up margins. It isn’t just a simple case of a long overdue price correction in the Australian market. Many other factors have come into play simultaneously to steer the market in the direction it’s taking today. The huge losses from natural disasters locally and globally in the past few years, along with worsening claims pressure in PI and other financial lines, are forcing insurers to take an across-the-board hardline approach. And where the investment market shored up insurers’ reserves in the good times, it has been under-performing for several years. Investors share that pain, but their focus is on improved profitability from their investments – which includes insurers.

Britta Campion/Newspix Victim of a hard market: building certifier Greg Evans

To achieve better results underwriters have to be more risk-averse. As one broker put it, a diminished risk appetite means insurers become very picky. Instances of insurers walking away if their terms are not accepted are no longer a rarity. Coinciding with the slowdown in the local underwriting market comes some dramatic capacity reductions from Lloyd’s – traditionally a trusty standby for hard-to-place risks. The market’s decision to pull the plug on £3 billion of poorly performing business from the market – including Australia – is only adding to the price pressure. “This is undoubtedly the hardest market we’ve seen in the last decade,” says Insurance House director (and recently retired broker) Gary Gribbin. “The increases in premiums have been in that tailored portfolio. There have been very significant increases when you are talking about 35, 40 or 50% increases. “I’m not sure what returns on capital insurers are after but they are certainly pursuing aggressive pricing strategies.” According to Marsh, property rates increased 12.520% during the June renewals, while high hazard and

catastrophe-exposed accounts saw higher spikes of 2540%. The rates in sectors seen as high hazard, such as food production and recycling, are seeing even bigger increases in percentage terms. Among financial lines, listed companies looking to renew their directors’ and officers’ (D&O) policies are seeing a minimum increase of 70% while non-listed entities saw imposed increases in the region of 20-30%. In professional indemnity for the building sector, it gets even more torrid. A rise of near 50% is the minimum and anything above 100% is not all that shocking, given the industry’s well-documented troubles. “There is a strong resolve in the underwriting community to move the market up,” says John Donnelly, Global Placement Leader with Marsh. “The new market buzzwords are ‘pricing adequacy’.” He tells Insurance News managements are being driven by shareholders into taking corrective action. “The sentiment is now global, with insurers strongly pushing up rates in the US and Asia, which were the last bastions of the soft market. “Prices in London for international business, including Australian risks, are up significantly and underwriters are being far more selective.


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“The combined ratios of the major global insurers, with the possible exception of Chubb, have been at unsustainable levels for the past two years,” Mr Donnelly says. And he warns that come the December renewals, the terrain could be steeper again. “Firstly, Lloyd’s syndicates are forecast to reach their premium limits by early in the fourth quarter,” Mr Donnelly says. “A number have received approval to increase their stamp capacity for 2019, but those who don’t will be unable to write any new business for the fourth quarter. That will result in the market losing more capacity. “We simply cannot afford to lose capacity for catastrophe-exposed and high hazard risks.” Major local broker Honan has also noted that there won’t be any price relief in the near-term for the loss-making directors’ and officers’ class. Fear of more lawsuits against companies backed by litigation funders with deep pockets is not the only factor driving up D&O rates, however. Insurers are equally concerned over the long-term effects of the Hayne royal commission into financial sector misconduct. Additionally, the $132.5 million QBE agreed in 2017 to pay to settle a class action over allegations its failures to provide timely earnings updates shortchanged investors has set a precedent for higher payouts. Previously, class action settlements in the D&O space averaged $50 million. “The securities class action environment of late has increased following the fallout from the royal commission into [financial sector] misconduct,” Henry Clark, Honan’s Professional and Executive Risks Head, tells Insurance News. “The investigation has been a further detriment to insurer D&O book performance through the increased number of payments of inquiry defence costs for financial institutions.” He says the royal commission is “the latest event to plague the D&O environment, putting increased regulatory scrutiny on large Australian companies and making placement negotiations more demanding”. “Overall, we are yet to see the full ramifications of the increased regulatory environment as well as the QBE settlement. We anticipate there will not be significant adjustment to both pricing and retention levels for the second half of 2019, but it will be interesting to observe the D&O terrain once the dust has settled in 2020.” Belinda Scott, Managing Director of Melbournebased BJS Insurance Brokers, calls the current environment a “real challenging time” for everyone in the market. Businesses that are not dealing in what she terms



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“vanilla-type risks” are often getting their renewals declined. She says the fact that a client might have been with the same insurer for 20 years with not a claim made doesn’t matter in today’s market. Even when renewals are accepted, it often involves clients having to take on additional risk management programs as outlined by insurers. “We’ve been working with our insurers saying, ‘Look this is what our insureds are doing’, but right now it’s enforced by the insurers saying ‘We’ll only write this risk if you do this part of risk management’,” Ms Scott tells Insurance News. “So that’s got to be a good thing for clients and a good thing for us, but it’s hard when you’ve got an increase in premiums to then tell your client they’ve got to spend more money on risk management as well. “It’s a real challenging time for all players in the market, not just brokers. I think insurers and underwriters are feeling the pinch.” Paul Cohalan, Principal of Perth-based Connect Business Insurance, says underwriters are protecting their books of business. “They are being more vanilla about what risks they write,” he says. “As soon as you start talking outside the box, or talking hard-to-place risks, it gets very challenging. “What we’ve found is there is a more narrow market for hard-to-place risks especially for liability and professional indemnity and also anything related to mining.” He says he was “told not to bother on numerous occasions” during the June renewals. “Everyone was trying to win work in a soft market, but now they’re pushing back. They are like ‘No, we don’t want to look at it or we won’t be competitive’.” Like any good broker Mr Cohalan says he refuses to be deterred by the difficulties and is still focusing on getting the best outcome for his clients. Strong client relationships are more important than ever in times like this, says Joshua Scutts, Principal with Shielded Insurance Brokers on Queensland’s Sunshine Coast. “As a broker, it’s good to be aware of what the market is doing,” he tells Insurance News. “I think brokers in general can’t be complacent with their clients, especially when it’s about renewals. “Obviously you have to make sure you have a good relationship with your clients so they trust you and listen to what you’re saying, because price is king in insurance. “When a client cops a price that’s gone up, even if it’s 0 10 or 20%, it causes bill shock.”

The buck stops


Australia’s construction industry had been faltering for a long time, but when PI insurance dried up governments were forced to pay attention By Bernice Han


partment owners in Sydney’s Opal Tower have filed a class action against the New South Wales Government, seeking compensation for losses caused by structural defects which left them homeless on Christmas Eve. In June residents of the 132-unit Mascot Towers complex, also in Sydney, were issued with emergency notices to vacate over fears of worsening cracks in the building’s walls. Accounts of major construction problems in apartment blocks in Australia’s major cities are not new. Building fabric and cladding issues top the list of defects, a recent study by Deakin University finds. Other issues relate to waterproofing, structural issues and fire protection. Dodgy documentation, shoddy oversight by authorities, compliance compromises and low standards across the construction industry developed over many years. The industry has been faltering for a long time. It did not come as a shock to those in the know, including insurers. The insurance industry has been among the most vocal stakeholders pushing for stronger building oversight and standards, warning of the danger inherent in



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governments’ “partial and piecemeal” approach to the construction industry. They have been warning governments that inaction on the systemic issues found in many of the high-rises now dotting the skylines of Australia’s major cities would have to be addressed at some time. But those warnings were ignored. Something had to give, and eventually it was insurance that brought the whole sorry mess to a point where it had to be recognised and addressed. Late in June London-based Landmark Underwriting, the last remaining provider of exclusion-free professional indemnity (PI) cover for building surveyors, certifiers, engineers, architects and other construction professionals, called it quits. The pullout shouldn’t have come as a surprise to the politicians who make up the Building Ministers’ Forum, which meets regularly. In April last year the forum was presented with a thorough report that featured a long list of issues and solutions. The report, compiled by former senior public servant Peter Shergold and lawyer Bronwyn Weir, listed, among other issues, serious compliance failures, inadequate

documentation and weak official oversight, and provided 24 suggested fixes that revolved around the need for greater regulatory oversight and higher standards. (See panel page 34.) With the departure of Landmark Underwriting, the ministers appear to have suddenly grasped the gravity of the situation: act now or the construction industry would collapse, with repercussions for the wider economy. And the construction industry is vitally important. It’s Australia’s third-largest industry, behind mining and finance, with 330,000 businesses and more than 1 million people directly employed – about 9% of the total workforce. It makes up 8% of Australia’s GDP and contributes $134.2 billion to the national economy. A letter aimed at the forum and signed by the Property Council of Australia, the Insurance Council of Australia (ICA), Ai Group, the Australian Construction Industry Forum and Master Builders Australia warned that “Australia’s fragmented approach to regulatory enforcement and compliance with building regulations requires a renewed commitment to national action

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August/September 2019


Key issues in Shergold Weir report: • Serious compliance failures (non-conforming building products, water ingress, fire safety, structural issues • Inadequacy of documentation with consequential results on building quality and maintenance • Weak oversight by licensing bodies due to lack of funding/ skills/experience • Lack of oversight of commercial building industry • Independence of building certifiers Key recommendations: • Shift industry culture and improve regulatory focus • New techniques, products, technologies and designs must be accompanied by an effective disclosure regime • Those making decisions during design and construction need to be held accountable • Products used must be appropriate and applied correctly and to an appropriate standard • Those certifying standards need to be adequately trained/ qualified and need to be independent • Clarity is needed on who is responsible for design and construction. Consultants on multi-storey residential buildings such as architects and engineers are sometimes subcontractors to builders • Most jurisdictions have staged building approvals, but there is often a significant difference between the “as-designed” documentation and the “as-built” building • The governance of private building surveyors needs recalibration • The competency of builders needs to be strengthened • Documentation quality and controls over design and construction approaches must be improved • Builders must resist working beyond the approved design • Greater harmonisation in compliance and enforcement systems is needed across all jurisdictions



August/September 2019

Lives disrupted: Mascot Towers apartment owner Fabiano Santos, left, with NSW Better Regulation and Innovation Minister Kevin Anderson

to maintain public confidence in our built environment”. They also called for the Federal Government to “play a leadership role”, but the first reaction of Federal Industry Minister Karen Andrews – who chairs the forum – was to blame the insurance industry for the crisis. “They’ve pocketed the premiums while they thought it was low risk,” she told reporters. “But when the risk profile changes they’ve walked away – it’s inexcusable.” Inexcusable? A recent PwC report for the Queensland Government says building surveyors’ insurance in 2017 resulted in $3.73 being paid in claims for every dollar in premium. The claims trend was increasing at 567% more than the trend in premium, “which has been relatively stable over the past 14 years”. Shergold Weir Report co-author Bronwyn Weir took a more realistic line, telling Insurance News: “You can’t make the insurance market provide a product that is uninsurable, so I think it’s a bit of a chicken and egg [situation]. “You need to increase confidence in the sector for the insurance industry to feel like there is a risk that’s insurable.” Ms Andrews and her state counterparts in the forum took the first step towards that “insurable risk” objective by agreeing in June to take up all 24 suggestions in the Shergold Weir Report. They also announced plans for a co-ordinated response to the PI impasse. NSW and Queensland will oversee the work, which will involve an options paper on alternative insurance options and a pathway for professional standards. Meanwhile, regulations in NSW, Victoria and Queensland requiring surveyors and

many other associated specialists to hold PI policies without exemptions have been lifted. Outcomes from the consultation will be submitted to the forum by September, with the next meeting scheduled for December. For insurers, the flurry of government action is long overdue. While ICA has welcomed the burst of activity so far, there are lingering concerns the measures the ministers eventually arrive at will be inadequate. ICA has called for the Shergold Weir Report’s recommendations to be implemented as quickly as possible. And Chief Executive Rob Whelan, who attended the Building Ministers’ Forum in June, says insurers should be given a permanent seat on the Australian Building Codes Board, which has been tasked with overseeing the report’s implementation. “The current compliance regimes are failing to deliver results and certainty for consumers and insurers,” he said. “The blame game has to end. “Insurers accept they have a key role to play in the risk management process, but the acceptance of risk will depend on

AAP Cracking up: faults in the structure of Mascot Towers sparked an evacuation


appropriate action by the building industry, governments and regulators.” Two days before the forum in Sydney, the Victorian Government unveiled a $600 million rectification program to remove flammable cladding from high-rise apartment blocks. In NSW, a parliamentary committee is looking into insurance arrangements as part of an inquiry launched in July into the building industry. Limitations on building insurance and compensation schemes, and consumer protections for new apartment owners are among subjects listed in the terms of reference. However, ICA’s message that insurers are not part of the problem does not appear to be getting through. In the post-Building Ministers’ Forum communique, the ministers said the strong action taken on the crisis means insurers should immediately resume providing exclusion-free PI policies. But that’s unlikely to happen until the talk is followed up with effective action programs that address the risk factors. In Victoria, the state’s cladding taskforce has suggested that insurers should help pay for the $600 million repairs plan since insurers will enjoy what it sees as a “significant windfall gain” from the rectification work. It’s not unusual that government bodies and politicians would so quickly forget the heavy financial toll insurers have already absorbed because of lax building regulations and governments’ failure to act when the earliest sign of troubles emerged in the building industry. The insurance industry’s tough stance on the construction crisis should ensure that the buck stops where it belongs – with the 0 governments that caused it.


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August/September 2019



ion Underwriting’s decision this year to turn to a Chinese insurer for marine-related risks capacity provided an apt illustration of the widespread impact of Lloyd’s tougher approach on poorer-performing areas in its global market. Lloyd’s was founded on covering the cargo of sailing ships, the great bell from the shipwreck of the Lutine hangs in its London building and it even paid out on the Titanic in 1912. But marine is one of the areas under scrutiny after market financial losses deemed “totally unacceptable” jolted the market’s leadership. Underwriting syndicates, long seen as a destination for hard-to-insure and niche risks, have tightened their belts in a number of areas following a crackdown from the top, led by former QBE chief executive and now Lloyd’s Chief Executive John Neal. Lion Managing Director Kurt Nilson says the impact of stricter business plans for Lloyd’s syndicates underwriting risks has being widely felt in the Australian market. “Capacity is high on the agenda for everybody,” he tells Insurance News. “We obviously had issues with marine earlier in the year, and June was tough.” Brisbane-based Lion signed an agreement with Hong Kong-listed China Taiping Insurance Company, representing the first binding cover authority agreement in Australia for the Chinese insurer as the agency looked for alternative avenues to Lloyd’s. “Everybody knows there is a huge change in appetite and structure for marine in London and other



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markets around the world, which becomes frustrating for brokers and their clients when they are looking for a consistent approach to their business,” Lion Portfolio Manager Marine William Rich told Insurance News after the China deal was announced. Lloyd’s syndicates that have written plenty of business in the first part of the year are said to be increasingly hitting the brakes as action on unprofitable classes of business starts to bite. Areas where this decreased risk appetite is particularly being felt in Australia include professional indemnity and financial lines, such as where class action activity is a risk, as well as certain property classes. “In the past there has been a bit of feeling that if you had difficulty placing risk in Australia that Lloyd’s would take it,” National Insurance Brokers Association (NIBA) Chief Executive Dallas Booth says. “The feedback I am getting is that Lloyd’s is still a market to be considered, but it is not necessarily guaranteed that they will take it anymore. Lloyd’s is looking at business more carefully and taking a more considered approach, and they are perfectly entitled to do that.” Lloyd’s is quick to point out that its business overall in Australia has been growing annually, and that based on figures to date the current year will be no exception. The market wrote $2.8 billion in premium for Australian-domiciled risks last year, up 21.7% from 2017. Double-digit increases estimated at around 1015% have been recorded for the first half of this year.

Capacity overboard Lloyd’s retreat from poor-performing business has been sorely felt in the Australian market By Wendy Pugh

“Lloyd’s remains open for business with significant capacity available for both our existing portfolios and new and innovative business,” Lloyd’s General Representative in Australia Chris Mackinnon tells Insurance News. “It is our commitment to our stakeholders which is driving us to tackle the performance gap in the current challenging market. Some portfolios have been unprofitable and unsustainable for too long, and we have had to act in the best interests of the overall market.” Mr Neal, who took over from Inga Beale last year, set out his priorities in January, making clear Lloyd’s could not keep taking on business that would drag down the market’s overall results. “The view that it will ‘all come out in the wash’ has been harmful for the collective,” he said. “The old adage that every business has a price is wrong. Bad business is simply bad business, and it shouldn’t be happening in this marketplace.” Underwriting Agencies Council Chairman Lyndon Turner says that generally local and overseas insurers are taking a closer look at where their profitability is coming from, where the areas of underperformance are and how they should deploy capacity. “Profit is not a dirty word,” he says. “The insurance market overall should be a sustainable market that has a level of profitability that makes sure that we can protect all of our clients and the community. “Insurers are looking deeper into each portfolio and making sure they perform to acceptable levels. There

is less cross-subsidisation, and an awareness that every area has to make money for shareholders so they can get a return on their investment.” He says the pressures at play may encourage more underwriting agencies and brokers to look outside Australia, while on the flipside, capacity providers that aren’t currently established in the local market may pursue opportunities to capture new business. “In any market if there is a reduction in the availability of supply, if demand generates that, there are discussions that might be outside the norm,” Mr Turner says. “Underwriting agencies need to keep the doors open, brokers still want to partner with underwriting agencies and suppliers as to their clients’ needs, and when a certain class or a product or a client has reduced options it may open up the frequency of discussions.” Australian Prudential Regulation Authority (APRA) statistics show a growing reliance on so-called unauthorised foreign insurers (UFIs) in the local market in the second half of last year. Intermediaries placed $728 million in premium with UFIs in the six months to December 30, up from $643 million in the corresponding period of 2017. While Lloyd’s is not the only group to be more circumspect as the global insurance sector looks to improve its performance, its decisions are far-reaching. AUB Group Chief Executive Mike Emmett says the Lloyd’s capacity changes are likely to have an impact on the hardening price cycle.


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“The 2019 business plan was constructed with no intention to eradicate any geographical locations or classes of business, but with the aim of delivering a first-class underwriting result at Lloyd’s” - Chris Mackinnon “Everyone says we are in year four of a seven-year cycle,” he tells Insurance News. “I’m not sure what science that is based on, but I think the Lloyd’s phenomenon will make that extend a bit. I think we are going to have a gentler slope when it peaks, and in how long it takes to curve out.” Lloyd’s acted on underperforming areas after the market was hit by a loss of £2 billion in 2017 and the combined operating ratio blew out to 114%. Aboveaverage losses from hurricanes Harvey, Irma and Maria took a toll, but if catastrophe activity was normalised the ratio was still 106%. Mr Neal points out that Lloyd’s was heading for a time of reckoning years before it posted the loss, with profits between 2013 and 2016 boosted by foreign exchange and a historically low catastrophe claims period. “On the surface everything at Lloyd’s seemed OK,” he said. “But below the waterline the underlying trend was one of declining profits.” The response last year included the “decile 10” program requiring syndicates to identify their worst- performing areas and to agree plans with the central market to either improve them or remove them. This program tackled the business that was dragging down overall performance. Last year the upper quartile – the 20 best-performing Lloyd’s syndicates – had an average combined ratio of 92.8%, while the 20 worst-performing syndicates had an average of 133.6%. The Lloyd’s market reported another loss last year, albeit halving to £1 billion, with the combined operating ratio at 104.5% – but with the impact of key performance improvement measures yet to have taken full effect. “The 2018 results are not of the standard that one would expect of a market both with the heritage and the quality of Lloyd’s,” Mr Neal told his first results briefing since taking the top role. “That said, there are encouraging signs that the market is starting to turn the corner.” The portfolio reviews have resulted in £3 billion of underperforming business being removed, but Lloyd’s says it has been largely offset by around £9 billion in new business “stamp capacity”, which refers to the level of business syndicates are authorised to write. “The 2019 business plan was constructed with no intention to eradicate any geographical locations or classes of business, but with the aim of delivering a firstclass underwriting result at Lloyd’s,” Mr Mackinnon



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says. “No lines of business have been exited.” Business plan variations are possible if syndicates can demonstrate that the growth opportunities will add value and they have been adhering to their agreed program, he says. Lloyd’s has received 52 applications for plan variations, out of which 75% have been approved, while 17% are still under review. There is a commitment to a five-day turnaround time if the applications meet criteria, so that syndicates will not miss out on growth opportunities. The “decile 10” remediation program was a one-off, and won’t be a specific part of the 2020 planning process, but scrutiny will continue. “We have said to the top quartile – people who have outperformed the market and done so consistently – submit your plan whenever you want to and we will file it,” Mr Neal told a Managing General Agents’ Association conference in the UK last month. “In reverse, if you are bottom quartile you will go through a robust and challenging business plan process.” Lloyd’s “chain of security” includes a mutualised central fund to protect Lloyd’s policyholders, and the market says it has specific obligations under the Lloyd’s Act to oversee the performance of all its syndicates. “It is important and appropriate for Lloyd’s security, reputation and financial strength ratings that we undertake a level of oversight over those operating in the market,” Mr Mackinnon says. The recent issues come as Lloyd’s is looking more thoroughly at how it can better meet changing demands from its global customers and improve its efficiencies and cut costs. The market has completed a 10-week global consultation on its Future at Lloyd’s document, which outlines six initiatives to help encourage innovation, overhaul costs and make it easier to do business. A blueprint will be published on September 30 and some measures will be operational early next year. Mr Neal says Lloyd’s should not be playing catch-up with its peers, as its rightful place is “at the front of the flotilla”. “We are just at that tipping point, I think, of pulling the market back into shape and realising the opportunity in front of us,” he says. In the meantime, capacity issues in challenging areas of the local market are not likely to disappear in a hurry. 0

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Proud of progress: icare’s John Nagle

On the right track Despite the bumps and occasional potholes, John Nagle’s icare is changing things for the better By John Deex


ew South Wales state-owned insurer icare is a major operation. It’s regarded as the biggest insurance group in the country and like all organisations with some crucial roles to play, it comes in for some serious scrutiny. As well as providing workers’ compensation insurance for 3.6 million employees in NSW, it insures state assets, runs the Home Building Compensation Fund, administers care schemes for people severely injured in road accidents and also looks after workers with an acquired dust disease. It’s a big job, and Chief Executive and Managing Director John Nagle is tackling it head-on. He’s clear that while not everything has gone exactly to plan for icare, the organisation is achieving great things and the people of NSW are better off as a result. icare was formed in 2015, and former Lumley boss Mr Nagle has been there from the start, taking up the reins last year following the departure of Vivek Bhatia to QBE. “The Government realised that it had a significant position in insurance but didn’t actually have a strategy for it,” Mr Nagle tells Insurance News. “They started the process of reviewing all of the insurance schemes, and realised that a number of them weren’t performing to customer expectation so the idea of icare was created.



August/September 2019

“We’re a $36 billion organisation. That’s why we say we are probably the largest insurance organisation in Australia.” Tasked with transforming the customer experience and finding efficiencies across the various schemes, icare made workers’ compensation a priority. “Workers’ compensation is about 50-60% of what we do, but takes 70-80% of our concentration,” Mr Nagle says. The scheme icare took over was in bad shape. Poor patterns of behaviour, later highlighted in other sectors by the Hayne royal commission, were “very apparent”, Mr Nagle says. Problems in the system included claims estimates being manipulated, industry codes being misused and bullying of case managers and injured workers. “A lot of that was anecdotal, but when we looked more deeply we found distinct patterns,” Mr Nagle says. “The outcome for injured workers was very, very poor. Our first priority target was to improve the injured person’s customer experience.” And Mr Nagle says icare can already claim success. Bringing in net promoter scoring enabled icare to measure every initiative’s impact with customers, and get feedback. The improvements have been dramatic. “We are very happy with what we are doing for injured citizens of NSW,” Mr Nagle says.

“We have a slight increase in claims numbers, and that is coming directly from injured workers. So where were those claims in the old model?”

But some harsh critics of the system remain. The NSW Business Council has repeatedly complained of “poor administration” of the scheme, highlighting “a lack of appropriate checking of claims, lengthy delays and poor advice and support for both employers and employees”. The NSW State Insurance Regulatory Authority (SIRA) is currently carrying out an independent review of the scheme. Mr Nagle says he welcomes it. Acknowledging that mistakes have been made, he also believes employers are pushing back against changes that don’t benefit them. But he has faith in the new model, driven by key insurance agent EML, while accepting that the systems initially were not fit for purpose. “We absolutely acknowledge that as we have rolled out new systems and new processes we haven’t got everything right,” he tells Insurance News. “We had to accumulate five different sets of data from scheme agents. And then we’ve had our own systems issues as we’ve rolled them out, and a couple of those have been quite tricky to resolve. “With EML, trying this at scale proved that the system that we originally went live with couldn’t handle it. It was compounded by our desire to reach a high level of service very quickly and EML’s capability to

support that.” Mr Nagle believes icare is now back on track, but accepts some criticism will continue. “The employers have always been negative and continue to be negative because they don’t like their loss of power and loss of control in the scheme. “Our job is to be neutral. Our job is to say the legislation has rights and obligations from all parties and we’ve got to drive through the eye of the needle.” Some commentators point to rising claims costs, while others suggest icare is not financially sustainable. But Mr Nagle says they don’t have all the information, and are not asking the right questions. Firstly, it makes no sense to compare current outcomes to those achieved under the old model. And eradicating those unwanted behaviours comes at a cost. Under the old model 97% of claims were lodged by employers. Under the current model this is down to 85%, with the other 15% coming directly from injured workers. “Prior to the new model there was a lot of anecdoctal commentary about claims being suppressed by employers,” Mr Nagle says. “The new model is probably validating some of that. We have a slight increase in claims numbers, and that is coming directly from injured workers. So where were those claims in the old model? “[Critics] are comparing a model that had inherent


August/September 2019


Driving down costs: John Nagle with Insurance News Managing Editor John Deex

flaws in it with a model that is built around fairness and neutrality. “That’s the whole outcome of Hayne. What’s the cost of fairness? The whole industry is going to go through this, not just us. We are ahead of the curve.” Rising medical costs are having a major impact on claims costs, but this is out of icare’s control. “Our medical costs since 2015 have gone up 40%,” Mr Nagle says. “In NSW we are paying Australian Medical Association rates plus 50%. No other state does that and we’ve asked the regulator to look at it.” While icare’s finances are highly complex, Mr Nagle is proud of some successes there, too. Savings of around

$1.7 billion have already been achieved, which has enabled premiums to be stabilised. The 2015 reforms which created icare committed an extra $1 billion to injured workers in terms of benefits and improvements, and he says that has been delivered. “We have kept the basic tariff premium the same now for five years,” Mr Nagle says. “The savings we have generated enabled us to do that. “We’ve managed to drive down the inherent operating costs of the scheme by the consolidation and changes we’ve made.” icare aims for, at 80% probability of adequacy, a

icare’s other operations Lifetime care icare provides treatment and care to those who have been severely injured on NSW roads. “When you buy your greenslip there is a levy that comes to us to pay for people who are catastrophically injured – primarily paraplegia, burns, blindness and brain injury,” Mr Nagle says. “We have about 180 people a year that meet that criteria. Our youngest customer came into our care before they were even born, and we could be supporting that person for the next 100 years.” Dust diseases icare Dust Diseases Care compensates and supports workers who have developed a dust disease from occupational exposure in NSW. “The holy grail of the insurance industry is, when will asbestosis be over? Our trends have been relatively stable for some time now. “What we are starting to see is the heroes of the 1980s coming through – a younger generation who didn’t want to take up the protective clothing and unfortunately are now being impacted. “We don’t think it will ever go away completely.” Builders’ warranty The Home Building Compensation Fund helps homeowners to rectify incomplete or defective works done by a builder or tradesperson. “When I joined Lumley one of the first decisions I made was to close down the builders’ warranty portfolio



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because behaviours in the building industry meant that no one could ever make any money in that class,” Mr Nagle says. “Coming into icare, where we now run the sole builders’ warranty scheme, it’s quite a different program. There is much more control over the creditworthiness of our builders and much more collaboration with the Master Builders and Housing Industry Association. But it is for a limited segment of the market. Until there is a change in the mindset of some of the developers and some of the other areas in larger building projects there is no way we can gauge the risk. “The challenges in that portfolio cannot be solved by us. Having said that I think there is a role for the insurance industry to play.” Insurance for NSW icare protects more than $193 billion of NSW state assets, including the iconic Sydney Opera House and Sydney Harbour Bridge. It also provides workers’ compensation insurance to 193 public sector agencies and their 329,000 workers and 82,000 volunteers. “The Harbour Bridge and Opera House are big revenue generators for NSW,” Mr Nagle says. “If anything happens to one of those key assets it’s not just the damage and replacement issues but the impact to the economy. “Part of our role is to make sure we understand those exposures and having those conversations across government.”

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target funding ratio operating range of between 110% and 130%. It is currently sitting at 109%. “We are 1% behind. Are we panicking? No. We think it is manageable over the course of a three to five-year period. Stability and certainty is more important to the employers of NSW rather than suddenly reacting to what could be a temporary actuarial view. “What is putting us under pressure are those medical costs and the changes in the risk-free rates. “Some pundits say that the technical base rates should be a lot higher. That would be correct, if we hadn’t made the savings. “We are not saying the rates will never go up. Will we have to increase rates because we can’t take control of medical costs, or will the benefits that we see through the new model start cutting in at a greater rate? We don’t know the answer to that yet. It’s a bit of a race.” Mr Nagle believes icare’s culture is critical – and the organisation could play a bigger role in future. “One of the areas we have been examining is what is the role of a social insurer, what is our role in leading debate or asking questions across NSW?” The icare Foundation enables strategic investments that benefit the community, and a mobile engagement team carries out regular regional visits. “We are building a picture and an understanding of what we can do in the future,” Mr Nagle says. “The ‘commercial mind and social heart’ ethos that we have really spells out what we are here to do. We run commercially but we are here for the citizens of NSW.” icare has taken huge strides, but Mr Nagle knows there is still some way to go. The first three years was about building the organisation, bringing separate schemes and systems together.



August/September 2019

Now it’s into what Mr Nagle calls “the run phase” – the hard yards of delivering in an efficient and effective manner. “When you step back you would say that by the financial and customer metrics, very clearly we are well ahead. I think we are 75-80% of the way there.” But he says icare “hasn’t been good at telling our story. We haven’t explained the process and the steps we’ve taken well enough for some of our customers, so there has been more confusion than there needed to be.” While the SIRA review is routine (the legislation is reviewed every five years), Mr Nagle says it has come about early partly because of some of “the noise” around icare’s performance. “The logic is that it is better to find out now whether we are on the right path. It is just good governance. “We’ve had a good engagement with the independent reviewer. It is an opportunity to help us tell our story, and a good opportunity for people to feel heard. “We have acknowledged that we have not always listened well. We can’t pre-empt the review, but if it came out and said we’ve had some execution challenges, that we’ve got to improve our communications across our stakeholders and we’ve got to move a bit faster in a couple of areas, we wouldn’t disagree.” Despite the size of the task and the level of scrutiny, Mr Nagle has no regrets about joining icare. “It’s been a fascinating challenge and I haven’t worked this hard in my whole career,” he says. “I’m incredibly proud of what we have achieved and I am really confident about the direction we are headed in. “By any metric we can prove that the citizens of 0 NSW are better off because icare was created.”

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We need to talk about emissions Insurers lobby governments to spend more on mitigation as damage from severe weather increases, but remain largely silent on the underlying cause By Benjamin Levy


ive times in the past two years, the insurance industry’s response to the election of a government or the handing down of a state or federal budget has been to call for more funding for disaster mitigation. The lack of new spending in this year’s March budget by the new Morrison government has been roundly criticised by the industry. Although that’s hardly new; concerns at the lack of funding in last year’s budget were also met with protests – and the same cold silence from the Government. “The failure of governments to treat flood mitigation and resilience projects as critical investments in the economic future of natural disaster-prone communities is short-sighted and disappointing,” the Insurance Council of Australia (ICA) says. It called for policies to tackle the impacts of climate change when the Morrison



August/September 2019

government was re-elected, and following the budget. RACQ Insurance also voiced its disappointment that the Federal Government again ignored long-standing Productivity Commission recommendations to invest $200 million a year on flood defences. ICA and the industry praised a recent decision by the Queensland and Federal governments to set aside $100 million on disaster mitigation measures, including strengthening roads to withstand floods. And the council also called on the re-elected NSW Government this year to provide more funding to protect flood-prone towns. Mitigation is at the top of the agenda. But while the industry is more than happy to issue calls to tackle a major side-effect of climate change – and be ignored – when

it comes to speaking about the need to cut emissions the industry’s silence is deafening. So what is the industry doing about emissions, which are, after all, a basic cause of climate change? ICA refers Insurance News to a statement it published in February on its Climate Change Action Committee, which co-ordinates the industry’s response to climate change through adaptation and risk mitigation. Yet ICA won’t entertain the idea of making a public statement about cutting emissions, and declined to provide additional comment for this article. Does this have anything to do with a Federal Government that includes a number of prominent climate deniers in powerful positions, and the fact that Australia is responsible for nearly 35% of global coal exports? Is it just too politically dangerous

to engage with ministers on the divisive subject of emissions? Finding an insurer willing to speak out about the need to cut emissions is like Where’s Wally – they’re in the picture somewhere, but where? Despite the sensitivities, the prudential regulator is climbing into the climate change (rather than emissions) issue boots and all. Geoff Summerhayes, a former senior Suncorp executive and now an Executive Board Member of the Australian Prudential Regulation Authority, has warned the insurance industry that accelerating climate change could destroy its ability to predict catastrophes based on past events – making it impossible to price future risk. “Historically, general insurers have thought about the past being a predictor of the future,” he says. “But what happens if

that thesis no longer holds? And what happens if the future is behaving in ways… that don’t appear in any of the past models?” So if there’s a sense of urgency coming from the regulator, why isn’t that being reflected in the actions of the insurance industry? Why are the industry and its representative body so unwilling to take a position on curbing emissions when emissions are the root cause of the issues insurance faces as a result of climate change? Like most things connected with insurance and important public issues, the answer isn’t simple. On one side of the argument are people like Market Forces campaigner Pablo Brait, who wants ICA to push privately and publicly for rapid reductions in emissions to keep global warming to 1.5 degrees. “It’s a short-sightedness we’re seeing

from the industry,” he says. “There’s an unwillingness to stand up even for their own interests, which is to mitigate global warming as much as possible.” Market Forces has been picketing Suncorp’s offices in Sydney in an effort to persuade it to halt underwriting and investing in fossil fuel developments. The first step is to get insurers to stop underwriting fossil fuel investments, and thus stop fuelling the problem, Mr Brait says. There’s been some success with Suncorp saying it will phase out coal exposures by 2025 and QBE by 2030, but without a similar commitment on oil and gas Market Forces says insurers are just trading one climate risk for another. Then there’s Lead General Insurance Actuary at Deloitte, Rick Shaw, who has a completely different take on the issue – one

insurance insuranceNEWS

August/September 2019


that takes into account the insurance industry’s diversity and its overall reluctance to ever be as strident as people like Mr Brait want it to be. Mr Shaw says that right now insurers are more focused on mitigation because it’s natural disasters, not the emissions which are the root cause of climate change, that are affecting them. His viewpoint is easily supported. The industry includes some very large companies which have their own agendas and policies – some of them global. There is always going to be a wide variety of views on ways to work with governments. Some will deal through ICA, others will run their own race with Canberra where it suits them. That’s why ICA and most of its member companies are hesitant to contribute to public debate around complex political issues, and why they usually tread carefully down paths that may find them at odds with politicians. So what can the industry do? The diversity of views that constrains ICA from being at the forefront of the debate – no matter how much some of its executives might wish it were otherwise – doesn’t prevent the industry from contributing to the debate behind closed doors in Australia and the world’s major business cities. Mr Shaw points out that this can clearly be seen at an international level, where a number of reinsurers are heavily involved with modelling and informing government

bodies about the potential impact of climate change. And locally the industry is moving cautiously to encourage policyholders to cut emissions. Suncorp, for example, is exploring commercial opportunities that offer carbon reduction benefits to its customers, businesses and the wider community. “The business the industry writes is changing in response to a perspective on climate change,” Mr Shaw says. “Insurers are having very direct discussions [with energy companies] around the future potential for the fossil fuel industry, and the commercial risks that such industries are exposed to because of the worldwide push to renewable energy.” But Market Forces’ Mr Brait is thinking a bit less subtly. He says he’s relying on insurers to educate their customers and countering the influence of the fossil fuel lobby. “We want to see them letting their customers know why premiums are increasing in high-risk areas, and if they’re living in a high-risk area that they are facing increasing property risks due to global warming-fuelled storms and cyclones, floods and bushfires,” he says. While there are programs and action plans in place across the industry, no company that Insurance News approached was prepared to discuss its engagement over such issues as emissions and climate change. Award-winning climate scientist Joelle Gergis says insurers should see it’s in their

own interest to tell customers why premiums are rising, and says insurers are also in a unique position to do something about climate change. “I can’t second-guess why the industry is remaining silent, but I imagine it has to do with the same kinds of pressures that people face when talking about moving away from fossil fuel extraction,” the Australian National University climate professor says. “It’s a political argument, it’s not an evidence-based argument. “The fact that Australia is responsible for nearly 35% of global coal exports is almost a taboo subject.” As for the supposition that insurers in Australia fear publicly engaging with politicians over emissions or global warming, Professor Gergis points to the example of New Zealand, where politicians aren’t in denial about climate change. IAG has a much more active role in combating climate change in New Zealand. It is openly participating in the development of climate change legislation, and the Climate Leaders Coalition. Yet here, that kind of involvement is anathema to the industry. It is clear to anyone who cares to look that the insurance industry believes in the necessity of cutting carbon emissions, and is already working – albeit more quietly and cautiously than some would like – on a range of initiatives to help achieve it. The only question is, when will they have 0 the courage to talk about it?

• QBE has stopped investing in and underwriting thermal coal because of its high emissions intensity, and one of its five prioritised sustainable development goals is to help their customers take advantage of opportunities in the transition to a lower carbon economy. • IAG helped establish the Australian Business Roundtable for Disaster Resilience and Safer Communities, and contributes to a range of research organisations. • Executive General Manager of Safer Communities Ramana James says IAG has a long history of engaging with governments

and has contributed to the “climate change discussion” for over a decade. It has contributed to government reviews, inquiries, and policy settings around managing the impact of climate change. • Suncorp is engaging with state and federal government on risk reduction and resilience. The Productivity Commission says 97% of disaster funding is spent after a disaster, cleaning up and rebuilding and only 3% on mitigation. • It has committed to phasing out exposure to coal by 2025.

Industry initiatives • ICA’s Climate Change Action Committee was established to co-ordinate the industry’s response to climate change, but its focus is on adaptation and risk mitigation. It is also launching a website on the issue. • One of the principles of the committee’s mandate is to work with governments, regulators and key stakeholders to promote action on climate change. It also includes a general statement in support of the Paris Agreement – to which Australia is a signatory – to limit the extent of global warming to less than two degrees.



August/September 2019

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Delivering on the promise Winners of the Mansfield Awards highlight the insurance industry at its best By Wendy Pugh Out in front: Allianz’s Brendan Dunne receives the Gold Mansfield


esponsiveness, efficiency and empathy are common words that come up when winners of the Mansfield Awards for Claims Excellence talk about their approach toward the central promise of insurance. “Claims is at the very heart of what we do as a business,” Allianz Chief Customer Services Officer Brendan Dunne tells Insurance News. “When people make a claim with us, it’s usually as a result of some kind of misfortune, big or small, and we want to help ease our customer’s burden and make sure our claims service is as simple and quick as possible.” Allianz this year won the Gold Mansfield trophy for overall excellence for a second consecutive year and was also named winner in the personal lines and SME property and casualty categories. Other finalists for the overall award were Berkshire Hathaway Specialty Insurance (BHSI), FM Global and TravelCard. Mr Dunne says Allianz introduced some key initiatives two years ago that have improved transparency and also brought to life better ways of fulfilling claims quickly and easily. The “Five Star Survey” was rolled out to ensure customers’ feedback could drive further improvements,



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while the Next Gen Claims program is designed to both harness new technology and focus on the capabilities of staff. “We’ve remained focused on our soft skills – the people skills that can make all the difference for customers facing stressful times,” Mr Dunne tells Insurance News. “For personal lines, it’s so important to have frontline staff who are empathetic, understanding of each situation and solution-orientated.” SME property and casualty also require strong relationship management and communication skills to fully support brokers and their customers. Mr Dunne says that over the past 12 months Allianz has introduced a new Broker Claims Dashboard which provides a selection of real-time updates of the status of customers’ claims and important payment information. Ambitions to provide exceptional customer service are tested most after large-scale catastrophes, and the insurer has a dedicated event response plan,” he says. “Given the number of catastrophic weather events over recent years, we have been able to continue to improve our service offering in this space and have a very seamless and customer-centric approach.” This year’s corporate property and casualty category


award was a tie between BHSI and FM Global. Each company received a trophy. Considering the thorough Mansfield Awards measuring process that involves feedback from brokers – this year more than 2000 brokers contributed their views – backed up by the results of several major broker groups and the Australian Financial Complaints Authority –the likelihood of a tie is quite remote. Yet it also happened last year, when GT Insurance and National Transport Insurance tied in the specialty award. BHSI, which only launched in Australia in 2015, returned to the winners’ list as a much larger business compared to when it won the category in the inaugural Mansfield Awards in 2017. Head of Claims Susan Donaldson says the business focused from the start on communication and responsiveness and having key decision-makers in place to speak with clients, ensuring prompt action and efficient service. “We probably have, roughly speaking, 10 times as many claims as we had when we won this award two years ago, and we are incredibly focused on maintaining that service as we get bigger,” she says. BHSI continues to use feedback from brokers and customers to constantly improve its performance. Ms Donaldson says members of the claims team are passionate about their roles, hardworking and empathetic. “In the corporate space it is about that personal touch,” she says. “For us the technology developments we are looking at are really about having our administrative and other processes being incredibly efficient so that the claims-handlers are focused on customers and making the decisions that really matter.” The joint winner in the category, FM Global, is a mutual that offers only commercial and industry property insurance and which has been in Australia for 46 years. Operations Manager Lynette Schultheis says winning the corporate property and casualty category award for the second consecutive year and also being a finalist in the overall Gold Mansfield award is testament to the professionalism of the FM Global claims team. “From my standpoint, what would differentiate us from our competition would be certainty,” she says. “I think that is something clients really look for, and our process starts much earlier than when a loss actually occurs.” The FM Global approach includes holding workshops

where the firm’s internal loss adjusters run through scenarios that may affect policyholders, and what might happen during any recovery process. “We will walk them through a policy and how it would play out in a specific loss scenario,” she says. “We address that upfront before we even get to the point of a loss occurring. It alleviates a lot of concerns.” Policies are also typically in the hands of the client at the time of binding, if not before, given the unpredictable nature of claims-triggering events, which she says occur surprisingly often a day after coverage is bound. “We are constantly looking at our policy to see how we can evolve it to meet whatever our clients need,” Ms Schultheis says. “If you look at how our world is changing, and the exposures, that is changing every day.” In the specialty area, TravelCard has shown it is particularly responsive to evolving demands and ways of doing business. It only started up business in Australia last year, offering its products through brokers. Policyholders are given an insurance payment card that enables real-time claims payments to be paid while claimants are still on their travels. “It is important for us that our customers can return to their holiday and not spend their precious trip time figuring out how to pay for, or worrying about if they will get back the expenses they are incurring,” says recently appointed Chief Executive Peter Klemt. “More than 80% of our claims are settled while our customers are travelling.” Mr Klemt says TravelCard is also recognised for its “delicate approach” to covering pre-existing medical conditions so customers have the confidence to take their dream holidays. “We have trained medical professionals on hand to discuss their needs and circumstances with them, so when we tell a customer they’re covered they can rely on that,” he says. The Mansfield Award winners all highlight the importance of delivering on expectations when customers experience unexpected events, and the personal satisfaction for claim team members from successfully helping businesses and people get back on track. “We know that it’s the claims process that matters most to our customers,” Allianz’s Brendan Dunne says. “When a customer makes a claim with us, the promise that we have made to them is tested – and it’s up to the 0 claims team to fully deliver on that promise.”


August/September 2019



Time for a claims revolution The digital transformation of claims processing is gaining traction, but it’s slower than it should be By Miranda Maxwell


eraclitus of Ephesus may have died in 475 BC, yet his maxim “the only constant is change” has never rung truer for insurance claims management. The hype around digitisation in claims processing, and the pressure on insurance firms to follow other financial institutions and adopt more automation, is at fever pitch. Yet the industry is lagging behind such peers as banking and travel, and adoption is slow – “more a trickle than a race,” as one industry member observed. “Digitisation has to be really carefully thought through and executed,” says Jamie Smith, Partner at EY, whose team helps customers with their digital transformation journey and finds many deterred by perceived cost, confusion and not knowing where to start. “Every claim is a moment of truth,” Mr Smith says. “Getting this wrong during the claim experience risks losing that customer during the retention process.” One problem industry participants agreed on is that “digitisation” is such a broad term it has become vague and almost meaningless. As Daniel Lukich, 360Globalnet Business Development Director Asia Pacific, observes, “words are being bandied around” with little real understanding of what it all means. “Robotics, artificial intelligence, ecosystems, digitisation – these buzz words are often thrown in the same bucket during discussions around how insurance claims can be modernised,” Mr Lukich says. He says the development of claims processing systems is a long way behind similar projects in comparable industries, “and that’s why many are now scrambling to come up with a strategy”. EY’s Mr Smith agrees. “Digitisation can mean all things to all people.”



August/September 2019

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A digitised insurer can refer to the use of process automation (taking costs out of the transaction by reducing labour intensity), or the use of technology and data to better predict fraud or claims frequency (called “leakage” in the industry). Perhaps most frequently it refers to augmenting the customer’s claim experience and the transparency of the process by using technology. EY says consumer research confirms speed, efficiency and transparency are among the most important characteristics of a quality claims experience. “Insurers are increasingly using digital tools to really help enhance those areas,” Mr Smith says. In the future the Internet of Things will bring swathes of data from billions of connected devices to bring unprecedented insurance policy design accuracy, and machine learning will see insurers taking findings from claims audits and using those insights at such critical stages of the claims process as investigation, evaluation and settlement. Artificial Intelligence (Ai) will quickly detect potential fraud and other trends as powerful algorithms comb data from social networks and cross-reference the claim’s details in seconds Drones will quickly capture images after a catastrophe, greatly speeding up claims processing.

TIPPING POINT So far so clear, but then why are insurers still lagging behind peer industries so conspicuously? While there might be a dash of complacency among some insurers, there are some genuine hurdles and the seeming inertia that so frustrates eager insurtechs is not all just a case of being “stuck in the ‘80s.” Underinvestment in IT means policy administration systems are often just as old as the claims ones,



August/September 2019

and this limits the benefits to be gained. “Often, existing processes are either heavily paper based or people and process based, which makes it very hard to digitise something if you have not got the backend processes capable of doing it,” Mr Smith says. And of course it is expensive. Backers of digitisation say it is “head-scratching time” for insurers as they ponder the claims value chain and try to gauge where spending will extract the best bang for their buck. Rita Yates, Chief Executive at Insurtech Australia, agrees previous investments in older platforms makes it difficult to completely start from scratch and integrate new systems, potentially leading to an inferior piecemeal type of approach. Although the technology is ready, the industry – particularly the larger four which dominate market share – is not ready for it, she says. “For every piece of the claims value chain the tech is now available. So we’re almost at this tipping point where it’s hard to tell exactly when it’s going to happen, but it is going to happen.” Already insurtechs like Claims Space and Claim Central Consolidated offer an ecosystem where all parties involved in management of the claim become connected across one platform. Cover Genius is able to offer instant payouts for claims, and Claim Central has just completed a yearlong incubation trial of its new full-service solution Insurx – the “x” is for experience – featuring automated claims and live video streaming. IAG is busy decommissioning redundant claims systems following consolidation using Guidewire’s ClaimCenter, and is now beginning the challenging journey to similarly consolidate its policy administration system. IAG Chief Executive Peter Harmer told analysts this month there are plans to invest more in Ai and transitioning of data to the cloud will also accelerate in the year ahead. At 360Globalnet, digital platforms 360SiteViewand 360Retrieve have attracted partnerships with Allianz, Gallagher and AMA, with other major insurers and suppliers also committing to the technology. 360Globalnet’s Mr Lukich has been encouraged by the response from the industry – brokers, insurers, third-party administrators and suppliers – which he says understands how a smartly configured digital platform supporting current claims systems can keep customers updated on the progress of a claim via their smart phone or email. It also provides a facility where all stakeholders within the claim can communicate in a real-time environment. “A digital strategy will support and bolster a claims service proposition instead of replacing it,” Mr Lukich says. “Keeping customers informed of progress through key claim milestones means less spot fires to put out.

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At the same time it gives those cases that genuinely require assistance on technical aspects of a claim the time and space for a claims handler to properly engage with the customer.”

VESTED INTERESTS Still, Mr Lukich says the insurance industry has some way to go to deliver a truly efficient claims service across most lines of business. “There’s too much reliance on policyholders driving around obtaining estimates, or in the case of motor visiting assessment centres, or spending 20 minutes or more on a phone to lodge a simple property damage claim, then waiting on hold, then having to make numerous calls to the insurer or their broker to check on a claim’s progress.” He says one inhibitor to the industry adapting quickly is that an insurer’s IT department often “owns or drives” the claims delivery strategy. IT’s like the tail wagging the dog. “I’ve seen IT driving the agenda with some insurers,” says Mr Lukich. “There is a lot of internal to and fro where a claims manager is seeking solutions right now to remain competitive and satisfy the changing demands of a customer, but IT have other ideas that can often take years and a lot of dollar investment to materialise.” The general public is now readily using digital interaction with most non-insurance services and businesses, and current trends indicate that “if you don’t have to pick up the phone and talk to anyone you would probably choose not to”, says Mr Lukich, who has only been in technology 18 months but has an extensive claims background. “Many insurers still seem to think that a good claim experience is having someone to talk to and providing a good experience on the phone once you finally get through,” Mr Lukich says from his office in Melbourne. “That is not necessarily the case.” This view was backed by comments from IAG’s Mr Harmer, who revealed that tracking of motor repairs via SMS updates was “proving incredibly popular” with IAG customers.



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HUMAN FACTOR On the other side of Australia, and the other side of the digitisation coin, is Perth-based Dave Bazen, the Chief Executive of loss adjuster ASTA Group, who is sceptical that less direct customer contact is the way to go. The race to digitise is dumbing down the industry, removing personalised service and “treating your client as a number,” Mr Bazen says. “Pushing the responsibility back to the client is sort of how I feel like it’s going. I don’t think that’s a good thing. “Our competitors are very much focused on how they can cut the customer out completely and just send them an app, make them walk around and do all the work and then just EFT them the money. Nobody ever actually turns up and talk to them.” Like the film scene in which Erin Brockovich reeled off full personal details from memory for every class action participant to a disbelieving city lawyer, Mr Bazen is a crusader for face-to-face contact. “A station owner in the middle of the Western Desert isn’t going to trust you unless you show up and shake hands with them and have a cup of tea with them,” he tells Insurance News. “They don’t trust you. The one place you would think (technology) would really benefit is the one place you can’t use it.” He advises not getting caught up in the groundswell, to be cautious and “have somebody else Beta test the equipment and wait until the bugs have been ironed out”. “Early adopters invariably fall on their faces because the next version that comes out is 10 times better and then they have to incur the cost of either trying to upgrade or start again.” EY’s Mr Smith agrees the human factor will continue to play a part in insurance. He says advisers still have a vital role to play, and that in the medium term digital tools for simple tasks can be augmented with claims people completing more complex insurance transactions. “There still needs to be empathy and that personal 0 touch,” Mr Smith says.

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Hayne’s claims conundrum The royal commissioner left questions hanging in the air with his recommendations. Now the race is on to devise some sensible answers By Benjamin Levy


hen Kenneth Hayne handed down the final report of his financial services royal commission in February, he made one recommendation that could have far-reaching implications for the insurance sector: to remove the exemption for insurance claims-handling and settlement from the definition of a financial service. What Commissioner Hayne had in mind when making this recommendation was to make it possible for the Australian Securities and Investments Commission (ASIC) to regulate the handling of insurance claims, and apply to it the obligation to act efficiently, honestly and fairly. He said at the time that insurance claims-handling was as much a provision of a financial service as any other. During the hearings, Counsel Assisting Rowena Orr raised the issue several times as instances of poor claims-handling emerged, relating to the handling of home insurance claims after natural disasters, where claims weren’t handled fairly or transparently, and where delays resulted in consumer detriment. What Commissioner Hayne didn’t do was to



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elaborate on how applying financial services requirements might actually work in practice, or what kind of effect it would have. That has been left to the industry and Treasury to figure out. The Insurance Council of Australia (ICA) has long argued that the Insurance Contracts Act precludes the necessity of including insurance claims-handling and settlement under the definition of a financial service. The exemption, granted by the Treasury at the last minute in 2001, was put in place so discussions about claims could be held with policyholders without triggering financial advice requirements. But after the Federal Government backed the royal commission’s recommendations in its entirety, ICA saw the way the wind was blowing and decided to support the recommendation – possibly in hopes of perhaps guiding its implementation. Treasury issued a consultation paper in March on how to implement the changes. It has proposed a twopronged approach: • To remove the exemption and define it as a financial service, thus bringing in the requirement to act


Under scrutiny: insurance claims after Wye River’s 2015 fires were examined by the Hayne royal commission. Credit: CFA

efficiently, honestly and fairly and making it subject to ASIC oversight. • The second step would be to define the activity of insurance claims-handling as a new financial service, thus avoiding triggering a number of financial advice and dealing requirements. But this approach has left some questions unanswered, and the industry is scrambling to try and understand the possible effects. Many of the activities of insurers during the claims-handling process don’t meet the current definition of providing a financial service, and the option to create a new definition for handling or settling insurance claims would cover all conduct in relation to claims-handling. People in the chain who investigate claims and interpret relevant policy provisions, or conduct negotiations over settlement amounts, or prepare estimates of loss, damage or repair costs, or make recommendations about loss mitigation, would all be covered under the new definition. In this proposal, third party representatives like investigators, loss assessors, adjusters, collection agents

and claims management services would all be included. This is perfectly suitable in the eyes of the Treasury. The consultation paper says “it is expected” that third party representatives would be included under the new financial services definition. But ICA and others believe the definition needs to be narrower. Its submission says Treasury’s definition is too wide and fails to take into account the broad range of people involved in claims-handling. Including the fulfilment supply chain under such a definition would only add to compliance costs for insurers, which would inevitably result in premiums rising, while services and options would decline. There would be no appreciable consumer benefit, ICA says. It argues that the definition of claims-handling should be targeted specifically at people who make decisions within the claims management chain – roles that have been identified in the royal commission as existing in regulatory gaps. An ICA spokesman told Insurance News that would include people who decide the claim should be approved, and how it would be fulfilled – in other


August/September 2019



words, claims officers and managers. They would usually be working within an insurer but could also be from a service provider like an insurance underwriting agency, if they have been properly authorised. However, ASIC may be looking beyond those with claims authority. Its 2017 review of life insurance claims noted that it was restricted in its ability to take action on the surveillance practices of claims investigators – an issue it has also raised in the general insurance sphere. A scathing report the regulator issued in July raised serious concerns over allegedly harmful claims investigation practices by some motor insurers. It said claims investigators were conducting hostile interviews inside consumers’ homes for hours at a time, demanding onerous and unnecessary information, and repeatedly questioning claimants to try and catch inconsistencies. Legitimate claims were being withdrawn as a result, ASIC warned. Given that the aim of Commissioner Hayne’s recommendations and the Treasury consultation paper was to make it possible for ASIC to police such behaviour, an argument could be made that ASIC would agree with Treasury that a much wider net of individuals beyond claims officers and managers should be subject to the legislation. Indeed, Treasury’s paper specifically notes that ASIC should have the power to decide if anyone else in the claims management chain should be included. This would no doubt be supported by consumer groups. Financial Rights Legal Centre has slammed the “threats, bullying behaviour and harassment” that consumers endure from investigators. ICA is in the process of trying to change Treasury’s mind. A spokesman told Insurance News that in a workshop with Treasury and ASIC, “it was recognised” that activities in the claims fulfilment stage – like car repair or jewellery replacement – would be hindered if service providers were expected to comply with financial services requirements. But the insurers’ peak body says it welcomes the willingness of Treasury and ASIC to work through the details of creating a new financial service around claims-handling and processing in order to avoid unintended consequences. Just what the effects would be if the fulfilment supply chain was included under the definition are unclear. ICA warns that if builders, smash repairers and other suppliers are included under the definition, they may withdraw their services. That impact would be compounded in regional areas and after catastrophes, where there are already significant logistical and practical difficulties in handling and settling claims. Insurers may also be forced to cash-settle and transfer the repair risk to the consumer. However, additional legislation could spell an end to cash settlements following a natural disaster.



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Consumer action groups have previously criticised insurers for using cash settlements to reduce the amount paid out to policyholders, as insurers’ payments can be based on what it would cost them to rebuild, which is generally less than what it would cost an insured. In a submission to the royal commission, the Consumer Action Law Centre said current cash settlement practices do not meet community standards or expectations, and the clause should not continue to operate to the detriment of consumers. Given that much of the focus of the Hayne royal commission dealt with the mishandling of retail clients, and they are the most vulnerable to unfair claims decisions, it appears that the legislation will be restricted to those dealing with retail products, including motor, home building and contents, sickness and accident, consumer credit, travel and domestic and personal property insurance. However, claims-handling conduct requirements would have to also apply to a significant number of policies commonly acquired by small business, like fire or burglary, according to financial services law specialists The Fold Legal. Most insurers already hold a financial services licence if they deal with retail clients, and they could simply vary the conditions to include claims-handling. A third party claims administrator would either need to obtain its own licence or become an authorised representative of the insurer, but they would need to demonstrate previous experience in claims-handling. They can expect ASIC to impose training requirements as part of the licensing process, the Fold says. One of the options floated by Treasury to ensure that claims-handling staff could provide guidance to policyholders during a claim without it being deemed personal financial advice is to specify that documents given to a consumer during these discussions are exempt from the definition. However, ICA is trying to discourage this approach. While the suggestion goes some way to addressing the personal advice issue, it would be restricted by a limited number of documents and prescribed statements. And it could create a situation where only certain trained and licensed staff are allowed to issue the documents. This would create “specialist bottlenecks” leading to delays in helping customers, ICA says. It could also lead to insurers focusing on training employees on how to phrase information so they remain within the scope of the exempted documents, rather than providing helpful information. Even though no one knows what the final result will look like for the insurance industry, it’s clear from the evidence presented at the Hayne royal commission that protecting the most vulnerable consumers will be the 0 over-riding priority for any insurers.




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Hundreds celebrate claims excellence More than 200 industry leaders and claims professionals attended a gala event at Sydney’s Establishment Ballroom in July, for the presentation of the Mansfield Awards. Allianz Australia won the Gold Mansfield for overall excellence in claims-handling for the second year in a row. As well as the top award, the insurer also won trophies for the SME property and casualty and personal lines categories. Other finalists for the overall award were FM Global, Berkshire Hathaway Specialty Insurance (BHSI) and TravelCard. BHSI and FM Global were joint winners of corporate property and casualty, while TravelCard took out the specialty section. The awards, named after the English Lord Chief Justice who introduced the concept of utmost good faith to the insurance process in 1766, are organised by Insurance News and LMI Group. The awards were again sponsored by Insurance & Care NSW (icare) and Steadfast, who have backed the scheme since its inception. Any surplus funds are used to support an orphanage in Indonesia.


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Readying for a 5G revolution in 4, 3, 2, 1… You think the insurance industry is already immersed in a digital transformation? 5G will accelerate the speed and scale of the challenge we face By Miranda Maxwell


magine a world with no internet. Or no cars. Your great-grandparents – if by happy chance they’re still around – could share some insights into what a very different life that was. Just as you will shock children born today with your reminiscences of a world before 5G. Not just 4G on steroids, “fifth generation” cellular network technology will be a true game-changer, just like the internet was. Except possibly more so, because 5G will realise the full potential that the internet offers. It brings a radically new infrastructure model using different kinds of antennas and operating on different radio spectrum frequencies. It delivers speeds many times faster than 4G without delays, or “latency”. The change is so dramatic Swiss Re has for the first time pinpointed 5G as a top “high potential impact” risk for general and life insurance, calling it an emerging risk that is difficult to quantify but which may have a “major business impact” on the insurance industry. “The insurance industry needs to demonstrate foresight and make use of sound future intelligence,” Swiss Re’s latest Sonar report says. “Historical data alone cannot build understanding of the future risk landscape, which is forever changing and presents new



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and previously unforeseen risks.” Crucially, 5G connects many more devices to the internet, for the first time allowing decentralised seamless interconnectivity between devices. Industry analysts speculate there will already around 20 billion connected devices by next year. “Technology is ubiquitous but 5G adds an aggregation not properly seen or acknowledged by the insurance market, and one for which the industry needs to prepare,” says Chris McLaughlin, Director at Aon’s Cyber Solutions Group. 5G’s primary role is to support the growing number of devices that demand internet access, many of them requiring so much bandwidth to function that 4G is inadequate. And it’s already here. Telstra and Optus are selling 5G devices and 5G home broadband services as the network is rolled out progressively, and Apple plans two 5G iPhone releases next year. Two arenas are particularly occupying the minds of insurers as 5G looms: the legup it will give to automated vehicles (and the shake-up that means for motor insurance), and an unfortunate side-effect: as 5G and other digital technologies are incorporated into legacy infrastructure, the complexity of managing cyber risks will explode.

“While 5G brings with it the promise of high-speed complex distributed systems, the greater their role in critical infrastructure, the greater the system risk and potential for cyber risk contagion – potentially magnifying the consequences of a cyber-attack,” Mr McLaughlin tells Insurance News. Organisations and insurers alike may struggle to keep risk assessments and underwriting approaches relevant to infrastructure and networks that are continually changing and expanding, he warns. In an often-quoted World Economic Forum speech, Qualcomm Executive VicePresident Dan Rosenberg predicted 5G will “impact every industry – autos, healthcare, manufacturing and distribution, emergency services, just to name a few.” 5G is designed so these industries can take advantage of cellular connectivity in ways that wouldn’t have been possible before, and to scale upward as use of 5G expands, he said. Insurance, which is inextricably intertwined with every other industry, will be front and centre in this watershed revolutionary force. An industry with notoriously long planning cycles needs to act with urgency. On the plus side, insurers are hopeful

5G’s information bonanza will allow actuaries to better calculate risk and help prevent claims, leading to reduced insurance rates and faster transactions and approvals. Other ways the speed and connectivity offered by 5G might impact insurance are with more alerts, automated photographing of incidents such as fires being triggered and sent, and a shake-up in commercial and marine insurance from real-time shipment tracking. It will bring a deluge of accurate and up-to-date information for insurers’ number-crunchers. “The more information we have the more easily we will be able to calculate risk and help prevent claims – the cornerstone of our industry,” says a report from global broker Gallagher. “For insurers, 5G can help us to do our jobs with more certainty and more effectively than ever before.” But perhaps the biggest hurdle for insurers to manage is the inevitable fact that 5G will greatly exacerbate fear around privacy issues, security breaches and espionage. New vulnerabilities are already being discovered in 5G protocols related to broadcasting and authentication that can be used for tracking user’s mobile activity, breaching privacy rules such as EU data protection regulations.

“Securing devices which traditionally have limited capacity and low bandwidth but now have 5G connectivity is going to be a real challenge,” Mr McLaughlin says. With the looming reality of tens of billions of interconnected devices, brokers should be helping their clients understand and quantify their cyber risks and support them in developing appropriate mitigation strategies. Businesses will need to take proactive steps to properly govern the infrastructure 5G enables for the Internet of Things (IoT) – technology that connects physical objects to the internet to collect, process and share information. In a nutshell, re-setting security strategies and providing additional funding and resources is a must to address the growing threat of denial of service attacks, which are magnified by 5G networks. “As more people and devices connect across the globe, the risk and impact of data breaches from malicious cyber-attacks, system failures and human error will only continue to increase,” Mr McLaughlin says. “The challenge for enterprise is that in theory every one of those devices is a potential ground zero for cyber failures and cyber-attacks.”

Potential breaches are not just from third parties, but from built-in hard or software ‘back doors’. Cyber insurers are already filling gaps in insurance programs to address a long list of costs: restoration of data, forensic investigation, cyber extortion, claims arising from security failures, damage to third party systems, public relations expenses, defamation, identify theft management, privacy and intellectual property claims, and fines and penalties. Worryingly, liability in breaches isn’t immediately clear, and Mr McLaughlin expects courts worldwide will be kept busy adjudicating after cyber incidents. Many insurers, intentionally or unintentionally, grant policies with no specific cyber coverage grants or exclusions. “Silent Cyber” – cyber exposure lying in policies which don’t specify whether losses arising from an attack are affirmatively covered – means larger incidents will have to be dealt with on a case by case basis. “In scenarios involving large scale 5G outbreaks, the only certainty is that allegations of liability will be cast widely and will only be fully finalised in court or in contractual commercial agreements,” Mr McLaughlin says.


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“Each ruling or agreement on liability can only be identified following full examination of the exact situation which gave rise to the incident.” Eric Durand, Swiss Re’s Group Underwriting Head of Cyber Centre of Competence, agrees that this increased bandwidth of new and more decentralised systems may offer more entry points for “bad actors” and permit faster exfiltration of data than before. “While the risk of cyber espionage and spying is normally not covered in insurance policies, it may negatively influence single corporates or even the whole economy of a market, hence also influencing the insurance industry,” he says. “Increased complexity of new systems such as 5G, coupled with a perceived urgency of introduction into markets, brings enhanced difficulties for users to thoroughly test the systems against both flaws and maliciously introduced weaknesses.” Traditionally IoT devices have had poor security features, and that may not change with the arrival of 5G. Hackers will be able to exploit 5G’s speed and volume, meaning more data can be stolen faster. Large-scale use of autonomous cars and other IoT applications must be matched by enhancements in security features, or interruption and subversion of the 5G platform could trigger “catastrophic, cumulative damage,” Swiss Re says. 5G has already triggered an unresolved US-China struggle for tech supremacy, and this heated international dispute over 5G contractors and the potential for espionage or sabotage could continue to affect international co-operation. Whether the rejection of Huaweisupplied 5G equipment by the US and its allies – including Australia – is really about



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the risk of inbuilt espionage capabilities, or simply part of the struggle between the two superpowers for 5G technical and trade supremacy, is still the subject of heated debate. The situation could also impact negatively on financial markets, which in turn could delay the implementation of 5G further, increasing uncertainty for planning authorities, investors, tech companies – and insurers. In addition, the market for 5G infrastructure is currently focused on a couple of firms, and that raises the spectre of concentration risk. The motor insurance arena is set to be transformed with autonomous or semi-driverless cars generating real-time data and reports following an accident or crash, which will allow insurers to investigate and resolve claims faster. More efficient smart vehicles are expected to depress insurance rates, and Swiss Re says we might see a further shift from motor to more general and product liability insurance. Cecilia Warren, Director of Research and Development at IAG, says the insurer is watching the progress of the 5G rollout closely, particularly as it presents such a great opportunity in the evolution of Connected and Automated Vehicles (CAVs). “We believe our role as an insurer is to focus on how we get Australia ready for the safe and sustainable introduction of CAVs,” Ms Warren tells Insurance News. “We see two key things to pay attention to with the emergence of 5G. We need to look at what problems technology is solving for people and secondly, how insurance can be an enabler of trust and safety.” A 5G-connected vehicle could improve safety for drivers, pedestrians and the community, she says. For example, 5G may bring

new ways to inform drivers about the road ahead – whether it be an accident, a closed lane or an erratic driver. IAG is involved in research partnerships to best understand how to safely make the most of the connectivity between vehicles, surrounding streets and people, for example working with iMOVE Australia to help build insight and talent in this area. Insurance has been playing catch-up with tremendous challenges in the digital age for several years, and it is clear 5G is going to accelerate those challenges significantly. As happened with 3G and 4G, there are likely to be delays and political friction, and potential liability claims, related to concern over the health implications of electromagnetic fields (EMF). 5G brings more antennas and requires acceptance of higher levels of electromagnetic radiation, which will even require changes to existing threshold value laws in some jurisdictions. Potential claims for health impairments may come with a long latency, warns Swiss Re, which has rarely been wrong since the first Sonar report was published in 2013. Past threats predicted by Swiss Re such as giant natural catastrophes and a backlash against globalisation have materialised, and the toll on the insurance industry and global economy is still playing out. The very purpose of insurance is “enablement and creation,” Marsh & McLennan President and Chief Executive Dan Glaser said in a recent speech in London. “There is no industry that benefits society more. There would be no investment, no movement, no advancement without insurance.” That boast will surely be put to the test 0 as 5G ramps up.

Revolutionising Claims Digitally


Business Development Director - Australia

This month we had the opportunity to talk to 360Globalnet’s Head of Asia Pacific, Daniel Lukich. After announcements of major companies such as Allianz, Gallagher and AMA partnering with 360Globalnet, we wanted to know why Daniel chose to set up 360Globalnet’s Australian operation and how they are getting on in the region.

W H AT L E D Y O U T O S TA R T W O R K I N G W I T H 360 G L O B A L N E T ? → I’ve worked in various claims related roles for a long time and there’s always been a lack of significant innovation so when I came across 360Globalnet and their vision of digital insurance I instantly became very enthusiastic. Their combination of world leading technology and insurance expertise was extremely impressive, so I jumped at the opportunity to get involved and lead their expansion into the region. Their track record and what they had successfully achieved working with their UK and US clients convinced me that there was a tremendous opportunity to bring their technology to the Australian market.

W H AT D O Y O U O F F E R T O C L I E N T S ? → Our 360SiteView digital platform is the most advanced online digital platform for claims management. It allows Insurers and others to realise all the benefits of new technology without necessarily re-platforming – with the associated huge expense and disruption. 360Siteview is a no-code environment which allows business users to develop and configure digital processes themselves at the desktop in plain English. It has all the necessary functionality to deliver leading edge user experience including sophisticated workflow, automation of tasks and communication, orchestration of your own staff and third parties as well as interrogate and analyse both structured and unstructured data (turn any text searchable, extractable and analysable). All this whilst being able to work either alongside legacy, or as a standalone core platform.

H OW I S YO U R AU ST R A L I A N B U S I N ES S G O I N G? → Simply put: ahead of plan! The Australian market is open to innovation and eager to explore new ways of working and modernising their claims propositions and customer involvement. I’m hugely encouraged by the response we’ve had from across the industry: brokers, carriers, TPA’s and suppliers.

W H AT I S Y O U R A D V I C E F O R T H E I N D U S T R Y W I S H I N G T O E N T E R T H E D I G I TA L A R E N A? → I think my advice would be to keep an open mind and be prepared to experiment and test. One of the big attractions of 360SiteView is how easy it can be to set up a trial. It’s extremely low cost to test the technology which allows you to see first-hand the benefits that can be achieved in customer experience and lower claims costs and improved fraud detection. Once you’ve dipped a toe in the water, you’re unlikely to look back!

Industry evangelist: Sean Gallagher

Passing the torch Sean Gallagher wants his family’s passion for the insurance industry to inspire future generations By John Deex


s the son of Gallagher’s global CEO and Chairman J. Patrick Gallagher Jr, you could be forgiven for thinking Sean Gallagher is one of those rare individuals who was always going to end up in insurance. After all, his great-grandfather Arthur J Gallagher set up the renowned broking firm in Illinois in 1927. And as it has grown through the years to become a national and then a global broking giant, a Gallagher was always at the company’s helm. But despite such ancestry, Sean was given the freedom to choose his own path – before settling on insurance aged 11. It was never just about duty, though. He says he has a genuine love for the industry, and is now determined to inspire others as insurance faces up to its many modern challenges. Currently Gallagher’s Melbourne-based Head of Branches in Australia, Mr Gallagher tells Insurance News how his own insurance story started. “It was driven by a classroom project I did in year five about what my mom and dad did for a living,” he says. “I used Monopoly pieces and money to simulate insurance and catastrophes and rebuilding homes and the like, and the reaction from my classmates was so cool that I thought this is definitely what I wanted to do for the rest of my life. “So, aged 11, I would go around saying I wanted to be an insurance broker, and people would look at me like I had three heads.” After college Mr Gallagher began an internship at the family firm before starting as an entry-level producer – the US term for broker.



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They were humble beginnings, with Mr Gallagher describing himself as “a glorified appointment setter” with a bench across the hall from the office bathroom. “It wasn’t even a cubicle but I loved it. I really fell in love with a lot of things about the industry. “I developed a book of business and as it grew, I put my hand up for more responsibility, starting to lead intern programs and manage teams. I was asked to move to Ohio to become the president of a branch in Cincinnati.” Then in October 2017 the phone rang with an offer to move to Australia. “It sounded pretty exciting. I came for a visit and said ‘yeah, let’s do it’. I have been here ever since.” The Head of Branches role is similar to Sarah Lyons’ position before she was promoted to Chief Executive for Australia. “She asked me to come down and help her keep doing all the really good things she had been doing since the merger with OAMPS,” Mr Gallagher says. He says his role includes helping the team achieve their goals – for themselves and customers – along with opening access to Gallagher’s global strength. There are 26 branches in the network, spread across Australia in rural and regional centres as well as state capitals. The network sits alongside the corporate, specialism, and agency divisions, and brings in about half the total revenue of the Australian broking business. Mr Gallagher says the network is committed to helping the wider company achieve its ambitions. “Sarah has done a very good job of painting a picture and a vision for the entire firm in Australia,” he

says. “That is to significantly grow in Australia over a five-year period doing all of the different things that we do globally – organic growth, acquisitions, looking at productivity and quality and keeping that unique culture of Gallagher.” Gallagher has been actively searching out acquisitions, with seven completed in the past year alone. Mr Gallagher sees acquisitions as “a way to add brainpower to create better outcomes for the customer”, using the recent acquisition of South Australian personal lines specialist brokerage Donnellys as an example. “Donnellys brings access to brains that have a different perspective in the personal lines space that helps us build on what we already thought we did well. Together we are better than we were separately.” Mr Gallagher says the firm’s family culture – there are about 19 family members currently employed – plays a key role in acquisitions. “It is critical because a lot of insurance brokerage firms are family-owned businesses and sometimes there is reluctance to join the big corporate world,” he says. “Having a publicly traded family-run firm to partner up with is a bit of familiarity.” As the market hardens, Mr Gallagher sees some “really difficult” classes of business developing. He references one recent Gallagher renewal that saw a client go from having one insurance company to 49, and believes some capital-providers are stepping back from Australia and analysing their strategies. In such an environment, brokers’ expertise is invaluable, he says. “Understanding the marketplace and


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“I don’t love my job because I was born with the last name Gallagher, I love my job because this industry is fantastic.” how to plan, strategise and execute is one of the major values of a broker. Mr Gallagher sees technology altering insurance for good, and this is complicated by demographic change as Baby Boomers begin to exit the industry. These twin trends create a unique challenge, he says. “Dominant insurance companies are pushing things online to algorithms, but the Baby Boomer generation still has a long way to go in contributing to the insurance market performance in the next 10 to 20 years. They have an unbelievable wealth of knowledge. “So you have got a generation of brokers that may potentially feel a little bit paralysed by the push online, who are trying to teach a younger generation.” Nonetheless, Mr Gallagher has huge confidence in the future of broking, and one of his key ambitions is to help progress this generational handover, imparting his family’s enthusiasm for the industry along the way. He wants to help recruit the right people into insurance, “giving them career opportunities to thrive in a market that has nothing but bright things to come”. “I wake up every day and I’m excited to go to work and I love my job, and I think that there are more people out there that should learn and understand why. “We need to get people to see how great an industry



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[insurance] is and how overwhelmingly beneficial it is to global commerce. “I don’t love my job because I was born with the last name Gallagher, I love my job because this industry is fantastic. “Insurance broking in particular is the place where I find the most joy in helping customers. It’s exciting, it’s competitive. It’s all about providing value to customers at the end of the day. “There are changing dynamics, but we just have to adapt and find ways to keep delivering on the value and the promise. “We help our customers understand how to protect themselves so that when things go really, really wrong for them we are there to help pick them up, dust them off and put them back on the playing field.” And what about the next generation of Gallaghers? Mr Gallagher has two young sons – but there won’t be any pressure for them to join the family firm. “My dad said to me, ‘I love my job and my career. Come and check it out. If it’s not for you it’s not for you’,” Mr Gallagher tells Insurance News. “I happen to love it, and I want my kids to know why I love it. I will tell them how great an industry it is their entire life. “But I want them to choose what’s right for them.” 0

Frayed nerves A biennial survey finds insurers are rattled over cyber hackers, Google and anything to do with technology By Bernice Han


s well prepared as major Australian brokerage Insurance House Group was, it still was not enough to thwart a cyber attack. On June 9, its entire system screeched to a halt after some nasty malware managed to sneak through the company’s heavily fortified anti-virus safeguards. The diversified insurance provider refused to yield to the ransom payments the faceless bandits demanded, no client data was compromised and several days later the brokerage’s systems slipped back into life. “We’ve got all the firewalls, everything,” Insurance House Chairman Gary Gribbin told Insurance News. “No one is immune from this sort of thing.” The Melbourne-based brokerage’s brush with criminals lurking in cyberspace brings to the forefront the fears gripping the global insurance industry over digital crime and everything related to technology. These grave concerns are revealed in



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PwC’s latest Banana Skins report, which asked more than 900 general and life insurance executives globally – including 33 in Australia – to name the threats they are most worried about in the next two to three years. Technology scored 3.86 to head the list for the first time since the biennial survey was launched in 2007. Cyber risk narrowly missed out on the top spot with a score of 3.85. Change management, linked partly to anxiety over the industry’s readiness for the digital age, placed third on 3.76. Competition, again with a technology element, was seventh on the top-21 list over fears that Google, Amazon and other tech titans could upend the insurance distribution chain. It’s hard to ignore the omnipresence of technology in the threat list. A breakdown of the responses by sector shows the fear of technology is uppermost in the minds of

general and life executives, and by geography in Europe, the Asia Pacific and North America. Just as insurers accept there is much to gain from embracing artificial intelligence and all things spawned by rapid advances in technology, they are equally fearful of the downsides that come with it. “This is the first year that technology risk has topped our rankings,” the report says. “It is also a pervasive theme throughout this report, underpinning other high-ranking risks including cyber risk, change management, and competition.” While the industry has spent heavily to upgrade IT hardware and knowledge, nervousness abounds that the investments may yet prove inadequate. “Many respondents made the point that this (technology) challenge cannot be met simply by throwing money at it,” the report says.

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“Upgrading technology systems creates significant opportunities, but is also a significant strategic risk if you bet on the wrong horse. “The consequences of making the wrong decisions could be wide-reaching.” The fallout includes missing opportunities key to keeping pace with competitors, increased vulnerability to threats such as cybercrime and wasted investments in systems that quickly become obsolete. On cyber risk, the fear extends beyond being a target of digital thieves. There are genuine questions over whether the industry is correctly modelling its exposure to claims. “Lots of insurers are trying to write cyber policies, but the potential impact of cyber insurance claims is still very much unknown,” the report quotes an industry respondent in Hong Kong as saying. “Even if cyber itself isn’t new, the scale of potential impact is unimaginable.” According to a UK respondent: “Cyber coverage/exclusion contracts are yet to be really tested.” Insurers will remain an enticing target of criminals primarily for two reasons, the report says. Firstly, the industry holds a vast volume of valuable data, and secondly it often relies on outdated and piecemeal defences. PwC and the Centre for the Study of Financial Innovation (CSFI), which worked together on the survey, say sentiment has never been so negative in the 12-year history of the Banana Skins report.

“This is largely due to the scale of the challenges facing the industry through technological and structural change, and concern about the industry’s ability to manage them successfully,” the researchers say. “The results should also be seen against a background of growing economic uncertainty around the world, and heavier regulation.” CSFI Director Andrew Hilton isn’t surprised the insurance industry is having such deep misgivings about technology. He believes it’s a “wake-up call” as the potential dangers it poses will intensify, not fade. “After all, it’s well known that many insurers are lumbered with legacy systems that need updating and that integrating them is time-consuming, fiendishly complicated and, inevitably, very expensive,” he says. “Equally, we are all aware of the risks around cyber – from simple hacking, from ransomware, from trojans, even from malevolent state actors. “We are less aware of ‘silent’ cyber exposure, but it is a real risk that is starting to take up much more C-suite time.” Climate change, previously seen as a long-term threat in past surveys, has moved up to debut at sixth on the list. Many of the respondents say it will be a top threat in the near future. The heavy claims losses from super-windstorms, wildfires and other extreme weather events that scientists say is the evidence of global warming have shifted the industry’s assessment of the risk.

“The frequency and severity of events has more than doubled in the past 10 years and is expected to continue to increase as global temperatures continue to rise,” the president of a Canadian general insurer told the surveyors. “New flood products have not been fully tested for price adequacy and wildfire risk is growing as well, without models to assist in measuring exposure.” In Australia, the fallout from the Hayne royal commission looms as a big worry. A non-executive director with a brokerage suggested “political interference is in full swing” as politicians moved quickly on the reforms Commissioner Kenneth Hayne tabled in his final report. “The royal commission’s recommendations will create a big shift in how local insurers will operate and the changes will take time to work through the sector,” PwC Australia Partner and Insurance Leader Bernadette Howlette told Insurance News. “Overall the recommendations were not entirely unexpected, and were seen as broadly supportive of the drive toward a more developed approach to managing conduct risk and accountability to create good customer outcomes. “There will also be greater enforceability of the industry codes of conduct, along with the Australian Securities and Investments Commission’s remit to oversee claims-handling and insurance contracts, which will require co-ordination and cross-sector collaboration to agree on standards and expectations for the sector.” 0

Banana skins The 21 risks of most concern to insurance industry leaders (2017 rankings in brackets) 1. 2. 3. 4. 5. 6. 7.


Technology (3) Cyber risk (2) Change management (1) Regulation (6) Investment performance (5) Climate change (-) Competition (8)


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8. Human talent (9) 9. Macro-economy (7) 10. Interest rates (4) 11. Political risk (11) 12. Cost reduction (13) 13. Reputation (17) 14. Guaranteed products (10)

15. Business practices (12) 16. Quality of management (14) 17. Credit risk (-) 18. Social change (16) 19. Corporate governance (19) 20. Capital availability (20) 21. Brexit (22)

We have deepened our commitment McCabe Curwood is excited to announce the appointment of Mathew Kaley as a new Principal in its Commercial team. Mathew will be leading a specialist corporate advisory practice group, focusing on insurers, intermediaries and others associated with the insurance industry. Mathew joins us from Allianz Australia where, as General Counsel, he led a corporate legal function that tackled the full range of the company’s legal issues – from regulatory change, compliance issues and commercial disputes to acquisitions, distribution arrangements and complex technological and operational change. He is an insurance industry expert. We recognise that insurance industry participants require the best possible legal advice to help them navigate the current environment. Mathew brings not only technical proficiency in his areas of expertise but also a valuable understanding of the practical challenges involved in applying the law and implementing change within an insurance business context. The development of the specialist corporate advisory practice group represents the next step in the firm’s commitment to providing a broad commercial and regulatory legal offering to the insurance industry. We understand the business of insurance, and we are deeply committed to our partnerships. For more information about partnering with us, please see our website, Stronger. Together.


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Keeping it simple: IUA holds true to founder’s philosophy Interruption Underwriting Agencies (IUA) was formed by Harry Dickinson Snr in 1987 with a simple premise. Mr Dickinson Snr – previously a claims adjuster – aimed to simplify the whole process of business interruption insurance and claims for everyone involved including brokers, clients, underwriters and adjusters. While IUA has been through some ownership changes since (sold to Calliden, who in turn sold it to Steadfast), this original premise remains. Underwriting Manager Christopher Connolly tells Insurance News it results in an “easy to understand and responsive policy which is considered a market leading product”. “Apart from being a cash flow policy agreeing to pay claims weekly, perhaps the most significant innovation was the inclusion of an agreed Insured Rate of Gross Profit,” he says. “The use of these percentages ensured that all that was required from the client was the turnover of the business. The percentage is used to calculate the cover and forms the basis of settlement in claims.” Mr Connolly says IUA offered the first “weekly policy” and the basis of settlement still to this day states it will pay weekly. IUA’s underwriting philosophy is about agreeing to the methodology of the claim payment at the inception of the policy, Mr Connolly says. Mr Dickinson Snr died in 2008 and his son Harry Dickinson Jr, who helped form the business, died in July this year. However, some of the key principles they instilled con0 tinue to help the business thrive.

Weather warning: climate-driven disasters pose an increasing risk

Risk radar: Sparke Helmore contributes to major report Sparke Helmore Lawyers, representing Australia as the sole local firm to be a member of Global Insurance Law Connect (GILC), has contributed to the network’s first “Risk Radar” publication. The report, to be published annually, gives a snapshot of the major issues bubbling up in 15 major insurance destinations: Australia, Belgium, Brazil, China, France, India, Ireland, Italy, Mexico, Norway, Spain, Switzerland, Taiwan, UK and the US. GILC, a network of like-minded specialist insurance law firms, was created as multinational clients seek global solutions to new risks such as cyber attacks and data breaches, requiring a view across international markets. A number of themes in the just-published Risk Radar report have a global resonance, as many countries are struggling with regulatory issues and natural catastrophes dominate.

Sparke Helmore assesses the Australian insurance market to be in the midst of volatile times, a reflection of a hardening global market and regulatory and societal scrutiny, combined with the challenges brought by AI, customer behavioural change, cybercrime and data protection. “The local industry is under unprecedented pressures and constraints,” the report says. The three top local risks identified by Sparke Helmore were building and construction claims, directors’ liability and climate risk. “The rising incidence of building failures such as non-compliant combustible cladding, the pain-points being experienced by insurers around D&O insurance with record numbers of class actions and ‘event’ based claims, as well as the increasing frequency of climate-driven disasters in this country” were the main 0 focus points, Sparke Helmore said.

Rebranded: CBN launches distinctive new website, logo Community Broker Network (CBN) has launched a smart new website and logo to promote clearer brand recognition and ease of use by its network. The new branding is the culmination of CBN’s primary challenge in recent years to effectively integrate the best of the three separate and uniquely different businesses into one. CBN was formed in 2017 and purchased by Steadfast from IAG late last year. It came together from three networks: Perth-based Westcourt General Insurance Brokers,

which was acquired and merged with IAG’s National Adviser Services (NAS), and CGU AR Network. “Our new branding ensures we have a strong professional presence in the market that is distinctive and memorable,” Nese Akay, General Manager of Strategy, Brand and People, says. “Brand recognition plays an integral role in telling our story, so our visual identity must be distinctive, modern and engaging, reflecting our future aspirations. We have refined our story to ensure everyone is clear.”

After consultations and feedback, and help from an award-winning design agency, the new website and logo was finalised. The branding overhaul addresses inconsistencies while providing a format that works in the digital era. The new website includes a “find a broker” search area, as well as “brokers in action” to highlight the great work CBN authorised brokers do in the community. CBN has more than 600 authorised brokers servicing clients and business owners across Australia with gross written premium 0 of more than $585 million last year.


August/September 2019


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Speaking up for inclusion The Lloyd’s-inspired Dive In festival continues to grow – and it’s more important than ever to show support By Miranda Maxwell


loyd’s global Dive In Festival kicks off in September and promises to be the biggest event yet as the initiative, which fosters inclusive workplace cultures, enters its fifth year. This year’s festival comprises events in more than 60 cities across 33 countries, attracting more than 9000 people. Three days of local events get underway in Sydney and Melbourne on Tuesday, September 24, ending in Auckland on September 26. Dive In started in London in 2015 before becoming an international event and debuting in Sydney the following year. This year’s launch was in London on July 11 with the theme #inclusionimpact and aims to build on last year’s campaign of putting “awareness into action”. “To attract the best talent, the insurance industry must focus on its reputation as a good sector in which to work. This means looking beyond traditional definitions of

Dive In agenda 24 September Sydney: Belonging for Impact: Hosted by Steadfast, this two-hour working lunch includes an overview followed by table-led discussions and use of empathy mapping. A highly interactive session. 12pm-2.15pm Melbourne: Diversity beyond traditional dimensions and inclusion for the future of the insurance industry: Brought by AIG Australia, Marsh and DXC Technology, this event explores how the insurance industry can leverage and learn from businesses who are taking diversity and inclusion to the next level. 3.30pm-6.45pm 25 September Sydney: Impact through Reconciliation: Aon and Swiss Re welcome Paul Dodd, Chief Executive at Corporate Culcha, who identifies as a Bundjalung man and will discuss the benefits reconciliation can have on corporate culture and outcomes that can be

diversity to consider a broader range of factors, such as age, cultural background, sexuality, social mobility, faith, caring responsibilities, mental health and physical impairments,” Lloyd’s General Representative in Australia Chris Mackinnon says. “Dive In has helped highlight the business case for diverse and inclusive workplaces and provided practical ideas and inspiration for how to bring about positive change. It has grown far beyond its roots to include some of the world’s largest insurance companies, brokers, underwriters and associated service providers.” In Australia and New Zealand, more than a dozen events will be held across Sydney, Melbourne, Brisbane, Perth, Adelaide and Auckland, with registrations for the Australia and New Zealand events open until September 18.

Over the three days, events covering subjects as diverse as Aboriginal reconciliation and recognition, unconscious bias, parental leave plus many more, as well as a cocktail hour with comedian Lawrence Leung, will be enjoyed by insurance indus0 try participants.

Register here: achieved. 8.30am-10.30am The art of inclusion - it’s no joke: Zurich welcomes comedian Lawrence Leung, the first Asian-Australian to create and front his own comedy TV comedy series, for a cocktail hour and hilarious, thought provoking evening. 4pm-6pm Melbourne: Women In Insurance – The Path to Executive Leadership (invite only). 12pm-2pm #Inclusion Impact – it’s time for action: Sura and Wotton + Kearney, in partnership with ANZIIF and diversity and inclusion expert Dr Jennifer Whelan (Psynapse Psychometrics) unpack the insights gained from a survey of more than 600 people. 3pm-5pm Perth: Unconscious Bias, Challenge Your Beliefs. Hosted by NIBA. 7am-9.30am 26 September Sydney: Why sharing the care is key to gender balance: A panel discussion, including QBE’s

Vivek Bhatia and led by founder of Parents at Work Emma Walsh, will challenge the current state of parental leave in Australia. 12pm-2pm Harnessing the value of an inclusive workplace culture: This session will explore how organisations transition through employee resource groups such as PRIDE Group and Reconciliation Action. 3.30pm-7pm Brisbane: We are one: Sparke Helmore, AIG, NIBA and Gallagher present a panel of guest speakers to discuss “ensuring a level playing field” and important steps toward recognition of Indigenous Australians. 8.30am-10.30am Adelaide: AILA hosts a CPD breakfast seminar presented by Kimberley Jonsson of CHU. 7am-9am Perth: Looking Beyond Disability. Hosted by NIBA. 4pm-6.30pm Auckland: “This is not us…or is it?” Consciously challenging our own biases as humans. 2.30pm-6.30pm insuranceNEWS

August/September 2019


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CQIB celebrates annual awards More than 350 members and guests of the Council of Queensland Insurance Brokers (CQIB) gathered at Brisbane Convention and Exhibition Centre in June to honour outstanding industry staff and insurers at the Queensland Day awards. CQIB’s annual awards are now in their 22nd year. Young professional of the year was Matt



August/September 2019

O’Rourke of LEA Insurance Brokers, while Lisa Hetherington from Zurich was also honoured for outstanding service. QBE won All-Rounder of the Year and Domestic Insurer of the Year awards. Allianz won for its claims service, and UAA received a trophy for underwriting agency of the year.

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August/September 2019


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HDI gives taste of homeland About 100 brokers and clients of insurer HDI Global attended a German winter market-themed celebration. The annual event took place in July at the firm’s Sydney office. Managing Director Stefan Feldmann gave a speech but socialising, eating and drinking were the order of the day.



August/September 2019

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August/September 2019


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Brisbane expo breaks records The Underwriting Agencies Council (UAC) and National Insurance Brokers Association (NIBA) hosted another successful expo in Brisbane with a record 90 exhibitors taking up booths at the July event. Brokers and clients were given an in-depth look at the latest suite of insurance covers on offer and a “red shirts” team was on hand to help brokers find their way around. A breakfast seminar included a panel on the insurance landscape, featuring UAC Chairman Lyndon Turner, NIBA Chief Executive Dallas Booth, Steadfast Executive General Manager Partner and Broker Services Nicholas Cook and Austcover Chief Executive Maria Parry. NIBA presented its Queensland broker and young professional broker of the year awards to Lisa Carter of Clear Insurance and Caitlin Carson of JLT respectively during the expo lunch.


August/September 2019


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CBN conference hosts gala dinner A gala dinner in Noosa Woods and an evening at Yandina Station were among social highlights at the third annual Community Broker Network (CBN) conference. Conference attendees took a short stroll in perfect weather from the Sofitel Noosa Pacific Resort to the Gala event destination, where tables were set up under marquees in the picturesque woods area. A cover band entertained some 350 guests and the evening featured the presentation of a number of CBN awards. Festivities on the previous evening were held at historic Yandina Station, established in 1853 and still a working cattle property as well as an events venue. The theme of this year’s event was “Thrive” and keynote speakers included shark attack survivor Glenn Dickson and scientist and adventurer Tim Jarvis. CBN Chief Executive Richard Crawford provided an update on the network, while other topics covered included risk management in a hardening market, the value of cyber insurance and making business improvements.



August/September 2019

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Suncorp in perfect Synergy Suncorp’s latest Synergy event series provided an opportunity for intermediary partners to hear from senior executives on the direction of the company and to participate in discussions on key industry issues. Sessions included an update from Acting Group Chief Executive Steve Johnston, who said taking part in the Synergy activities had been on his “bucket list”. Mr Johnston joined Suncorp in 2006, about six weeks before Cyclone Larry hit the Queensland coast, and he spoke about seeing the insurer help people put their lives back together after catastrophes. Insurance Chief Executive Gary Dransfield and Banking and Wealth Chief Executive David Carter also participated in panel discussions. The Synergy series was held in Brisbane, Sydney, Melbourne, Adelaide and Perth.



August/September 2019

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very time it rains too much in Australia, there’s inevitably a destructive flood that inundates towns or even cities, with many of the residents shocked because they thought it was never going to happen to them. But if you look at the pattern of Australia’s settlement in the 19th and early 20th centuries – long before anyone had ever heard the word “mitigation” – the risk of flood in so many places becomes obvious. Heavy rain and floods in Australia have been happening for tens of thousands of years. But the European immigrants who established the towns that dot Australia’s coast and even its hinterland had one priority when it came to deciding where to build: it had to be near fresh water. This ancient and generally flat land contains plenty of rivers and streams, and when rivers back up because they can’t drain the water fast enough, the floodplains take the excess. That’s what they’re there for, after all. However, the best soil for farming is on floodplains. Growing prosperity in the rural areas saw towns springing up where the farms were, and towns also need fresh water to survive. So they built as close to a river as they could. And then when it rained too hard – well, we all know what happened then. But stoic souls that they were, those pioneer farmers and townsfolk would inevitably rebuild, perhaps believing that the last flood was a once in a lifetime event. Perhaps that attitude is still with us. Witness the amazement of residents, politicians and the media when a flood-prone region anywhere in Australia lives up to its potential. Insurers, who have spent much of the past 10 years building up a solid understanding of flood across the country, are one of the few groups that would find a flood unsurprising. But they are also the ones who cop a blast from all quarters when a flood happens.



August/September 2019

By Sam Pentecost Contributor

So to illustrate the fact that floods shouldn’t be a surprise if you live in a town or city built beside a river or – even worse – on a floodplain, here’s a selection of some (but not all) of the more significant floods Australia has experienced over the past 162 years. All involved rivers being overcome by the amount of water they were expected to carry. June 1852, Gundagai, NSW: The Murrumbidgee River flooded, killing 89 in a town of 250 people. The town was destroyed. (At least the good folk of Gundagai rebuilt on higher ground.) June 1867, Hawkesbury-Nepean basin: The Hawkesbury River rose to 19.6 metres above normal after heavy rainfall over several days, inundating 16,000 homes and killing up to 20 people. February 1893, Ipswich, Queensland: 35 deaths, 300 people injured after a cyclone dumped more than 900mm on the town in 24 hours. December 1916, north Queensland: A cyclone in the region of the Whitsunday Islands caused floods in several towns in the region, killing 65 people. February 1927, Brisbane, Cairns, Townsville, Queensland: There were 47 deaths after a tropical cyclone hit north of Cairns before turning into a tropical depression and continuing south. In eight days it caused floods along the coast as far south as Brisbane. April 1929, Launceston, Tasmania: Up to 500mm of rain fell over northern Tasmania in 72 hours, destroying 25 bridges and wrecking 1000 houses. Eight people drowned when a truck drove into a flooded river and another 14 died when a full dam above the town of Derby collapsed.

November 1934, Melbourne, Victoria: Around 140mm of rain fell on Melbourne in 24 hours, with the Yarra River breaking its banks – just as it had in 1839,1860, 1863, 1891 and 1923. Some 36 people died and 6000 were left homeless. February 1955, Hunter Valley, NSW: Floods from the Hunter River hit Singleton and Maitland, causing 24 deaths, inundating 5200 homes and causing more than 40,000 people to be evacuated. January 1974, Brisbane, Queensland: Brisbane recorded 900mm of rain over three days as a result of Cyclone Wanda crossing the coast north of the city on January 27. The resulting rain-bearing depression headed south, causing lesser floods through NSW and as far south as Tasmania. The Brisbane River flood killed 14 people, 300 were injured and 56 buildings were destroyed. August 1986, northwestern Sydney, NSW: A record 327mm of rain in 24 hours saw the Hawkesbury and Georges rivers flood, causing massive disruption in the city and leaving six dead and 10,000 homes damaged. Dec 2010-Jan 2011, Brisbane and southeast Queensland: Following Queensland’s wettest winter on record, a monsoonal trough just before Christmas brought torrential rain to most of the Queensland coast, and by December 30 vast areas of the state were flooded. A flash flood caused by a thunderstorm devastated the centre of Toowoomba, while rainfall from the same storm flooded the Lockyer Valley. Releases of water from Wivenhoe Dam upriver from Brisbane caused massive flooding in the city’s river, peaking on January 13. The backed-up river also caused floods in Ipswich and surrounding regions. 0

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