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WORKING THE WAY THEY WANT TO Bryan Leibbrandt and Kirstin Morley are just two of the many brokers around Australia who work as authorised representatives. Read inside how intermediaries are choosing to share the administrative load and find happiness. June/July 2019


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Contents 6 Newsmakers » 10 Hayne’s volatile mix »

How will ICA’s Rob Whelan handle a self-regulatory code that will soon be backed by law?

16 In defence of the C-word »

Brokers are standing by their commission model and warning against an overhaul that won’t produce better consumer outcomes

20 Loyalty at Liberty »

Meet Australia’s most dedicated insurance chief, who’s still running the company he helped set up 20 years ago

26 Too important to ignore »

A Suncorp study highlights the true economic value of insurance – and the consequences of failing to invest in disaster mitigation

30 Ready for anything »

Regional chief Sinead Browne says Allianz Global Corporate and Specialty is in it for the long haul as risks evolve and market conditions shift

36 Uninsurable v unaffordable »

Two different terms, with different political ramifications. But is the ultimate outcome the same?

41 In telematics we trust »

Large fleet operators are increasingly on board with behaviour-monitoring technology

46 The second wave »

Risk analysts must adjust to a loss landscape increasingly dominated by floods, fires and hailstorms

specialFEATURE

62 Growing closer »

An annual report finds insurtechs are making progress in working with insurers to plug technology gaps

67 Taking an independent view »

Akshay Gupta is leading BHSI’s analytics work to sharpen up the understanding of customers’ specific catastrophe risks

72 Picture this »

Analysts have shared their vision of how the industry may look in 2025

companyNEWS 76 Delivering insights »

The Bridge International marks first anniversary

76 Motoring ahead »

Fleetsure wins claims award

76 New beginnings »

IQumulate moves head office

peopleNEWS 78 SA soars at Allianz Young Eagle event » 80 Matson Driscoll & Damico forum attracts full house » 83 Time to engage with DXC » 84 ICA celebrates industry achievements at Annual Dinner » 86 AIMS enjoys taste of Hollywood » 90 maglog »

48 The right balance »

AR networks are an increasingly attractive option for professionals looking to realise business and lifestyle goals

60 ‘So much more we can do’ »

The management buyout of Resilium sets the AR group up for a bright future WORKING THE WAY THEY WANT TO

Pictured: Bryan Leibbrandt and Kirstin Morley

June/July 2019

Bryan Leibbrandt and Kirstin Morley are just two of the many brokers around Australia who work as authorised representatives. Read inside how intermediaries are choosing to share the administrative load and find happiness.

Credit: David Broadway

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Sun sets on CEO Cameron

In April/May we published 484 articles online. These were made up as follows:

Michael Cameron has left the group after almost four years as CEO, with CFO Steve Johnston to act in his place while the board considers candidates for the position.

72 80

Corporate

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Regulatory & Government

“It is a highly specialised and complex industry and insurance companies need executives with that kind of experience.”

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Life Insurance

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Clime Asset Management’s Large Companies Portfolio Manager David Walker explains why Suncorp should appoint an insurance executive to replace ousted chief executive Michael Cameron, who had limited insurance experience.

The Professional

When tax overtakes the premium…

International

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The NSW Government has failed to respond to concerns that taxes will soon account for more than half of home and contents premiums in the state.

Analysis

The Insurance Council of Australia (ICA) says from July 1, after increases to the state’s Emergency Services Levy (ESL) kick in, the tax component of home and contents premiums will rise to more than 50%.

102 Daily

For commercial policies it will be even higher – GST, state stamp duties and the levy will account for 60-70%.

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Breaking News More than 29,446 news articles – including 320 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. 0

insuranceNEWS.com.au asked the NSW Treasury whether it is appropriate for taxes to make up more than half of the cost of insurance premiums, and whether it agrees with ICA concerns that such high taxes could exacerbate problems of underinsurance. But Treasury did not acknowledge the issue – instead sending a statement from Minister for Police and Emergency Services David Elliott justifying the ESL increase, which will pay for improved access to workers’ compensation for firefighters diagnosed with cancer. The “historic” arrangement was set to be replaced by a broad-based property tax, prior to a last-minute Government U-turn in 2017, which left the insurance industry facing costs of $40 million. NSW Government stays silent on 50% insurance 0 tax, 10 May

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The Australian’s John Durie today outlined other numbers that “tell the story” of Mr Cameron’s exit.

Chairman Christine McLoughlin He says over the past four years says Mr Cameron has accelerated the IAG has outperformed Suncorp by group’s digital capability and driven a 37%, with Suncorp underperforming customer-first culture, but now is the the market by 13%. right time for change. “This tells you all you need to Suncorp first-half group net know about why Michael Cameron is profit, reported in February, fell 44.7% no longer the CEO,” he writes. to $250 million from a year earlier, Cameron leaves Suncorp with the insurer blaming the sharp with ‘digital foundations in place’, decline on the Sydney hailstorm and 0 27 May

Local

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unforeseen regulatory costs linked to the Hayne royal commission.

June/July 2019

Crop failure Australia’s long-struggling multi-peril crop insurance market has ground to a halt after an exodus of providers, according to a famers’ peak body. The market is “effectively non-existent” this year, leaving GrainGrowers no choice but to scrap its annual review of covers. “GrainGrowers is calling on political parties to address the market failure that exists in this insurance market,” the peak body says. “Multi-peril crop insurance is largely not available in the Australian market this year.” Four providers that offered multi-peril crop cover last year have exited the market, with the handful of providers left mostly offering weather-derivative options or named peril policies. Ausure is the only one offering the multi-peril product, but only as renewals with existing clients. Multi-peril crop market ‘failure’ as providers 0 exit, 29 April


Insurer’s decision shakes Wellington Wellington Mayor Justin Lester has suggested the New Zealand Government may need to ensure affordable insurance is available in the earthquakeprone city following IAG’s decision to raise premiums in high-risk areas. “It may be that the Government needs to consider what insurance companies are required to offer in a market, and they may have to offer an affordable option where they operate,” he said. IAG has told New Zealand customers they may see price changes as EQC reforms take effect from July and the company ensures its premiums reflect risk levels and costs including reinsurance. Customers living in areas more prone to natural disasters and severe weather events may have to pay higher premiums, while those in more benign areas may pay less.

NIBA brings in the researchers The National Insurance Brokers Association has commissioned Deloitte Access Economics to assess the value of general insurance brokers to clients, insurers and the community. The Hayne royal commission’s final report recommended a review of general insurance commissions, and both the Coalition and Labor have agreed to carry this out. Association CEO Dallas Booth says

brokers have “a sound basis” for arguing for the continuation of commissions, but more “hard evidence” of broker value is needed. “We believe there is strong value there and brokers are entitled to be remunerated,” he told insuranceNEWS.com.au. The report on insurance brokers could take a year to complete, and a broker survey may be used to gather data. NIBA commissions study on broker 0 value, 13 May

Pacific: Commercial rates up 16.1%

UK: Commercial rates up 2.9%

US: Commercial rates up 1.1%

Europe: Commercial rates up 2%

Asia: Commercial rates up 0.4%

EQC reforms will see it raise its building cover cap to $NZ150,000 from $NZ100,000, but the state-owned insurer will no longer provide up to $NZ20,000 for contents, leaving that to the private market, IAG says it will pick up the cover for its customers who have contents policies. Mr Lester says IAG has 40-50% of the Wellington market and premium increases could affect many people. “Insurance is crucial for a city. It has to be available and affordable for banks to lend, for businesses to operate efficiently, and for people to have peace of mind.” The IAG premium changes would affect brands including AMI, NZI and State as well as products it provides for ASB, BNZ, The Co-operative Bank and Westpac. EGM Customer and Consumer Kevin Hughes says IAG realises the changes will be a challenge for some customers and it will work with them through the process. “There are a range of options available to customers to make this easier, including taking a higher excess or adjusting the frequency of payments to suit them,” he said. “We will continue to provide solutions and work to make insurance as affordable as possible.” Wellington on shaky ground over premium 0 rises, 30 April

How commercial premiums performed in the first quarter of 2019. Source: Marsh

Talbot moves out Talbot Underwriting is closing its only Australian office, in a move management says aims to bring “enhanced value” to its partners in the region. The agency, which is now owned by AIG, will oversee renewals through its Singapore and London offices when the Sydney branch is shut on July 1. The branch was established in April 2015. The Talbot Division of Lloyd’s China will also be closed, with the company’s regional underwriting capabilities combined into a single hub based in Singapore. The company has declined to say how many staff will be affected, or answer questions on the future of Talbot Underwriting Australia MD Andrew Case. 0 Talbot to shut Australian office, 27 May

D&O: It’s getting tougher year and a further five or more are being Underwriters are committed to strategies investigated, according to the report. D&O capacity in the Australian and to deliver a substantial upward re-alignment of the D&O premium pool as class action costs London markets remains generally available, but for listed firms insurers are increasingly have increased. Companies in the ASX200 experienced a “Insurers are taking this action in the face selective and thorough in underwriting median 122% increase in primary premiums of ongoing profitability challenges emanating reviews. in the second half of last year following an from Australia’s active securities class action Non-listed organisations are also 89% gain in the first six months, an Aon first environment and other significant claims experiencing some modest upward pressure quarter market insights report says. on premiums based on their risk profiles and activity,” Aon says. Pressure on premiums will continue for At least 15 securities class actions, business sectors. listed firms, and companies with smaller including competing claims, have been filed D&O rates rising as class actions keep market capitalisations may see relatively against listed companies since January last coming, 26 April 0 The directors’ and officers’ market is continuing to deteriorate for Australianlisted companies as premiums keep rising and insurers moving to improve profitability become more selective.

larger increases.

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From the

PUBLISHER

Hume takes over financial services Victorian Senator Jane Hume has been named as the new Assistant Minister for Financial Services, Superannuation and Financial Technology, with oversight of the general insurance industry. She is the third minister in the past year to hold responsibility for financial services. Senator Hume was the chair of the Economics Legislation Committee and deputy government whip in the Senate. Prime Minister Scott Morrison’s new cabinet includes Josh Frydenberg as Federal Treasurer, while Michael Sukkar has been promoted to Assistant Treasurer. Jane Hume appointed Financial Services Minister, 0 27 May

Catastrophes hit underwriting profits The industry’s underwriting profit fell 32.4% to $2.8 billion in the year to March 31 as earnings took a severe hit from the Townsville floods and Sydney hailstorm, latest Australian Prudential Regulation Authority (APRA) figures show. A strengthening of claims reserves in professional indemnity and mortgage classes hurt insurers too, the regulator says. After-tax profit fell 4.7% to $3.6 billion and the net loss ratio deteriorated 5 percentage points to 67%. While insurers achieved a 6.1% rise in gross earned premium to $48 billion, gross incurred claims recorded a much bigger increase of 24.1% to $36.9 billion. Investment income grew 42.2% to $3.1 billion. The APRA figures are based on data from 96 insurers. Townsville floods, Sydney hail sink industry earnings, 0 27 May

Terry McMullan

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We are now firmly locked into the toughest part of the insurance cycle, when insurers curb their competitive instincts and brokers find little enthusiasm for risks that that are just too risky. In the face of falling profits from both investments and underwriting, coupled with rising catastrophe claims, local insurers have had little option other than to buck the global trend and impose significant premium rises across the board. Plunged into a market that is now far less friendly and far more cautious – and which is likely to remain so for a couple more years at least – brokers must sometimes seek alternative sources of cover. Traditionally that alternative has been Lloyd’s, but not this time, apparently – or at least not so much this time. Lloyd’s has its own problems. It recorded a £1 billion loss last year, and it’s struggling with costs, technology and competition from capital markets. The local insurance broking industry is also going through its own problems as it comes under unprecedented levels of scrutiny around commissions and conflicts of interest. Added to that is the accelerating pace of generational change, with the Baby Boomers moving out in ever-greater numbers. For brokers under the age of 40, this may well be the hardest market they have yet experienced. But the rising generations are better equipped to ride out the storm than their predecessors ever were. They’re better educated and have access to greater levels of data. Underwriters’ desire for ever more detail – a desire that rises in intensity along with the hard market – will serve to quickly educate the rising generations in broking about the vagaries of the hard market, and they’ll come out of the experience more professional in their attitudes and awareness. Broking in this environment is complex, and in tough times or good the business of broking is going to need educated and thorough professionals working in it. Some expertise can be taught, and some is gained through experience. Learning from the rough and tumble of the hard market will help to ensure broking continues to be a vital cog in the mechanism of risk advice and transfer.

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CONTRIBUTIONS: We welcome all material that is relevant to the Australasian and regional risk insurance industry, including all aspects of risk management. Please contact the Editor, +61 3 9499 5538.

Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion. Printed on FSC® certified paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification. ISSN 1837-4972


Hayne’s volatile mix How will ICA’s Rob Whelan handle a self-regulatory code that will soon be backed by law? By Terry McMullan

T

he recommendations of the Hayne royal commission into misbehaviour in the financial services sector have done the most extensive damage to Australia’s banks and wealth creation companies. Greed, a callous disregard for basic honesty and managerial hubris were found to be systemic. The attitude of individuals and corporations towards customers’ welfare had strayed far beyond the bounds of reasonableness. For general insurance, instances of misbehaviour aired at the royal commission were based on individual stuff-ups over claims, a too-slow acceptance that add-on insurance no longer met consumer standards, and in at least one instance a hairy-chested management culture. It’s impossible to say how many more stories of failed insurance claims and low levels of service from insurers would have been aired in the royal commission if the General Insurance Code of Practice – a “living document” that has been setting benchmarks for service standards and consumer awareness across the industry for 25 years – had not been in place. But it’s fair to surmise that without it, some of those stories of consumer woe and insurer cack-handedness would have been very much worse. As it was, general insurance was a low profile target at a royal commission that has resulted in billions of dollars in compensation being earmarked for the customers of banks and wealth creation organisations. But then, general insurance was never the focus of the royal commission. However, the recommendations that do impact on it are certain to challenge and even change the industry. Industry interpreter: ICA’s Rob Whelan is deciphering royal commission recommendations 10

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“The recommendations relating to the code are difficult to interpret, and different groups have widely different views of what is meant and how these might be enacted.”

Apart from recommendations that bring the entire financial services sector into line with a renewed focus on the rights of the consumer, the royal commission also proposed some striking changes to long-established general insurance industry practices. For brokers, it has re-ignited tensions about commissions and encouraged consumer interests – and regulators – to mount fresh attacks on the globally accepted practice (see panel page 14) of the insurer paying the broker to sell the policy and manage the buyer’s ongoing needs. For insurers, a major preoccupation is the industry’s treasured code of practice and Commissioner Kenneth Hayne’s decision to give the code greater heft by making it enforceable at law. The blindfolded goddess of justice with the sword and the scales now has the potential to upset the self-regulatory balance that has been a positive feature of the industry for the past 25 years. For Insurance Council of Australia (ICA) Chief Executive Rob Whelan, Commissioner Hayne has placed general insurers in a difficult spot. At this point there are even differing views on exactly what the commissioner was proposing, and how the recommendations can be placed into existing law. Mr Whelan, who has been in the hot seat at ICA for nearly 10 years, says these recommendations “go to the heart of the relationship between a consumer and insurer”. “The recommendations relating to the code are difficult to interpret, and different groups have widely different views of what is meant and how these might be

enacted,” he tells Insurance News. Mr Whelan is emphatic that any changes to the self-regulatory framework “should seek to preserve the benefits of self-regulation, and enhance consumer outcomes by simplifying and not complicating the framework in which our code operates”. “I believe the intent of the royal commission’s final report should guide the implementation of the recommendations. In particular, the code development and compliance framework should seek to reduce complexity, and care should be taken in identifying code provisions that could be legally enforceable to enable the management of risk.” So what exactly was the royal commission’s intent? Commissioner Hayne wrote about what he intended to have happen – even if, in the opinion of many, he then over-reached. He said he did not “intend to interfere with the broader development of, or operation of, industry codes. Nor do I intend to modify or limit [the Australian Securities and Investments Commission’s] powers to approve the non-enforceable provisions of industry codes… “I draw attention to this point because I consider it important that the banking industry, and… the insurance industry continue to develop their industry codes over time. “I expect that the non-enforceable provision of industry codes will continue to play an important role in setting standards of behaviour within those industries over time.” So while he said he wanted to see the code left in the

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hands of the industry and retaining self-regulation, the relevant recommendation in the final report blurs that. Critics of the recommendation – and there are many in legal and industry circles – say it displays a misunderstanding of the role and function of a self-regulatory code. Put simply, the code sets service benchmarks for the industry and the Code Governance Committee has the ultimate power to “name and shame” and even expel code participants who breach the rules and don’t fix their issues. Its emphasis is strongly weighted towards identifying problems and seeing them fixed. Some critics of the recommendation have suggested to Insurance News that Commissioner Hayne – a former High Court judge – may have felt that the sanctions powers available under the code were inadequate for the oversight committees to do their job. In his final report he notes that the life and general insurance codes of practice only allow sanctions on member companies that fail to correct a breach. “In my view, the sanctions power… should not be limited in this way,” he says. Mr Whelan argues the code doesn’t need the backing of the courts to serve its purpose. “The Insurance Council introduced the code in 1994 to raise standards of service and practice in the industry and to be a living document,” he tells Insurance News. “The industry has long believed that its code is more flexible and more capable than the law to adjust to changes in community expectations, and numerous

What’s in the next code The Insurance Council was one of the first industry bodies in Australia to introduce a self-regulatory code of practice. Compared with the code being prepared for introduction later this year, that 1994 document – it came into effect on July 1 1995 – reflected the conservatism of industry leaders at that time. This next version – the seventh – will contain provisions that would have been unthinkable 25 years ago. Mr Whelan says the next code is “likely to contain sections on vulnerable customers and family violence, enhanced financial hardship provisions, and the simplification of claims handling and dispute resolution”. “I expect the industry’s focus on improving the understandability of the code will continue.” In its report on the review in June last year, ICA said the industry has identified the priority areas as “including matters such as assisting consumers experiencing vulnerability (including family violence, financial hardship and mental health conditions), more effective disclosure, standards on claims investigations, and strong governance

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of product design and distribution”. “These amendments to the code will place the industry in a good position to meet the expectations of consumers and the community.” This latest review was conducted by former ASIC general manager Phil Khoury, who recommended 30 changes – some of which were not adopted where ICA considered they “did not come within the ambit of the code, or [were] not within the scope of this review”. “This is not to underplay the importance of these issues; indeed, many of these issues are being dealt with outside of the code mechanism, such as ICA’s ongoing work with members to improve the effectiveness of disclosure.” Mr Whelan says the General Insurance Code of Practice “was one of the first of its kind in Australia and the industry treats it with utmost respect and seriousness”. “It has long been regarded as the benchmark for self-regulation in the financial services sector, and I believe the revised code will again meet this test.”


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updates to the code have proven this. “Turning the code into predominantly blackletter law would defeat the raison-d’etre of self-regulation, and could perversely shift the consumer focus to examining all aspects of customer service through a purely legal lens. “This could stymie innovation and goodwill and remove code flexibility. It would be a detrimental and unfortunate step.” Mr Whelan says balancing the flexibility and principled intentions that commissioner Hayne considered essential with the legal enforceability he also required isn’t just an “immense challenge” to the industry, “but I expect also to regulators, consumer groups and the Federal Government”. Meanwhile, consultations on the code and its final drafts aren’t going to be delayed while the various interested parties – and the Government of Prime Minister Scott Morrison – debate exactly what the royal commission was getting at. Insurance News understands the Insurance Council board is now involved in the final phases of the code’s development and that the original schedule – in which it would be ready for implementation around the end of this year – has not changed at this stage. Mr Whelan says getting on with the job “is the responsible and prudent course of action. We are taking on board the recommendations and the underlying intent of those recommendations in the design of the new code”. While it may yet require major surgery to accommodate the royal commission’s views – and Mr Whelan says Treasury has recently sought submissions from ICA and other organisations to assist its development of relevant legislation – the code has already been through

a veritable gauntlet of examination and consultation. Apart from ICA’s member companies and the Code Governance Committee, key consumer groups, ASIC and the Finance Industry Council of Australia have also been involved in the development process since 2017. “I believe many stakeholders value the code and its agility compared with blackletter law,” he tells Insurance News. “This is evidenced by the amount of time and input these organisations, including consumer groups, have given to the review process.” ICA’s future advocacy of the advantages of self-regulation will doubtless be built around “its flexibility and capacity to rapidly adjust for changes to community expectations”. While Mr Whelan admits to being more concerned about the compromises that might be needed to cater for a legislative interloper into the self-regulatory code, he agrees that this has all come about through an issue that really had little or nothing to do with general insurance, but he’s prepared to look on the bright side. “The isolated issues raised about general insurance did renew and strengthen the industry’s desire to place consumer outcomes at the forefront of its business model,” he tells Insurance News. But he agrees the industry remains concerned “about ‘a one-size-fits-all’ approach being taken to all sectors” – a feature of government reviews and legislation over the past 30 years that have often compromised general insurance practices. “Any financial services reforms should sensibly acknowledge the characteristics of the general insurance industry and seek to enhance, rather than undermine, the capacity of insurers to sensibly and 0 prudentially underwrite community risks”. 

Commissions ban: No need, no way The decision by the Hayne royal commission to bring in a three-year review of insurance broker commissions has caused considerable uncertainty in the intermediary sector. The review, which ends on June 30 2022, came in response to submissions by the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) calling for an end to the practice, even though it’s a standard feature of insurance in Australia, the United States and the United Kingdom. Mr Whelan says ICA does not support the banning of broker commissions. “[They] are an important part of the intermediated market and play a legitimate role in supporting the accessibility of general insurance products,” he says.

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“Commissions, when controlled and regulated, do not create conflicts. They are a way of allowing experts to provide product guidance to customers, in particular businesses and customers with complex insurance requirements, and build appropriate packages to protect their assets.” The commissions issue has been raised alongside controversial practices affecting intermediaries in the mortgage and financial sales systems, and Mr Whelan expresses concern about “one size fits all” solutions in the financial services sector. Noting that ICA endorses full transparency and disclosure of commissions to customers, he adds: “Commissionrelated issues that have affected other industry sectors must not result in an inappropriate ban on general insurance commissions paid to insurance brokers.”


In defence of the C-word Brokers are standing by their commission model and warning against an overhaul that won’t produce better consumer outcomes By Bernice Han

R

emuneration built around commissions is how the vast majority of general insurance brokers in this market make a living. The same goes for their peers in the United Kingdom and the United States. Compared with a fixed or flat fee, a commission is more accurately commensurate with the scope of work a broker undertakes for clients who have varying levels of coverage requirements. Brokers maintain that they act in clients’ best interests. They search for the most appropriate policies, arrange tailor-made covers, help clients navigate the risk assessment process, to name just a few tasks. And in the event of a claim, they are there to help clients through what often proves to be a traumatic experience. A broker’s work and responsibility extend for the entire term of a policy. It doesn’t stop just because a client has signed up for cover. As Stuart Brady of Queensland’s Shielded Insurance Brokers says, “We do our very best at claims time to alleviate any stress with clients. It can be a very daunting process for someone to make a claim on their insurance.” After the recent Townsville floods, brokers such as Mr Brady worked tirelessly on behalf of thousands of clients – usually behind the scenes, invisible to just about everyone except the victims involved. “We strive to make the whole process efficient and

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easy,” Mr Brady tells Insurance News. “We understand the situation our clients are in and do our best to accommodate their needs and make sure they get what they’re entitled to. “We are definitely earning the commissions in that respect. We work hard for our clients from start to finish and I believe commissions are necessary for us to operate.” Broker commissions are never an easy or comfortable subject of discussion. A casual mention of the C-word is usually enough to spark a lively exchange over the merits and flaws. Consumer advocates are against any form of commission. They have long insisted the ban on conflicted remuneration, as defined by the Corporations Act, must be extended to general insurance brokers. They see no justification for the industry to stay exempt. The Consumer Action Law Centre labels the model “a root cause” of the many problems Commissioner Kenneth Hayne and his team exposed in last year’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Unsurprisingly, the Melbourne-based centre backs the Australian Competition and Consumer Commission’s (ACCC) push for an immediate end to commissions, as have many other consumer lobby groups.


Was it covered adequately? NIBA’s Dallas Booth says the imposition of a fee-based system would deter many clients from receiving the level of advice and claims assistance they receive now through commissions

The ACCC, in an interim report on pricing in northern Australia, describes the model as one that “inevitably gives rise to conflicts of interest, which consumers may not be fully aware of”. The competition watchdog also suggests brokers are overpaid, saying there is “no direct relationship between the size of the commission and the work undertaken”. Brokers will reject this. The amount of work brokers such as Mr Brady took on after the Townsville floods shows why the commission model is widely used. Cairns broker John Devaney tells Insurance News that in the current insurance market structure, the commission-based model is preferable. “The needs analysis, fact-finding and placement business provided by brokers are a substantial cost saving to insurers, to say nothing of the assistance most brokers give when claims inevitably arise.” Andrew Sharpe, Principal with Meridian Lawyers, echoes this. He says brokers on commission add value when clients make claims. “Brokers don’t charge generally for all the work they do at claims time,” he tells Insurance News. “In a non-commission world, they would have to charge, presumably an hourly rate, to handle a client’s claim. “You might get some resistance to paying that rate, so consumers might get worse claims outcomes

because of the advocacy work that is currently done at no charge additional to the original commission when they arranged the policy.” And he offers an alternative way of looking at the consequences of a no-commission environment. “If consumers were to move away from brokers because they didn’t want to pay an upfront fee, then presumably that would give a real boost to no-advice comparative websites. The difficulty with that is, it would not be comparing apples with apples, because coverage is different.” Opponents to commissions are convinced a fixed or flat fee structure, with policyholders the paymasters, is the ideal replacement. They say this provides better transparency and removes any obligation brokers owe insurers. It sounds logical enough and would likely work for most financial services products. Except general insurance. Insurance, as the industry and observers have said time and again, does not fit the mould of a conventional financial offering. “Because insurance is a grudge purchase, it makes that purchase highly sensitive to changes in price and fees,” Mr Sharpe says. “Therefore, people are not likely to want to pay a fee on top of what is already a grudge purchase.

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“Where is the evidence that it actually will be an improvement? How is that making the community better off if you get less access to advice?”

“Insurance is a product you buy hoping you’ll never have to use it. It protects you against the risk that an event might happen, but because that event is not yet a reality, its benefits are less tangible.” The idea that banning commissions will lead to better consumer outcomes is a fallacy, brokers say. It could end up hurting them more, and distort what has proved to be an effective way of closing the insurance protection gap. “To put a fee on top of the grudge purchase is likely to see consumers decide not to obtain advice,” Mr Sharpe says. “In the event that commissions were removed… you would find a lesser uptake of advice from consumers. “And that would leave consumers exposed in an area that is complex and not well understood by your average consumer. It would leave them in a disadvantaged position compared to someone who is obtaining advice.” Geoff Atkins, Principal with actuarial consultant Finity, believes the preferred solution “is worse than the problem”. The major political parties’ backflip on banning mortgage broking commissions, as recommended by Commissioner Hayne, is “very significant” for general insurance brokers, Mr Atkins tells Insurance News. “I think that was an example where the royal commission had recommended something that in reality was a silly thing to recommend. “Within a matter of weeks both sides of politics in Canberra had been convinced that it was a bad idea and withdrew their support for that proposal.” The Corporations Act defines conflicted remuneration as “any benefit, whether monetary or non-monetary, given to a financial services licensee” or similar who provides product advice, and in doing so could reasonably be expected to influence the choice of product or advice given. So, strictly speaking, the commission model fits the description. Add-on covers, particularly those sold at caryards, are indeed a problem area because the commissions are usually based on sales volume. But general insurance broking commissions differ:

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they are not quantity-driven. Dallas Booth, Chief Executive of the National Insurance Brokers Association (NIBA), tells Insurance News: “The benefit of the current structure is that there is a reasonably standard commission paid right across the industry by insurers, so what that means is there is very little financial incentive on brokers to go from one insurer to another. “The placement of the business is done, to a very large degree, based on the terms of cover and the cost of cover being relevant to the client’s needs.” Mr Booth says he has seen no studies that suggest removing commissions will lead to better outcomes. “Where is the evidence that it actually will be an improvement? If clients decide they don’t want to pay the fees and they therefore don’t access the advice… how is that making the community better off if you get less access to advice? “You change things when a clear cost-benefit analysis shows there will be net benefits coming from the change. I haven’t seen any evidence that there would be net benefits from a change of this nature.” Fortunately for brokers, Commissioner Hayne’s final report, released in February, did not actually recommend a commission ban in general insurance broking. Instead, he wants the broker exemption to be included in a wider review of financial advice that must be completed by the end of 2022. This deadline sounds a long way away, but it isn’t – not when brokers have to convince regulators and Canberra bureaucrats all over again that a ban on commissions would not be a consumer-friendly move. The last time broker commissions underwent such close scrutiny was during the 2012 Future of Financial Advice reforms process. On that occasion, NIBA and others convinced policymakers about the merits of the commission structure. The experience gained in that battle will assist in the formation of a united front as NIBA and the broking community prepare for the December 31 2022 deadline. As Steadfast Chief Executive Robert Kelly noted to Insurance News: “Our support for NIBA is strong. I think all of the major distributors in Australia are going to support NIBA’s presentations.” 0


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Leading by example: Liberty’s Mike Abdallah

Loyalty at Liberty Meet Australia’s most dedicated insurance chief, who’s still running the company he helped set up 20 years ago By John Deex

I

n a world where personal ambition reigns, Mike Abdallah is a rare example of long-term loyalty. He played a crucial role in setting up Liberty Mutual’s international and specialty arm, Liberty International Underwriters. And as it marks its 20th anniversary, he’s still there. “I am the longest serving chief executive or president in the Australian market by a mile. There is nobody anywhere near that,” he tells Insurance News. And he’s not the only one – five senior team members who joined in 1999 are still with the firm. Part of the Boston-based Liberty Mutual Group, the fifth largest property and casualty insurer in the world, Liberty in the Asia Pacific is about to rebrand as Liberty Specialty Markets, bringing it into line with the group’s London operations. Mr Abdallah, who in 1999 was working with the company in New York, was one of the architects of Liberty Mutual’s launch of a commercial insurance operation serving the Asia Pacific region. Being Sydneyborn and raised, he asked if he could relocate. He started up operations in Australia, and later Asia Pacific, while retaining a global role. Today, the Asia Pacific division has expanded to include 400 staff, and offices in Sydney, Melbourne, Brisbane, Adelaide, Perth, Hong Kong, Singapore, Malaysia and China. The company has grown more than 50% in the past five years, now writing more than $400 million in premium.

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“I was always taught from day one that the only real selling point that insurers have is their ability to pay claims. We must have that right.”

In the early days Liberty only dealt in “bigger ticket stuff”, but now incorporates a sizeable SME operation. Today it underwrites more than 20 commercial product lines for 20,000 businesses across Asia Pacific. There has been growth and change, but as President and Managing Director Asia Pacific Mr Abdallah explains, much has remained the same – not least a focus on sustained profitability, reliance on the broker model, and an enviable reputation. He puts the company’s “major success” down to its key attributes and principles. Culture, he says, is critical. Having learned “what not to do” earlier in his career, Mr Abdallah says by the time he launched Liberty he had a clear vision. “From day one I’ve always focused on getting the right people in,” he tells Insurance News. “We spend an inordinate amount of time interviewing, making sure we get it right the first time. We don’t like having to make those decisions to exit people. “We look to cultivate them, train them, develop them. We make our people feel good and we certainly have a team approach.” There is no place for “silly egos” in the management team, he says. “We don’t have that big bravado, that they’re the kings of the castle. That’s something I don’t personally enjoy seeing. “Our people feel good about life here and they stay here and they work as a team. We have probably got the highest retention in this market. Certainly we are an employer of choice – people want to join us.” The company’s culture was protected as the business expanded, with new branches set up by people already immersed in the Liberty way of doing things. Only those who “understood the culture back to front” were trusted with these roles. “The culture that we had from day one was exported all over,” Mr Abdallah says. “[New branches] were never started up by people outside the company, but by those embroiled in our existing culture, which really kept the cohesiveness and richness of our culture throughout Asia Pacific.” He says making employees proud of the company they work for provides a strong platform, and Liberty has always aimed to differentiate itself. “Value propositions” were developed for every location, product line and function, and close relationships with clients are treasured.

“When you’ve got your act together it is like your body. If you are healthy on the inside you are displaying a good outlook. “I believe that we have good insides and that is why people want to join us. “We want to build over time, we want to bring value, we want the business to sustain profitability. “When the majority of the past 20 years has been the soft parts of the cycle, it’s no fluke that you can sustain profitability for 19 of those years.” Liberty’s careful nurturing doesn’t just apply to its culture, but also its business. Gradual, sustainable growth and a focus on actuarial insights have been central to its success. “My philosophy from day one has been get your foundations right and focus on the right things, like underwriting profitability,” Mr Abdallah says. “We’ve gradually added products and capabilities. We haven’t had that silly top-line focus, and we’ve been focused on building differentiation through our people, through our service. “We are not going to go out and say we need to have this top-line by year 2020 and go after that for the sake of it. It will drive the wrong behaviours and produce the wrong result. “We’ve introduced, with the help of London and elsewhere, newer products that we’ve been able to assimilate, and enhance our overall value proposition. “We are experiencing some good uptick in certain pockets of the market which is enabling us to grow for the right reasons at the right prices in the right products.” Keeping a watchful eye on the insurance cycle has kept Liberty “ahead of the game”, Mr Abdallah says. This is visualised through the use of two clocks – an underwriters’ clock and a brokers’ clock. “The underwriters’ clock is based on the underwriting year results, the brokers’ clock is based on the profit and loss. “Profit and loss brings in prior year development, it is not showing you the running rate of the business. “We’re basing a lot of our decisions on the underwriting clock. Which means these are our early warning signs working closely with the actuaries so we can take action.” Having early insight means Liberty can avoid kneejerk reactions that can destabilise the market. It does not need to re-engineer, suddenly abandon

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previously supported sectors, or pull back on paying claims. “Having been around as long as I have, I have seen [markets pulling back on claims] happen before as the margins get thinner,” Mr Abdallah says. “But if we’re staying ahead of the game, then we are not over-reacting and not getting ourselves into trouble. “And if we are not getting ourselves into trouble, we don’t have those diminishing margins to the extent that we have to find ways of perhaps slowing down or not being as positive in our claims approach. We have not had to do that. “I was always taught from day one that the only real selling point that insurers have is their ability to pay claims. We must have that right. “We’ve never had to re-engineer. We have never done that and never want to. At the same time we want to have a fair, equitable and expedient way of dealing with claims. “[Slowing down on claims] is just reflective of not having your own house in order – because that is the only reason why you would end up doing that.” Consistency is important in building a reputation with clients and brokers, Mr Abdallah says, as is a willingness to provide solutions for hard to place business when times are tough. “That held us in good stead during the softer times. Our brokers and clients could have got up and moved to a cheaper market but they stayed with us because we had helped them out at a difficult time. We have still got that attitude. “Some markets are in a bit of turmoil and are exiting.

“You’ll hear chief executives of some of the brokers here saying that Liberty has been consistent, not walking away when the going gets tough. We are proud of that. That’s been part of who we are. It’s a long game. “There are certain businesses that we wouldn’t do in the softer market, that we would do in the harder market if we could get the right price for them. But we haven’t gone into those and then exited them in a way that’s left brokers in distress.” While Liberty trusts in its broker partnerships, getting closer to the end client is also part of the process. By building relationships, and increasing relevance by adding products, it hopes to create more “sticky” business. “We’ve got a strategy in play where we are adding products to our core clients so that we become much more relevant to them, so that it is not just the broker’s

Mike Abdallah on… The royal commission “If you’re talking about the banks, it makes me a little sick to see them calling you up now and offering to do this, or that. It’s reacting, instead of having the fundamentals right in the first place. “We built Liberty in this region very much on integrity, and who we are. That honesty and integrity has held us in good stead. Starting to be the nice person now after the royal commission is like shutting the door after the horse has bolted. “Get your act together up front, and get it right and make sure that when the royal commission goes away you are still doing the right things.” Broker commissions “In a lot of the bigger ticket stuff it’s fee-based, but those fees have reduced alarmingly due to competition over a number of years. “I think it has been quite tough [for brokers], and sometimes they are better off where they do receive a

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commission. They do need to start doing a better job of explaining their value propositions to their clients so that their fees are reflective of where they probably should be. “This aspect has not been given the right attention over the years, and certainly in the softer parts of the cycle.” The hardening market “The businesses that are hardening are doing so because they have had big claims or claims frequency. Part of this is related to inadequate pricing, some to weather perils, and others impacted by regulatory changes. “Some of the segments within property that have always been volatile – whether that’s abattoirs or sandwich panelling – are seeing very high prices and are difficult to place. “There is a flow on to other business. “I haven’t seen the market hardening to this extent for a long time. But then again I haven’t seen as many losses either.”


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“We’ve always been a broker market and always will be.” call to say ‘Liberty can’t give you this price and we’ll just go somewhere else’. “If we are doing more products and offering a service to the client it makes the business more sticky over time. We are constantly looking at ways to make ourselves more relevant.” But none of this means bypassing the broker. While others are looking at direct offerings in the SME market, Liberty is not. “We’ve always been a broker market and always will be,” he says. “But the brokers have always been prepared to put a quality bunch of our people in front of our mutual clients. “That is why we’ve gone to a lot of trouble to make sure that our people not only know what they are talking about and understand the industry but are also user friendly.” And it appears to be working. In last year’s National Insurance Brokers Association broker survey, Liberty was voted the insurer most trusted to deliver on

promises – “the best accolade we could get”. There is no doubt that Mr Abdallah still sticks to the principles that set the company on a successful path 20 years ago. He can list them in flash, so deeply are they ingrained. “It’s all about attracting the right people and looking after them. It’s about the teamwork, discipline, the focus on profit, value propositions, having those direct relationships, looking at your actuarial numbers. Instead of being aimless do things thoughtfully, don’t diversify for the sake of it, never re-engineer.” And he has no regrets about spending so long putting them into practice. “It’s been a great ride, and a great company,” he says. “It would be silly for me to say that I haven’t had my ups and downs, and there have been attractive offers. “But I am dedicated to the people, as well as 0 the company.”

Falling into place Mike Abdallah fell into insurance “like many people do” as a teenager. Born and raised in Sydney, and having left school a little earlier than he would have liked, he was just looking for a job. He ended up in the claims department at Norwich Union, but it wasn’t long before a twist of fate shifted him into underwriting. “A person in the underwriting department was doing up his car and gave himself third degree burns and they asked me to go and sit in the underwriting department. So I ended up in underwriting and moved on from there.” Next was FAI, then Hartford-Monarch, which was acquired by Cigna (which would later be acquired by Ace,

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which then merged with Chubb). With Cigna, Mr Abdallah moved to Tokyo in 1985, before being promoted to the head office in Philadelphia. Then he “put his hand up” to go and rescue the London operation, which was in trouble. “I did fix it,” Mr Abdallah says. “I changed their behaviours and turned it around into a profit. I was a movie star with the actuaries who ran the company at the time.” But at 44 he felt young enough for a new challenge, moving to New York to head up a smaller company, Navigators. However, they “didn’t have the capital to run a global business” and he joined Liberty in February 1999. “It’s the best company that I’ve worked at,” he says.


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Rebuilding: insurance helps regions recover economically

WHITSUNDAY SA3 GDP

Too important to ignore With Suncorp Insurance

A

Without Suncorp Insurance

1,400

GDP ($ Millions)

1,200 1,000 800 600

A Suncorp study highlights the true economic value of insurance – and the consequences of failing to invest in disaster mitigation 500 400 200 0

2016

2017

2018

2019

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2021

Source: SGS Economics & Planning

By John Deex

TATHRA SA2 GDP With Suncorp Insurance

Without Suncorp Insurance

700

GDP ($ Millions)

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Source: SGS Economics & Planning

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long time ago the Productivity Commission recommended the Federal Government should raise mitigation spending to at least $200 million per year, with this figure to be matched by the states. How long ago? To be precise, the final report from the public inquiry on natural disaster funding was sent to the Government on December 17, 2014. It took Canberra another two years to publish its underwhelming response that it “does not propose to pursue these recommendations at this stage”. Nor at any stage since – despite a plethora of reports that prove money spent in advance of a catastrophe saves much more after the event. Insurers are adamant that mitigation spending must increase to help bring down risk – and with it the cost of premiums in areas increasingly exposed to extreme weather as the climate changes. Despite regular reminders, the Government is yet to respond in any meaningful way. But with a new government comes new hope – and Suncorp believes the publication of a thoroughly researched report on the economic importance of insurance could help the industry’s case. The Suncorp-commissioned research, carried out by SGS Economics and Planning, examines three insurance catastrophes of varying size: 2017’s Cyclone Debbie, Hobart’s flooding in May last year, and the Tathra bushfires in March last year. The three incidents resulted in 20,000, 2000 and 200 Suncorp claims respectively. In the report, SGS analyses the catastrophes’ impact on affected regions’ gross domestic product (GDP). It then looks at the effect of Suncorp’s insurance payments on the recovery of GDP. The conclusion: insurance has a critical impact on the speed of economic recovery in badly hit or regional areas, especially if the economy is reliant on one particular business sector such as tourism. And it shows that without insurance, a natural


WHITSUNDAY SA3 GDP With Suncorp Insurance

Without Suncorp Insurance

1,400

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Source: SGS Economics & Planning

GDP ($ Millions)

Last year the economic impact of the floods was esdisaster would push exposed towns and cities to the timated to be a $908 million (7.5%) reduction in local brink of economic ruin. GDP. Which is why – as the threat of floods, storms and TATHRA Suncorp paid out $8.9 million in insurance claims bushfires rises – mitigation is crucial to reduceSA2 risk GDP and andInsurance recovery activity. The report finds that, during the keep insurance accessibleWith andSuncorp affordable for all. Without Suncorp Insurance year, Suncorp payouts boosted the economy (compared The figures in the report make interesting reading 700 to a scenario of no insurance payouts) of Hobart by – and be reminded it is only the impact of Suncorp’s inmore than $94 million (0.5%). surance 600 payouts that is measured, not the (presumably This year, as the stimulus of insurance payouts consignificantly larger) effect of the industry as a whole. 500 tinues to flow, an additional $47 million will be added to Let’s look at the three catastrophes and Suncorp’s 400 to recovery: GDP (0.3%). The improved economic performance will contribution continue until at least 2020. Cyclone Debbie made landfall near Airlie Beach in 300 Bushfires broke out around the NSW south-coast Queensland’s Whitsundays region on March 28 2017. town of Tathra at about noon on March 18 last year, and The report says direct economic losses were estimat200 spread quickly as temperatures hit 37 degrees. ed at $3.5 billion, with significant damage to infrastruc100 There were five separate fast-moving fires, driven ture, properties, crops and the tourism industry. It is beby hot and dry winds, and residents had little time to lieved to be the most expensive storm in Queensland’s 0 react.2020 More than 2021 1250 hectares were burned and 65 history. 2016 2017 2018 2019 homes destroyed, along with 35 caravans and cabins. In 2017 the economic impact of Debbie was estimatSGS billion Economics & Planning in GDP, representing a Last year the economic impact of the Tathra bushed to Source: be a $7 reduction fires was estimated at a $207 million (33.7%) reduction 2.2% drop in the areas affected. The Whitsunday Islands in GDP. As of last August, Suncorp insurance had paid was the worst hit area, with a 64.2% GDP reduction. out $6.9 million in claims, adding $4 million to the local Suncorp paid more than $543 million in insurance economy. claims, with household claims accounting for almost Overall, in the first 12 months following Cyclone three-quarters of the total. Debbie, Hobart’s floods and Tathra’s fires, the estimated The report finds that during 2017 Suncorp claims economic boost from Suncorp’s claims and recovery acand recovery activity boosted the economy (compared tivity was $2.8 billion (0.8% of GDP). to a scenario of no insurance payouts) by more than It may sound like a small percentage, but Suncorp $2.7 billion (0.8%). In the following year an additional Chief Executive Insurance Gary Dransfield points $1.9 billion was added to GDP (0.6%). The cumulative out that it’s a small percentage of a big number – and economic impact over five years is estimated to be $6.1 those percentages really soar for exposed areas like the billion. Whitsundays and Tathra. In the Whitsundays, Suncorp’s claims and recovMr Dransfield uses more recent examples to illusery activity injected more than $285 million. Without trate the point. Suncorp payouts, the Whitsundays would have suf“This summer’s Sydney hailstorm and Townsville fered a permanent GDP loss of 23%. floods were roughly equivalent catastrophes, with inThe Hobart floods, on May 11 last year, were gensured losses of more than $1 billion,” he tells Insurance erated by an intense low-pressure system that brought News. a combination of heavy rain, wind and thunderstorms.

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Devastation: regional areas’ GDP can take a massive hit from natural catastrophes

“In Sydney there will be no economic downturn – the economy of a region like Sydney can easily absorb the impact. “But the Townsville floods create significant economic risk to the city and surrounding region. There is a risk of a permanent dip in economic activity. “The quality of recovery for regional areas is very much affected by the pace of the insurance response.” Suncorp says almost all available disaster funding is still invested in clean-up and recovery, rather than prevention. “Very little funding is directed towards preventing natural disasters or making homes, businesses or communities more capable of withstanding the impact of fires, floods or cyclones – despite the Productivity Commission recommending in 2014 that the Federal Government should invest $200 million a year in mitigation,” Mr Dransfield said. “The Federal Government needs to treat natural disaster mitigation and resilience projects as investments critical to the economic future of our country. Otherwise, millions of Australians will remain at risk. “Only through committed action that builds resilience and reduces the increasing impact of severe weather events can we also shift the dial and make insurance more affordable for regional Australians.” Mr Dransfield says insurers have a track record of responding to increased mitigation by reducing premiums and making cover more widely available – see Roma in Queensland following the completion of a flood levee in 2014. “If the Government can help to invest in building resilience, we will reflect that in pricing,” he told Insurance News. Suncorp says Australia’s 1700 towns with populations below 10,000 are most exposed to the economic impacts of natural disasters. Regional cities with larger economies, such as Lismore, Mildura, Busselton or Port Pirie, are also seriously at risk.

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It says between 2016 and last year there were more than 120 natural disasters in Australia that attracted government assistance. “Some regional communities may never recover from a natural disaster without insurance, so we must work to ensure people are protected,” Mr Dransfield said. “More than one in 10 Australians live in small regional towns, and many more in regional cities. Yet despite the increasing risk, the Federal Government continues to invest 97% of its disaster funding in clean-up and recovery, rather than prevention.” Report co-author Terry Rawnsley, Principal and Partner at SGS Economics & Planning, says the speed of the disaster response, and injection of funds, are critical to the strength of long-term recovery. “If people see recovery occurring quickly after a natural disaster, it boosts confidence and encourages people to stay,” he said. “We know once people leave it is very hard to get them back, forever changing the community. “The impact of a major natural disaster to a regional city or town is like a factory or mine closing – this has a range of flow on effects with widespread and long-term impacts across the whole economy and community. “Our changing climate will see the increasing prevalence and severity of natural disasters, which means there is a growing risk of Australia’s economic performance being undermined.” Mr Dransfield says the report shows insurers have a responsibility not just to individuals, but the wider economy. Insurers are not the only ones accountable, however. Governments must also play their part by investing in mitigation. “There is an opportunity with the incoming Federal Government to reinforce the message,” Mr Dransfield says. “There is a clear economic case to invest a significant sum each year. We will keep hammering away at that.” 0


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Ready for anything Regional chief Sinead Browne says Allianz Global Corporate and Specialty is in it for the long haul as risks evolve and market conditions shift By Wendy Pugh

C

orporate risks rank a little differently in Australia compared with Allianz’s global client and partner assessments, with legislative and regulatory worries to the fore, but there is plenty in common when it comes to market changes. “Australia is experiencing what we are seeing globally,” Allianz Global Corporate and Specialty (AGCS) Chief Regions and Markets Officer Sinead Browne told Insurance News during a recent visit from London. “Capacity is contracting in many lines of business, we are seeing terms and conditions change and we are seeing the rating environment move upwards in pretty much every line of business.” This pricing momentum has been welcomed by insurers seeking improved profitability and is part of a shift since Ms Browne’s previous trip to Australia, about a year earlier. Property has seen significant movement, financial lines are rising and the engineering book is moving upward as the Lloyd’s market takes a tougher approach on some risks and capacity shrinks. “The Lloyd’s market and what is happening there is driving capacity also in this part of the world, which shows the global nature of our business,” Ms Browne says. Insurers are seeking further price rises, with the large listed companies needing to deliver value for shareholders and ensure their sustainability. Ms Browne says the cycle probably still has some way to run. “We are unhappy with where we have been over the past couple of years and we are very pleased to see the market seems to be moving more in a direction that

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appreciates technical underwriting, technical risk management and is offering appropriate risk reward opportunities for a risk carrier such as AGCS,” she says. The AGCS brand was created in 2006 by merging various Allianz operations, but its antecedents go back to companies such as Hanseatische SeeversicherungsGesellschaft, founded in 1885. It operates in 34 countries with its own teams and in more than 210 countries and territories through the Allianz Group network and partners. The business provides insurance and risk consultancy across specialty, alternative risk transfer and corporate business. Ms Browne’s regional role, which she took up last year, includes Australia, the UK, Ireland, the Nordic countries, Russia, Dubai, Asia and South America. In January the UK CEO position was added to her mandate. Previously, she was based in Munich for almost 14 years and held various management roles after joining Allianz in her home country of Ireland. University studies that included insurance and German make Allianz seem an inevitable destination, but in fact her path was unplanned. Earlier career thoughts focused on accounting, but she joined French insurance group AGF in Ireland and it became part of the Allianz group. Insurance industry changes have included an evolution of the relationship between brokers, clients and carriers, she says, with more tripartite discussions at the larger end of the market, where AGCS focuses in Australia. Changing market conditions are also triggering deeper three-way discussions on the intricacies of


Managing change: Sinead Browne

specific risks and the pricing of cover. “All parties need to move together in that. Brokers have a role to play, clients have a role to play in terms of understanding that they may need to provide more information to allow proper analysis of the risk and more sophisticated understanding. “Underwriters have a responsibility to show that they don’t treat all clients in the same way, that they take the time to understand those really top-class risks and are therefore pricing on a risk basis rather than taking a vanilla approach to price correction.” At the large end of the market, risk and product complexities and the value clients place on consulting expertise have ensured brokers remain central to the process, Ms Browne says. That contrasts with the smaller end, where more clients are buying at least some simpler covers through direct channels, according to a recent Vero SME survey. Nevertheless, global broking is undergoing change, with Marsh & McLennan in April completing a takeover of London-based rival JLT. The group will be closely watched over the next year or two, to see how the combination works in practice. “You are seeing two quite different organisations come together in terms of their culture, but I think they are also quite complementary,” Ms Browne says. “We see great entrepreneurial thinking on the JLT side, which I think will be married with fantastic client-centricity on the Marsh side.” Many of JLT’s senior executives have assumed leadership roles under post-merger arrangements, with CEO Dominic Burke becoming Marsh & McLennan

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“The political environment here is ever changing, which never brings certainty to business.” Vice-Chairman and also Chairman of the Marsh-JLT specialty business. “I have been super impressed at the speed with which that integration has happened and just very impressed with how the major roles are really being shared, pretty much equally between both organisations,” Ms Browne says. “It really seems like an integration and not a takeover and I think that is very much appreciated within the JLT organisation and within the JLT client universe.” Ms Browne’s diverse geographic responsibilities come with key commonalities. Insurance remains a people business, relationships with brokers are critical and similar issues dominate client concerns across her area of influence. But the latest Allianz Risk Barometer, which surveyed more than 2400 experts from 86 countries on the most important corporate perils, also highlights particular regional differences. In Australia regulatory and legislative changes rank first, compared with fourth in the overall survey. Brexitembroiled UK respondents similarly diverge from the global placings. The Hayne royal commission and Australia’s revolving door of prime ministers were likely high in the minds of respondents when the survey was taken last year, while the active class action environment is also

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a concern. Scott Morrison took the drive to Government House to call the May 18 election shortly before Ms Browne spoke with Insurance News. Mr Morrison was re-elected after last year becoming the fifth prime minister in the past six years. “The political environment here is ever changing, which never brings certainty to business,” Ms Browne says. “A looming election brings all sorts of questions to the fore in our clients’ minds: what that will mean for their trading environment, what it will mean for the tax regime, what policies will emerge from the next government.” Globally, clients have rated business interruption as the No.1 risk for seven years in a row, as the impact of natural catastrophes on international businesses has become more obvious. The issue ranks second in Australia this year. “The biggest area of concern for most of our sophisticated buyers is their supply chain, so they are really moving away from having single suppliers and ensuring they have alternatives,” Ms Browne says. Climate change has risen in importance in the survey, particularly as just-in-time supply chains and business interruption from natural catastrophes raise the stakes.


“I think none of us fully appreciate the risks that will come from artificial intelligence, machine learning, driverless cars – where will the liability reside, how do you quantify it, where does it begin and end?” Ms Browne says Allianz takes the issue very seriously and is constantly in dialogue with governments, non-government organisations and modelling companies as it examines potential implications. “We have seen mega-cities emerge in areas that have enormous cat risk, particularly in Asia, so the insured values that are present in regions of the world that are particularly prone to cat risk is ever growing. “The modelling companies themselves are constantly updating their models based on the last event, based on what science is informing them, and as soon as new models come to market we are absolutely implementing them within our business.” Cyber concerns have risen even more dramatically, jumping from 15th globally in the Allianz survey five years ago to second in the latest results. The cost of cyber crime is estimated at $US600 billion a year, up from $US445 billion in 2014, and the range of impacts creates an area of potential underinsurance as technology is adopted in new ways and underwriters adapt to shifting threats. “The inability of the industry to really model that risk is creating a scenario where the limits that are being offered are pretty low, until we all become more comfortable with the boundaries of the risk,” Ms Browne says. Corporate clients with expanding operations and growing balance sheets are looking for a wider mix of options to manage evolving risks, including insurance-linked securities (ILS) and captive management solutions. Ms Browne says AGCS is well placed to meet their changing needs, and the insurer has some 2500 global programs with about 20,000 local policies sitting underneath. “We deploy our capital into risks that are highly complex, highly technical and also risks that require

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global solutions, so we are very active in the international insurance program space. “We like long-term relationships. We try to really accompany clients in how they develop their business and that can involve offering very bespoke solutions. We can offer capital markets solutions, we can offer parametric solutions, we do the full gambit of traditional right through to non-traditional risks transfer.” The impact of North American wildfires in the past two years has taken the ILS market by surprise and had some impact on capacity, but appetite for new opportunities has not disappeared and AGCS has seen demand for Japanese and New Zealand earthquake risk. “There is a lot of US natural catastrophe exposure in the ILS market, and I think that is why we were able to bring Japanese earthquake, New Zealand earthquake into the mix, because it offered a diversification,” Ms Browne says. Future emerging risks are likely to come from the spread of new technologies into different business areas and into day-to-day operations. “I think none of us fully appreciate the risks that will come from artificial intelligence, machine learning, driverless cars – where will the liability reside, how do you quantify it, where does it begin and end? There are products being developed, but to effectively develop them you need deep dialogue between the client and the risk carrier. It is very embryonic.” Current and emerging major risks span political boundaries, while also requiring insurers to understand different localised conditions. The increase in globalisation of business is providing a growth area for AGCS. “As we see conglomerates continue to merge, continue to expand, we are the perfect partner in that regard,” Ms Browne says. “That is absolutely a sweet 0 spot for us.”


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Uninsurable v unaffordable Two different terms, with different political ramifications. But is the ultimate outcome the same? By Benjamin Levy

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he Insurance Council of Australia (ICA) and the Insurance Council of New Zealand (ICNZ) regularly raise the spectre of insurance unaffordability and its long-term effects on market penetration and industry viability. At the recent ICA Annual Forum , Chief Executive Rob Whelan discussed the enormous pressure to maintain affordable pricing, exacerbated by climate change and increasing regulation following the Hayne royal commission. “This for our industry is of particular concern given the increasing frequency and severity of natural disasters and the impact on the affordability of insurance,” he said. And after a series of earthquakes caused billions of dollars of losses across New Zealand, ICNZ Chief Executive Tim Grafton wrote an article questioning whether people can continue to expect an open-ended commitment from insurers and the Government to cover losses, no matter what catastrophe strikes. “The question is, how realistic is that… when we are going to be living in a world where there will be increased risk due to climate change, increased frequency of extreme weather event losses, as well as underlying seismic risk?” There are predictable and prudent insurance responses to increasing risks because insurers need to be here for the long term and meet the costs if the worst happens, Mr Grafton says. “In an ideal world, we maintain that penetration

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and insurance remains affordable and available.” So ICA and ICNZ are clearly aware that the growing severity of catastrophes may affect the availability of insurance. Yet they bristle at the suggestion it might translate into uninsurable properties. Analysis by research group Climate Risk that found nearly one in 15 dwellings would become uninsurable due to climate change by 2100 was dismissed as “scaremongering”. “ICA does not believe any part of Australia will become uninsurable, though risk ratings may mean higher premiums for many property owners,” spokesman Campbell Fuller said. Climate Risk Director of Science and Systems Karl Mallon tells Insurance News there is empirical evidence that if the average annual loss exceeds 1% of an asset value per year, some insurers will refuse to provide cover. “Technically, there are some insurers that would provide a policy, but there’s a question at what point that is just a moot exercise, when the cost is prohibitive,” he says. Dr Mallon cites the case of a property owner asked to pay a $31,000 premium on a $600,000 home. “Do you want to call that uninsurable or not? It’s sort of irrelevant, because it’s entirely unaffordable anyway.” That isn’t a criticism of high premiums: they are set according to risk, and rightly so. Yet Dr Mallon says if property owners are not


Uncertain future: will communities like Wellington become uninsurable, unaffordable - or neither?

If property owners aren’t prepared to pay the premiums, and if they can’t pay for mitigation, there needs to be a discussion with government about moving people out of harm’s way. That may result in areas becoming uninsurable… prepared to pay the premiums, and if they can’t pay for disaster mitigation, there needs to be a discussion with government about moving people out of harm’s way. That may result in areas becoming uninsurable, because the risk cannot be secured by any party. This isn’t a theoretical question. Dr Mallon’s research examined how the probability of risk would grow due to climate change in areas already exposed to certain perils. “There are perils such as coastal inundation, where stuff is extremely unlikely to be flooded between now and 2050, and then after 2050 those risks become much more pronounced and, in some places, by the end of the century, it’s almost improbable that it won’t be flooded on a very frequent basis. “For coastal inundation, there is [now] a non-zero risk of flooding – astonishingly small. The premium associated with that would be pretty much zero. “Whereas at the end of the century, that premium might be very, very high – 10% of the asset value per year. At what point does it cross over a threshold of unaffordability?” Mr Whelan rejects the idea insurance will become unavailable because of elevated premiums. He

says insurance is still a small proportion of household expenditure. “Affordability is a relative thing – it depends on what other expenses you manage in your personal economic affairs. Mortgages are expensive, food is expensive.” In New Zealand there is controversy over whether insurance is already becoming unavailable. IAG has been accused of retreating from the home and contents market in Wellington. It warned residents it may not provide contents cover for some people as it takes a more conservative approach to the city’s earthquake risk. IAG defends its approach, saying Wellington is a high-risk area for earthquakes and it is taking that into account in its pricing and underwriting, but continues to write new business in the city. Mr Grafton rejects the idea that insurance could become unavailable in Wellington and says insurers’ varying risk appetites and readily available capital will ensure healthy competition. “I know of no one that is seeking to withdraw or reduce their share of the Wellington market,” he tells Insurance News. Yet local and national government officials are

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growing concerned over rising premiums in the city. Wellington Mayor Justin Lester recently spoke with Earthquake Commission Minister Megan Woods and invited ICNZ, IAG and body corporate and homeowner representatives to attend a forum on the issue. Cr Lester has suggested the Government may need to ensure cover is affordable in the city after IAG’s decision to raise premiums. It holds 40-50% of the Wellington market. Higher premiums in New Zealand are almost a certainty. (Re)insurers shouldered $NZ34 billion of the Canterbury earthquakes’ overall economic losses of $NZ40 billion. But the industry has since recalibrated risk assessments because the quakes proved old models were inaccurate. One model showed a 30% increase in New Zealand’s projected annual average loss due to earthquakes. Mr Grafton seems to suggest uninsurability and unaffordability will merge at some point. He wants a national conversation about how much risk the industry and individuals are prepared to take on in the face of severe climate change. “Ultimately, in low-lying floodplain areas where houses get frequently flooded, the question is, should those houses be there? And if the answer is, ‘Well, if the private insurance market becomes unaffordable, the Government will pay for it,’ then we’ll keep people living in floodplains and being continually damaged. “That makes no sense, no economic sense, no social sense, or anything. Where’s the policy that starts to discuss…the limitations to sharing the risk between… private insurers, the Government and its role, and the insured themselves?” Dr Mallon doesn’t understand ICA’s reaction against discussing uninsurability. “Their hackles do seem to go up whenever we discuss uninsurability, and I don’t see why… we can’t insure properties that are in the wrong place, especially with climate change, because it’s only going to get worse, it’s going to double or triple in risk,” Dr Mallon

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tells Insurance News. “One aspect of uninsurability is price. At what point is something which is unaffordable the same as unavailable? Sure, if someone wanted to insure a $1 million house for a $1 million premium, I’ll write them a policy personally. But it’s entirely unaffordable, and one would argue there is a point where unaffordable is indistinct from unavailable.” Mr Grafton says the way to prevent unaffordable insurance, and thus unavailable insurance, is to commit funds to reduce risk and adapt to climate change. “There are serious defects in our construction methods,” he says in his editorial. “There is a systemic non-compliance with the installation of non-structural seismic restraints and passive fire protection systems in commercial buildings. “To have lost so many buildings shows something is wrong with our current building standards.” ICA uses the spectre of unaffordable insurance to prod various levels of government into spending on mitigation infrastructure. In his address at the ICA Annual Forum, Mr Whelan called for more investment in mitigation to reduce insurance costs, and better planning. “World’s best-practice regulation will be of no avail if customers can’t afford to buy the products,” he said. ICA doesn’t seem to believe uninsurability or unaffordably high premiums will become reality anywhere, because eventually governments will start spending massively on mitigation infrastructure in high-risk areas. “The price signal should be sufficient to get people’s attention that they’re at high risk, and things need to be done to reduce that risk, and therefore we can maintain the price that everyone can afford,” Mr Whelan says. Insurers will still provide cover, but they must be able to manage the risk, Mr Whelan tells Insurance News. “It would be an absolute disaster if the industry were to withdraw from large sections of the Australian community.” 0


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he uptake of telematics in the heavy transport industry has soared on unexpected customer enthusiasm and, after initially sitting on the fence, insurers are also embracing the behaviour-monitoring technology. It’s a trend that is shaking up claims frequency, costs and the nature of the underwriter-customer relationship. While installation among owner-drivers and small players remains slow, almost all larger fleet operators are on board, with many trucks featuring every monitoring gadget available. The new technology is opening a


In telematics we trust Large fleet operators are increasingly on board with behaviour-monitoring technology By Miranda Maxwell

Turning point: the heavy transport industry is warming to the benefits of telematics

variety of ways for heavy transport businesses – where profit margins are pressured and competition is fierce – to reduce costs and bolster their bottom lines. Designed to monitor driver behaviour and counteract danger from fatigue and distraction, telematics innovation is helping to lower fuel consumption, reduce maintenance costs, bring down claims and ultimately cut outlay on insurance as premiums improve for responsible truck fleet operators. “If you went back five years, there was a reluctance to install it, especially towards the initial upfront cost, but now transport

business owners are starting to realise that cost is paying itself back in multiple ways,” GT Insurance’s General Manager Sales and Distribution Tony Dodd says. “Those that are managing it well and using the systems to full capability are seeing a reduction in their claims experience and a better premium outcome.” Mr Dodd says excessive use of either the brake or accelerator uses more fuel than a steady run. And some fleet operators use technology to cap their vehicles’ speed below the legal limit, perhaps 98kmh rather than 100kmh. That small adjustment, when trucks are covering 50,000 km a year, makes

a big difference. Underwriters, for their part, are gaining deep insight into how individual transport businesses are managed, and specialist insurers can become more embedded in the industry they cover. “On a fleet scenario, [telematics use] is becoming much more of a ratings consideration,” Mr Dodd tells Insurance News. “We are probably 70% there in having a good understanding of what impact it will have over a business, depending on how much they use it.” Chris Hogarty, Chief Customer Officer at National Transport Insurance (NTI),

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“The increased repair costs of smarter vehicles will, for a number of years, be an issue that insurers struggle with in their profit margins, which are now only just returning to acceptable levels.”

says uncertainty about the technology and whether it would produce a return on investment has given way to enthusiasm among fleet managers. A lot has changed in the past year, and NTI, which insures about 2000 fleets across Australia, is fully on board and investing significantly in emerging technology. “There was a lot of fence-sitting going on in the space,” he says. “Our position has changed pretty significantly and the adoption rate is what is really driving things. It would be remiss if we just ignored what our customers are saying. Of the second and third-generation tech that is now out there, customers know the value.” Mr Hogarty says the industry is rallying around the concept that innovation is making businesses safer and more productive, and recognising the strong relationship between a higher-performing business and a profitable business. After years of approaches from technology manufacturers, NTI has entered a partnership with Seeing Machines, whose in-cab sensors monitor driver alertness and activate audio alarms and seat vibrators. The data offers insurance and risk-related insights. NTI’s latest Major Accident Investigation Report shows losses due to driver action and behaviour – including fatigue, speed and errors – have accounted for about 54% of the total since 2009. “We’re getting off the fence,” Mr Hogarty says. “We are actually talking to our customers on a proactive basis about the types of technology that we think could benefit them. “Trucking is a bloody competitive industry and this helps manage driver behaviour better and manage the fleet performance pressure, whether it be your maintenance or fuel consumption. Those things are all bottom-line benefits and factor into the ability to be competitive.” While in-cab “seeing eye” technology may once have brought to mind 18th century philosopher Jeremy Bentham’s panopticon

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prison, in which the individual is kept under constant scrutiny, motor insurers say the “Big Brother effect” is waning. “We actually now have operators who have voluntarily handed over their data,” Mr Hogarty says. “They now are saying, ‘Can you help us make sense of this?’ “We have become close enough to the businesses to understand the genuine pain points for them outside of insurance, in terms of running a transport business. One of the biggest currencies we have to trade in is trust.” The best-run businesses use telematics data to set company and driver compliance rules, but insurers agree there is a lot of inconsistency in how the new technology is applied. Company A might have telematics installed and never turn on the system, while Company B goes all out to set benchmarking for drivers, follow driver performance and incentivise. Those with stronger management generally have a better claims experience, insurers say. “They are having fewer incidents,” GT’s Mr Dodd says. “It’s having an impact on both their uninsured losses and their insured losses. “Those who embrace the technology are becoming a far more attractive insurance proposition, because you are seeing it in their results – and they are seeing it. Transport businesses generally operate on a very small margin and if you can improve that margin by making small cost reductions in a lot of different spaces, obviously your margin improves.” Telematics units cost $1000-$2000 for hardware and installation, and a monthly subscription of about $20 a month. Studies show the technology – which monitors for micro-sleeps and can pick up eyelid movement when someone looks down at a phone – can reduce fatigue and distraction events, potentially avoiding catastrophic accidents. The units may trigger in-vehicle alarms and notify a business’

base station that a driver is starting to show fatigue. “It is a technology that is starting to really catch on, particularly for transport companies that do a lot of overnight work with long-haul drivers,” Mr Dodd says. Furthermore, insurers say a more riskaware business and work culture is likely to produce fewer workplace accidents, which may cut workers’ compensation costs, which can be quadruple the cost of motor fleet premiums. Mr Hogarty describes the trucking insurance market as a “hard pricing” environment in which competition is not as strong as elsewhere, and that is reflected in policy rates. Telematics data presents an opportunity for fleet operators to pitch themselves as a better proposition. Companies installing this technology will be looked on more favourably and underwriter competition for their business will be a lot stronger. Steven Hamilton, GM of Client Services at Fleetsure, says a key use of data is tracking vehicle locations, which helps to maximise utilisation. “Almost all large fleet customers have now embraced telematics in some form, primarily seeking improved vehicle utilisation efficiencies,” he says. Smaller operators have installed telematics when required by their larger customers or principle contracting firms. However, there’s very small take-up in the owner-driver and smaller operator segment. Fleetsure says “broadened” chain-of-responsibility legislation is focusing the industry, though behavioural monitoring has really only been undertaken by larger clients that already prioritise workplace health and safety, and increased repair costs largely offset any reduction in frequency of losses. Mr Hamilton warns widespread sophisticated technology is likely to mean truck owners won’t see meaningful reduction in premium rates on vehicle coverage. “The increased repair costs of smarter


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“There is a potential with telematics to basically risk profile every driver and their behaviour, particularly around harsh acceleration, braking, cornering and speed.”

vehicles will, for a number of years, be an issue that insurers struggle with in their profit margins, which are now only just returning to acceptable levels.” There is also a danger that enforcing expensive technology adoption may be counterproductive, because narrowing the profit margin of a low-margin industry such as trucking can put pressure on to get even more work done. Insurers, too, are grappling with the challenge that as they incentivise the adoption of safety-enhancing technology through reducing premiums, they are reducing their own income. “You are actually making it tougher to operate as an insurer,” NTI’s Mr Hogarty says. “You need to make sure you are reducing your own expense ratio because otherwise, as those premiums reduce, you are going to find your own business models are unsustainable. “We recognise that the primary benefit in most of the technology is about making their businesses more competitive and safer and getting people home alive. The insurance benefit is a secondary one, but there absolutely needs to be an insurance benefit.” Conscious of agile insurtech players arriving on the scene, NTI is adding automation to reduce unnecessary high-volume, low-value tasks, while increasing value-add “touchpoints” with customers. It is taking advantage of some machine learning applications, leveraging its data in what Mr Hogarty describes as a “quasi” artificial intelligence environment. While telematics is forging ahead, at least in heavy transport, and may even become mandatory in coming years, progress is more patchy around other technology such as driverless vehicles or partial automation in the form of braking or collision-avoidance systems and drive-by-wire technologies. GT recently insured successful testing of a driverless passenger bus in Darwin, but though the technology is expanding, it is limited by satellite and GPS tracking. A recent

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Tesla vehicle fatality was a setback in community acceptance, which is likely to stretch the timeline further. Mr Hogarty believes driver behaviour will be even more important as technology such as driverless vehicles is accepted. Far from drivers disappearing, they will become more akin to pilots, with significant training in how to handle adverse conditions. This is likely to see insurance become much more personalised. “Ultimately, as we move more and more towards data-driven insurance, the data really comes from the drivers, not from the vehicle,” he says. “Rather than just being, ‘Oh, we will insure your 100 trucks,’ it is going to be more around, ‘Well, we will insure your 100 drivers.’ ” Mervyn Rea, Chief Risk Engineer at Zurich, is also witnessing this trend toward insuring the driver, not the vehicle. Zurich has partnered with eDriving, the developer of an App called Mentor which uses smartphone-based telematics to identify risky driving behaviour such as phone use or speeding, and predict future risk levels. The App also offers behaviour-based training modules directly to the driver. “You are monitoring the driver no matter what vehicle they get in,” Mr Rea says. “There is a potential with telematics to basically risk profile every driver and their behaviour, particularly around harsh acceleration, braking, cornering and speed.” Zurich concurs that heavy transport take-up of telematics has been widespread and more recently, is also noticing interest from non-heavy transport type fleets – utilities, sedans and light commercial vehicles – which are becoming more interested and are piloting the use of telematics data. He also reports a “softening approach” toward telematics use from unions. Manufacturers at the forefront of safety such as Volvo and Isuzu are making telematics a standard feature, and the Zurich team anticipates that eventually every vehicle

will have the technology built in. Still, Mr Rea warns of a “fairly fundamental missing piece for the whole telematics equation,” namely that organisations are not geared to sift through the data and analyse it, and then follow up with targeted driver training. “Installing telematics is not a silver bullet. The benefits to be gained are maximised if there is extremely detailed and regular data analytics that can come from the telematics devices, particularly around driver behaviour. And then that data analysis can be used to determine what further courses of action are needed to improve the driver’s behaviours,” Mr Rea notes. The cost of this analysis and training would be more than compensated by less wear and tear on parts, and better fuel efficiency, lowering fuel and maintenance costs by as much as 10%. “Saving 10% on fuel is much, much larger than saving a percentage in their insurance so that should be the focus,” Mr Rea says. He also reveals for every dollar of an insurance claim Zurich pays out there are often $3 of uninsured costs borne by the customer due to absenteeism, reputation damage, lost sales, ongoing financing costs and so on right down to lowered employee satisfaction and motivation, impacting staff turnover. Outside of telematics, Zurich is excited by what are termed “avoidability” safety features, which go beyond “survivability” safety measures like seatbelts and air bags. Examples of this are electronic stability control, adaptive cruise control and automatic braking. “They’re more proactive and prevention is better than cure so those are the features we’re more interested in,” Mr Rea says. NTI agrees the promise of new technology goes well beyond improved fleet performance and the “tangential benefit” insurers enjoy. “Ultimately this has a much broader societal impact,” Mr Hogarty says. 0


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The second wave Risk analysts must adjust to a loss landscape increasingly dominated by floods, fires and hailstorms By Bernice Han

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ailstones the size of cricket balls pelted Sydney and surrounding areas last December, leaving insurers with more than $1.2 billion of damage-related claims. A month earlier, across the Pacific, wildfires had destroyed the Californian town of Paradise. These two events, according to Swiss Re, serve as a wake-up call for the industry: it had better start paying more attention to hailstorms, wildfires, river floods, droughts and other “second-tier” natural perils. Because insurers know far too little about the loss impacts of these perils. They may be termed “secondary”, but don’t be fooled by the name, the reinsurance giant says. The financial damage they have inflicted, as data in the past several years suggests, is anything but secondary. In fact, such perils have tormented insurers more than the heavily scrutinised “primary threats” such as cyclones, earthquakes and European winter storms. A new Swiss Re Sigma report – Natural Catastrophes and Man-Made Disasters – shows combined insured losses from secondary perils last year topped the table at

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$US41.78 billion, followed by primary events on $US28.85 billion. Secondary perils, together with spillover effects from primary hazards – examples include hurricane-induced rain, post-quake fires and liquefaction – were responsible for 62% of the $US76 billion in natural catastrophe-related claims payouts. That $US76 billion loss is the fourth-costliest on record, despite a calmer catastrophe season than the previous year’s, Swiss Re says. The Camp fire that wiped out Paradise last November was the largest insurance loss event at $US12 billion. It followed a similar pattern in 2017: while the trio of super hurricanes – Harvey, Irma and Maria – devastated a few US states, secondary perils and primary event follow-on effects made up half of the $US143 billion in insurance losses. A definite pattern has emerged, Swiss Re says. With rapid urbanisation and climate change, the damage from second-tier perils will become more pronounced. The Texas city of Houston is a prime example of how urbanisation magnifies the

impact of a secondary peril. In 2016 and 2015, rain-induced floods in the city’s metropolitan area produced insured losses of $US1.1 billion and $US1.6 billion respectively. “The city has become vulnerable to flooding on account of… suburban sprawl across the area’s floodplains over the past 15 years,” Swiss Re says. “The ever-expanding area of paved surfaces in these areas means rainwater runs and rises along hard surfaces rather than being absorbed into the ground.” In an industry still so heavily focused on the loss probabilities of peak perils, a fresh risk assessment approach is urgently needed. “As with the Camp fire in California last year, we expect secondary perils (including river and storm surge floods) will more and more rank among the top loss-making events in any one year, and that this will happen sooner rather than later,” the Sigma report says. “Insurance pricing for catastrophe risks is mostly influenced by the loss impact of primary (particularly mega-sized) perils. However, as the experience of 2018 shows,


The Australian experience: underlying exposures are driving insured losses

CFA CFA Increasing threat: Victoria’s Bunyip bushfires caused more than $30 million in insured losses earlier this year

A definite pattern has emerged. With rapid urbanisation and climate change, the damage from second-tier perils will become more pronounced. insured losses from secondary events can also mount to high levels. “With increasing population densities, wealth concentration and coastal exposures, insurers need to respond to what has developed into a more constant flow of small and medium-sized catastrophe events. “This means (re)insurers need to develop enhanced methods of risk-measuring, monitoring and modelling to manage a different kind of natural perils result volatility: one that is more frequency-driven than severity-driven.” The industry must factor in the “strong underlying trend increase in both frequency and severity due to environmental and societal changes, particularly urbanisation. Failure to afford due recognition to these loss events and their underlying growth trend will… risk facilitating increasingly more pronounced market dislocation.” For insurers, the task is far from easy. For one thing, secondary perils are very much more complex than primary risks, and there is a dearth of robust tools available to assess loss probabilities. For example, while earthquakes are near

known seismic fault lines, second-tier hazards can happen anywhere. Heavy rain can hit large urban centres inland, or away from river plains. They are also highly localised. Insurers would require enormous amounts of data and computational power to accurately model the probability of a peril affecting the same area more than once. “In the past decade, the industry has generated dependency on increasingly sophisticated probabilistic loss models available for major primary perils such as earthquakes,” the Sigma report says. “However, the ability to make accurate loss estimates for sustainable profitability is not solely based around the ability to use the available models. “In our view, the to-date non-modelled secondary perils are of growing importance in loss estimates, also with a view to ensuring the sustainability of the insurance industry.” Factors ramping up the toll from secondary perils are playing out across Australia: rapid urbanisation and increased frequency of extreme weather events such as droughts and floods. 0

Catastrophe data from the Insurance Council of Australia backs up the Swiss Re summation that secondary perils are increasing the load on insurers. Some 67% of normalised insured losses in Australia since 1966/67 have come from secondary hazards. They account for 14 of the top 20 normalised loss events, and the 1999 hailstorm in Sydney was the most costly at $5.6 billion. “From this we can infer that the main driver of increased losses over time in Australia is growth in underlying exposures, which aligns with our Sigma research on global losses,” says David Sinai, Swiss Re’s Head of Property Treaty Underwriting for Australia and New Zealand. “Australia is heavily exposed. {The Sigma report] states that the growth in secondary peril insured losses is mostly due to concentration of exposure growth in larger cities, in coastal areas and on floodplains. “Put simply, when we put more assets in harm’s way, we will see more losses.” Know your peril – the Swiss Re guide Primary: Peak perils with known severe loss potential for the insurance industry. Traditionally well-monitored risks in developed (re)insurance markets. Examples include tropical cyclones, earthquakes and winter storms in Europe. Independent secondary perils: Often not modelled, they receive little monitoring by the industry. Prominent examples are river floods, flash floods, torrential rainfall, thunderstorms, winter storms outside Europe, snow and ice storms, drought and wildfire outbreaks. Secondary effects of primary perils are also included in this group, with events including hurricane-induced rain, storm surges, tsunamis, liquefaction and fire following earthquakes.

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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

The right balance AR networks are an increasingly attractive option for professionals looking to realise business and lifestyle goals By Wendy Pugh

C

ompliance burdens, corporate frustrations and the attraction of fresh opportunities are among the drivers making the authorised representative (AR) way of doing business increasingly appealing to many people, and the range of network options available is evolving. Entrants to the AR sector are typically pursuing financial and lifestyle goals, and participants in general welcome the range of centralised services that support their ambitions. “The individual motivations are varied, but many of them don’t want to work in a corporate broking environment and they want the freedom to build their own portfolio,” Insurance Advisernet Managing Director Shaun Standfield tells Insurance News. “There are people who get caught up in what they perceive as the bureaucracy and they want the freedom to go and service their clients and provide advice, and the low cost of entry, I think, is important.” Insurance Advisernet was founded in 1996 and says it is the largest AR network in the country by gross written premium, which totals more than $600 million across Australia and New Zealand. The business is 50% owned by AUB Group. An AR arrangement allows an Australian financial services licensee to authorise another party to provide services on their behalf. In broking, licensee responsibilities include trust accounts for client money, compliance oversight and ensuring professional indemnity cover is in place. The collapse of HIH in 2001 and the subsequent Financial Services Reform Act fuelled the AR model, while ever-increasing regulatory demands continue to

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make it an attractive proposition. AR groups offer varying levels of service beyond basic licence obligations, including IT and systems support, marketing, lead generation, insurer relationships, claims handling, education and opportunities to attend conferences and other events. Revenue percentage splits and financial arrangements also vary. Some have equity arrangements and some require ARs to take on the network’s identity. Less assistance may mean keeping a higher share of commissions and fees, while additional charges may apply. ARs were previously often associated with distribution linked to insurers, with the term potentially referring to either agents or brokers, but the trend for underwriters to acquire intermediaries has reversed, with IAG and Suncorp divesting networks in the past year. Suncorp’s Resilium, which had its roots in AMP, is now a privately owned business after a management buyout. IAG sold its Community Broker Network to Steadfast after forming the group by acquiring Perthbased Westcourt and merging that with its own National Adviser Services. Companies with high profiles in the arena include PSC Insurance Group, which offers different pathways for those pursuing broking careers. PSC Connect targets experienced brokers who fully own their businesses, providing them with support from state regional managers in addition to a range of centralised services including compliance, financials, technology, marketing and specialised facilities. “The basic criteria is that you have been operating as an insurance broker in Australia for at least five years, if not 10 years, you are fully qualified to diploma


SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

level, you have a good business plan and you are professional and trustworthy when dealing with clients,” Chief Executive Tony Walker says. “You are running your own business, so you have to be more than capable to grow the business. We don’t want people joining us, then six months later deciding it is too hard and they want to get out. So we go through a fairly rigorous induction program before we sign them up.” Mr Walker, who began the network within PSC Insurance Group in 2010, says without the AR network model, small independent operators would find some insurers reluctant to deal with them because of their size. Three years ago PSC bought a major stake in Reliance Partners, which is a member of both the National Insurance Brokers Association and the Franchise Council of Australia. Reliance Partners Chief Executive Shane Upton says under its franchise model, the group takes a 50% stake in businesses and offers a different option for those considering becoming an AR. “The majority tend to believe the only pathway is to do it 100% on your own, so what we are trying to explain and target is that there is another way to go about it, by way of a joint venture partnership with a group that has all the tools and will basically act as your silent business partner,” he says. AR network executives say people starting their own businesses see the potential for greater financial reward for their effort and more control over their destiny compared with being locked within the ranks of another company, whether large or small.

For entrepreneurs, the freedom to pursue business while outsourcing time-consuming back-office responsibilities provides a strong incentive. The AR model also lowers the barriers to starting out, but network executives warn the early going can be tough, as with any business. For already established firms, AR equity models can release funds to expand operations or provide a financial injection for mortgages, school fees or any number of personal goals. They can also be a pathway to scaling back or exiting the business. MGA Insurance Brokers has portfolio managers who technically operate through an AR arrangement under the licensing framework, but which are part of a branded network with offices around the country that are supported by the company’s services. “We like to have a 50:50 ownership in the portfolio and then we take care of all the bills and the things associated with running the business, including the rent, the photocopying and the IT, and the portfolio managers pay for their staff, their mobile phones and their cars,” Managing Director Paul George says. The joint ownership arrangement means business uplifts achieved after coming on board are shared, while portfolio managers also have management rights that are separate to the equity. “Ultimately, we believe in the model where they are driving their own business and are fully engaged in the business, because that is the measure of their success,” Mr George says. “I would say one of the keys to success around all the AR-type discussions is the fact it is more a partnership

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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

“Ultimately, our reputation is based on the success of everybody in the network and you can’t afford to have people who destroy that value for the rest.”

than an employer-employee relationship. That is why it works so well.” In another variation, Coverforce Partners looks to take a 30-50% equity stake and says participants can join the group either as an AR or by operating under their own financial services licence. Support across areas including claims management aims to effectively achieve two days a week in efficiency gains for partners. Chief Executive Tony Goldsmith says the pace of technological change also makes IT services an important part of the equation. “There are so many moving pieces to the IT world that to be on top of it as a single standalone entity can be very difficult, especially for a smaller broker,” he says. “You need to be associated with someone who is able to deliver a solution for you given the rate of change that is coming in the IT landscape.” A different option for building equity in a business has been developed by former Westcourt director Tremayne West, who started the Australian Broker Network two years ago, describing it as an inverse model that shakes up “traditional” AR arrangements. “We don’t have any equity in our partners, they have equity in us. We work together to set the strategy and set the growth of the individual books and the network as a whole,” he says. Ideally, the network will grow to about 25-30 partners – experienced professional advisers with insurance specialisations who can benefit from each other’s expertise. “Together we add value to each other by allowing our partners to focus on individual niches and then we cross-fertilise or cross-share new business opportunities as they come through. “As an aggregate, rather than individual books, we will position ourselves to be acquired at a period of time or be floated in the future.” Network executives say that in general there is no shortage of people approaching them about becoming involved, but many aren’t suitable. It is important to accept only those with the right qualifications and

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background, and whose ambitions are aligned with the group’s. “Ultimately, our reputation is based on the success of everybody in the network and you can’t afford to have people who destroy that value for the rest of the people in the network,” Insurance Advisernet’s Mr Standfield says. “We are not a licence for hire. Probably only two or three applications in every 10 will get through to becoming an AR, ultimately because we have to make sure people fit our culture.” Compliance regimes have come to the fore as the regulator becomes more active, with pressure likely to increase in the wake of the Hayne royal commission, which put the heat on financial planners and mortgage brokers. United Insurance Group (UIG) Chief Executive Trevor Howard says financial service providers outside insurance that are looking to broaden their offering often make enquires. “We have to explain that is not the model we have,” he says. “We prefer people with experience and with a dedicated client following. “You can’t have someone who is a mortgage broker 37 and a half hours a week, and for half an hour they are trying to be an insurance broker. They are going to make mistakes.” Mr Howard says UIG is like an extension to its ARs’ business that can be drawn upon for assistance, but the network is not trying to be all things to all people. “It is more like a partnership or associate-type relationship, rather than a master-servant relationship, or one in which we are the mothership,” he says. The AR approach attracts some people who would once have held licences in their own right, but who are choosing a model that suits their purposes, and which takes away the distractions that leave less time for the client side of the business. “There is no one size fits all,” Reliance Partners’ Mr Upton says. “We have partners that have teams of three or four and those that are just working from home on their own, and they are all around Australia.” 0


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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘You need that back-up’ Bryan Leibbrandt and Kirstin Morley, managers at MGA Insurance Brokers, Perth: Having “skin in the game” was a key motivation for Bryan Leibbrandt to leave the large corporate insurance world and go into business with partner Kirstin Morley and MGA. Mr Leibbrandt worked in insurance with QBE in Adelaide before becoming South Australia general manager for international broking group Willis. That led to a transfer within the company to Western Australia. “I was there for a couple more years, then I bought into a local broker in Perth, but the partnership didn’t work, so we dismantled that,” he says. “I didn’t want to go back into the international world, and for me it was a case of, let’s get some skin in the game and have some ownership of a business.” MGA, based in Adelaide, was familiar to Mr Leibbrandt from his South Australian days. But the group, which has strong national branding, had no office in Western Australia. Mr Leibbrandt and Ms Morley joined MGA in 2015 and have since expanded their business. The couple married in Cambodia this year, returning to the country they first visited together for their inaugural MGA conference. (MGA also operates a brokerage in Cambodia.) “We were both divorced and set this business up four-and-a-half years ago and we said, if we ever got married we would go back to Cambodia, which we did

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in March.” Ms Morley also has extensive experience in insurance and has brought trade credit expertise to the wider MGA group. MGA owns 50% of the Perth business and takes care of office space, IT and pretty much everything except client relationships and salaries. The arrangement meant not having to divert time into setting up IT and processing, getting a licence and trust accounts, and all the extras. “To go into somewhere established like MGA was a no-brainer for us,” Mr Leibbrandt says. “When you are starting virtually from scratch, you need that network and the back-up.” Mr Leibbrandt says that in large corporates internal politics can be an unwanted distraction and more people are now seeing the appeal of networks where they can run their own operations. Various broker group models have also emerged in the past decade to provide more options. The MGA WA business has expanded through a strong focus on meeting client needs, and Mr Leibbrandt says he is “very pleased” with its progress, while also seeing the potential to add staff. “We absolutely will grow. We have set ourselves an achievable budget every year, and that will 0 change and increase.”


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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘The right model for us’ Shannon Osborne, Managing Director, BurMac Financial Services, Dubbo:

Working in the family insurance business was always going to be a likely career path for Shannon Osborne, who now heads the BurMac brokerage in Dubbo. “There was always a tie to the business and it was something I felt close to and something I wanted to do,” he says. “Since I was 15, I had always done some parttime work for Dad. “That is something you do in family businesses, I guess, whether that was filing or just general clerical work.” Mr Osborne’s grandfather worked for South British Insurance, which was bought by NZI before eventually becoming part of CGU. Broking became the family business during the next generation. “My father and uncle both went into insurance and I took on the portfolio from my father, and my brother works with me,” he says. Before that, Mr Osborne went to university in Lismore and, as the Sydney Olympics approached and tourism surged, spent time in hotel management near Uluru and on the Gold Coast. At the time of his return in 1999, the brokerage held its own licence, but uncertainty about the impacts of future compliance reforms increased following the HIH collapse. The business chose the authorised representative (AR) model as the best way forward, and ultimately became part of Insurance Advisernet. “Since then there has been a general evolution in

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that model,” Mr Osborne says. “Now there is a lot more value that the network offers us, not only in that compliance space, but with business advice, market support, access to larger and key decision-makers within insurers, and education.” BurMac also has offices in Orange and Mudgee, serving the wider Central West district of New South Wales and further afield. “We do have clients and customers in every state and territory. We have a fair exposure through the metropolitan Sydney area as well, and that’s just word-ofmouth referrals.” A tailored approach that focuses on individual clients and their circumstances is particularly well received in the SME arena. “I think that is a big point of difference, especially regionally, and I find that when we do have a conversation with a customer in a metropolitan area, they really find that approach refreshing.” The business is seeking ways to expand, enhance its operations and add value, while being part of Insurance Advisernet provides more scope to be client-focused “We are now at a point where we would be strong enough and capable enough to go our own way and get our own broking licence again, if that is what we chose to do,” Mr Osborne says. “But in terms of the value Insurance Advisernet provides us and the AR model, I think we would be losing too much, so I don’t think it’s a direction I 0 would choose.”


SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘People want the local touch’ Kristy Martin, Managing Director, Insurance Advisernet Merimbula:

Working part-time in a Merimbula supermarket deli while in high school proved an unexpected pathway into insurance for Kristy Martin. “I was working in the supermarket below the brokerage office and the manager used to come in every afternoon to buy his groceries,” she says. “I knew his children from school, and we got chatting. He actually approached my parents and said, ‘I want to offer your daughter a job.’ ” Ms Martin didn’t have a licence, or even have experience with car insurance. But she loved the job, and the atmosphere of the office highlighted the importance of creating a warm working environment. After several years with that business, Ms Martin moved to Sydney and joined another insurance company, before returning to Merimbula and striking out on her own as an authorised representative of Insurance Advisernet. She was in her early 20s, working from a spare room in her parents’ home before moving to commercial premises. “It was very daunting to me. There were so many times when I went, ‘My goodness, what have I done?’ But in saying that, now I am so glad that I did it when I was young. “I had a good seven or eight years up my sleeve when I built the business up and could put everything into it before having children.” Ms Martin has two boys, aged three and six, has just employed a fourth staff member and says the business,

marking its 14th anniversary this year, is on a growth trajectory. She is enthusiastic about the assistance provided by Insurance Advisernet, including the services, training opportunities and support, and the sense of community that comes from being part of the network of authorised representatives. The importance of the job was highlighted when golfball-size hail hit Merimbula nine days before Christmas last year causing widespread damage, in a precursor to a similar storm that swept through Sydney. “This year has been the most challenging because we have never had an event like that. To have more than 100 claims lodged on one day with three people in the office was very testing, but we got a lot of really good feedback,” she says. “We just did back-to-back days where we worked until midnight and started at 6am. I did a whole night just to get through the processes, but it was rewarding at the same time.” Ms Martin says the claims side of the job is especially important and, after the hailstorm her team visited affected clients, met assessors and followed up everything. The business is growing through referrals. “People are coming to us because they know we give advice, we are here, we are local, you don’t have to ring a call centre,” she says. “People like to deal with locals, who own 0 local businesses.”

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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘It’s like one big family’ Kate Greaves, Manager General Insurance, Goldsworthy Investments, Brisbane:

Kate Greaves worked as governess on a cattle station before becoming a third-generation manager in the Goldsworthy business in Brisbane, building on the legacy of her grandfather Bill Orr, who started selling AMP insurance door-to-door in Tamworth in the early 1960s. Mr Orr’s daughter Katrina and son-in-law Ralph Goldsworthy became the second generation in the business when they joined in 1990, and their daughters now helm the operation, with Ms Greaves leading the insurance side and sister Jennifer running financial planning. Ms Greaves worked on the northwest Queensland cattle property while planning a career in early childhood education, but a return to Brisbane and change in family circumstances led to a different direction. “I came back to finish my degree and was working part-time in the business and absolutely fell in love with it,” she says. “Mum was managing the general insurance side of the business at that stage, but she got sick with breast cancer, and then cardiomyopathy, and was forced into early retirement.” Ms Greaves was 29 when she stepped up to run the insurance side in 2010 and has since “learned a lot of lessons the hard way, coming through a better person and manager for it all”. The business is part of the Resilium network, which emerged after AMP sold its authorised representative (AR) distribution arm to Suncorp in 2011. The network was rebranded and in 2014 Suncorp launched Resilium

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Insurance Broking, now an independent company following a management buyout. Ms Greaves says the Resilium AR broking model widens opportunities for the business to better meet clients’ needs and strengthen relationships, while Goldsworthy can draw on a range of services provided by the network. “They are there to support us and to guide us and they help us with business planning, with lead generation – they offer services that it would be a lot harder to obtain if you were working under your own licence,” she says. Professional development, at management and staff level, is also an important part of the offering and she welcomes the group’s personal approach and access to executives. “If you ever go to a Resilium conference or something like that, it is like a big family group. You have got each other’s backs,” Ms Greaves says. Goldsworthy, based in the southern Brisbane suburb of Mount Gravatt, has clients across Australia, mostly within an area ranging north to Bundaberg, inland to St George and down to northern NSW. “We have financial planning and general insurance, so we have a lot of clients that are across all areas of the business. “We are very fortunate, in that we have very good referral generation from our existing clients, and we are really putting a lot of time and effort into our commercial portfolio. It’s only onwards and up0 wards for us.”


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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘It lets me focus on the clients’ Paul Murphy, Managing Director, Australian Risk Advisers, Sydney:

Paul Murphy will have been an authorised representative (AR) with United Insurance Group (UIG) for seven years in August, in an arrangement that suits a veteran who knows his way around the industry. Mr Murphy began his insurance career in 1968 with Mercantile Mutual, working in claims, reinsurance and other areas before becoming a branch manager. His career trajectory was disrupted as corporate transactions shifted the landscape, with the venerable company long since absorbed by QBE. “I had a big branch and a lot of autonomy and staff and had lectured at UTS, and all the career progressions came to a halt,” he says. Proffered positions held little appeal and he bought into an Austbrokers business, where he worked for more than a decade before leaving and seeking to leverage his knowledge and experience under a different arrangement. A meeting with UIG Managing Director Trevor Howard confirmed a decision to join the AR group, which prefers experienced people who know the ropes. “There was a bit of serendipity,” Mr Murphy says. “One of our marketing guys was also working for a UIG AR in Melbourne and he introduced me to Trevor. I liked the model. “I like that they give you sufficient support but don’t interfere in the day to day.”

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Mr Murphy says he welcomes UIG taking care of back-office administration and tasks that would divert his time from an expanding operation if he were the licence-holder. UIG is also part of the Steadfast Group. “The AR model for me is very profitable, because I simply pay a margin out to UIG and they take care of things, and the rest of the time they get out of your way and let you do your job as a broker,” he says. Mr Murphy set up Australian Risk Advisers in Ingleburn in southwest Sydney, and says after a threeyear restraint period previous clients have returned. “Even with larger clients, insurance tends to be personal. You build relationships with CEOs and CFOs of businesses. They are very loyal if you look after them.” Mr Murphy says under this model he can better focus on relationships with clients and insurers, and be actively involved with claims. “What I found [previously] is that I got further and further away from clients, and working with clients is what I enjoy. I have a range of clients, from medical technology to law firms to manufacturers, and some quite unique clients who have a worldwide profile, as well as tradies. “Clients are always interesting. It is fascinating to see what people can make money out of that I would never have thought of, and they all need insurance. They all 0 need risk advice.”


SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘Build a business that suits you’ Nick Ferguson, Partner, Reliance Partners, Tweed Heads: Nick Ferguson has taken the plunge this year to become an authorised representative (AR) with Reliance Partners, after considering for some time branching out and building his own business. “It is a big step, so becoming an AR is not an overnight decision. But the thing that really pushed me into it is that you are in charge of your destiny,” he says. Mr Ferguson moved into the broking side of insurance with Austbrokers AEI while he was working in Sydney, but decided to return to Queensland, where he is from, and worked for several other companies building experience. The idea of striking out independently and running a business his own way became increasingly appealing, and becoming an authorised representative provided the right avenue. “The beauty of the AR model is that you can build a business the way you think it should be done, target the type of clients you want to target and work the hours that suit your lifestyle,” he says. Mr Ferguson, who now lives in the northern New South Wales Tweed Coast area on the border with Queensland, says the greater work flexibility compared with traditional office hours allows him more time with his six-year-old son and two-year-old daughter. “Now I can take my son to soccer training, and take my son to school on occasions to assist my wife. We do not have immediate family around us and with two

young kids it was difficult at times when I was away from home 50 hours of the week as an employee. “You still always have to be contactable for your clients, but when it comes to invoicing or data entry-type tasks that can be done at any time, you can really fit it around your lifestyle. I think that is a huge driver for lots of people.” Mr Ferguson works from his office in Coolangatta and remotely, and doesn’t particularly miss the corporate office environment. “If anything, to me it can at times be distracting. This way you can get in and get your work done and achieve a higher output with no distractions. “It comes down to a personal thing. It is not for everyone, but I prefer it.” Mr Ferguson says he researched various AR network options, and advises people thinking of making the move to ensure they do their homework and press the different groups over the assistance they provide. The Reliance Partners joint venture franchise model came out on top for him, allowing flexibility to run the business the way he believes works best, while providing a partner to offer guidance and support. “Reliance Partners provides a claims officer, marketing support and it is part of PSC, which has some great relationships with the wider insurance market, which is a massive bonus when you are starting out,” 0 he says.

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SPECIAL FEATURE: AUTHORISED REPRESENTATIVE NETWORKS

‘So much more we can do’ The management buyout of Resilium sets the AR group up for a bright future By Wendy Pugh Resilium Managing Director Adrian Kitchin is confident about the group’s prospects after a management buyout that removes the constraints that come with being a small part of a big corporation. He saw Resilium’s potential during his time heading the business within Suncorp, but also knew independent ownership would offer more agility and latitude to make improvements. “The past four years since I have been involved with the business it has improved dramatically, both in terms of its size and its level of professionalism, but I can just see there is so much more we are going to be able do with the business into the future,” he tells Insurance News. The management buyout, led by Mr Kitchin with partners Ben Hastie and Drue Castanelli, was announced in March after speculation around the market that Suncorp wanted to sell the business. The resulting deal offers a smooth transition, given Mr Kitchin was already at the helm, a trading relationship will continue with Suncorp and authorised representatives (ARs) at the network have been supportive. “The feedback we have had so far has been exceptionally positive,” Mr Kitchin says. “The fact we have skin in the game like they do is very appealing to them.” Mr Kitchin joined Resilium in 2015 from Insurance Advisernet, where he had risen to managing director during nine years with the group. Previously, he worked at Liberty International Underwriters and was general counsel at Aon Risk Solutions. At the time of joining Resilium the business had almost 300 AR businesses with more than 800 individual advisers, but many of the businesses were quite small and not necessarily active.

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“We took the opportunity, obviously with their consent, to consolidate their portfolios, to buy their practices back from them and to allow other larger and very professional AR practices to acquire those portfolios,” he says. “The premium has doubled in the past four years and our AR numbers have gone from 300 down to 170.” Premium across the Resilium group is now close to $500 million and the focus from here will include bringing new ARs into the fold. “We are happy to back start-ups,” he says. “Equally we are happy to assist people with an established practice who want to be part of a growth story.” Resilium offers a full-time AR model, he says, avoiding the path where a broking business adds some ARs to its operations, running the risk they may compete with each other. “Our sole focus is on ensuring we provide highly professional relevant services to all our people – everything from education through to marketing assistance, leads, technology – to make sure our people are able to go about their business in a highly efficient way,” he says. The group also runs a tight ship on compliance and undertakes auditing of all practices at least annually. Mr Kitchin says the AR model allows business owners to outsource a range of functions and focus on customers. “If you are particularly good at creating growth, an AR model makes a whole lot of sense because you are outsourcing your non-income producing activities to us, allowing you the time to go out and either prospect for new clients or service existing clients, to make sure they 0 are well looked after and get the right advice.”

Taking control: Resilium’s Adrian Kitchin


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Growing closer An annual report finds insurtechs are making progress in working with insurers to plug technology gaps By Bernice Han Building alliances, not walls: Insurtech Australia Chief Executive Rita Yates

Insurtechs tend to focus on specific aspects of the insurance business. These are the areas where they are working to make a difference, with the insurance value proposition breakdown of:

24% on new products

22% on administration

21% on pricing and agility

18% on loss prevention and remediation

15% on marketing and distribution

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onald Trump may be setting some sort of trend with his current campaign to undermine long-established alliances, but Australia’s insurtech developers are working in the opposite direction. They’re building new relationships with insurers, and their approach is paying off. The determination to seek collaboration with incumbents has provided the base for insurance-focused digital startups to not just survive but thrive, the annual joint EY and Insurtech Australia report finds. Insurtechs are putting a convincing case forward to so-called incumbents – the established insurers. They are providing solutions to an industry that is looking to artificial intelligence, machine learning and all things tech to improve product lines, customer satisfaction and internal efficiency. “Australia’s insurtechs are maturing and growing,” the report says. “They are playing an ever more important role in the future of incumbents. “Focused on supporting product and distribution innovation, pricing and underwriting agility, smarter loss prevention as well as organisational efficiency, insurtechs hold the key to helping incumbents accelerate their transformation to becoming digital insurers.” Nearly three-quarters of insurtechs are in “active partnerships” with insurers, which is a steep rise since last year, according to the second edition of the state-of the-industry study. The numbers present a remarkable breakthrough for insurtechs, who had voiced frustration at the lack of interest from incumbents when they first emerged a few years ago. “The uplift in collaboration suggests incumbents are starting to embed insurtech innovation in targeted parts of their operations to create value in new ways,” the report says. “Insurtechs are helping incumbents to develop

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innovative insurance products and deliver services that better align with customer expectations.” Rita Yates, the Chief Executive of Insurtech Australia, says the insurance industry is increasingly receptive to what digital specialists have to offer. “The vast majority of insurtechs are looking to work together with incumbents to improve current offerings or provide brand new propositions,” she told Insurance News. “It’s part of why we exist – to help those organisations who are still thinking through what those opportunities could look like, to actually putting that into something more tangible. “I don’t think there’s too many [insurers] left that don’t recognise the potential benefits of working with insurtechs, and I think it’s fairly widely accepted now that it’s not a matter of if or when but how. “All I would say is to those who haven’t yet engaged is that they should see it as an opportunity and not a threat.” There’s more for both incumbents and insurtechs to do before the industry can welcome a new era, however. One apparent downside noted in the report is that only 18% of respondents feel insurers are doing enough to partner with them to drive innovation. Progress in this area will require some adjustments from both sides. “Although incumbents are risk-adverse and subject to strict regulatory oversight, they need to stay focused on growth and drive innovation by leveraging the insurtech ecosystem,” the report says. “Incumbents should look to remove the inhibitors that prevent them from fostering insurtech partnerships and embedding innovation into their digital strategies.” As for insurtechs, the report says they “need to be patient and stay focused on enabling business outcomes


within the value chain”. “To assist this, insurtechs should be transparent about the maturity of their technology and service capabilities to foster trust in their partnerships.” Insurtech Australia’s Ms Yates is encouraged with the overall findings from the report, which suggests that more start-ups are now on a much stronger financial footing than they were last year. About 71% of insurtechs are in the “post-revenue” stage, up from 50%, and more than 30% have raised more than $2 million from capital-raising activity, compared with just 24% last year. The number of insurtechs has increased by 53%, and 30% of them started overseas before deciding to set up local branches here. Insurtechs are extremely precise in their focus. They generally choose to excel in just a handful of fields, and this explains partly the secret behind their success in partnership-building. The five areas they focus on are new products that raise customer value, insurance administration, pricing and underwriting agility, loss prevention and remediation, and marketing and distribution. It’s in these areas that incumbents are seeking innovative technologies to plug the gap. “Some of the things that insurtechs have been doing well are focusing on firstly identifying the problem areas that they are trying to solve,” Ms Yates explains to Insurance News. “And most insurtechs are focused on one aspect of the value chain and look to do it very well. So

that essentially creates huge opportunities for the incumbents. “Insurtechs are small and nimble, they have a very strong focus on customers – which sometimes is hard for big insurers to do – and the change in demand with consumers as well. That is some of the ways they have helped change the minds of incumbents.” According to EY Partner Andrew Parton, insurtechs in the general insurance space target customer experience and claims management as areas to appeal to the industry. “There is a significant group of scale-ups who are improving customer experience by enabling innovative product development and distribution, plugging into both existing and new digital channels, backed by incumbent insurers as the underwriters,” he told Insurance News. “The other major cohort is focused on the claims management space. Our survey found that 48% of insurtechs believe technology is still the dominant enabler of claim prevention and remediation. “However, 36% think the current state of incumbents’ technology readiness inhibits loss prevention and remediation. So this second group of insurtechs are working on solutions to help address this issue.” Overall, insurtechs are now an accepted part of the insurance industry landscape, and that acceptance will see more innovations flowing in the future. It’s an alliance that will result in real benefits for all parties, including consumers. Donald Trump should be 0 impressed.

Not feeling the love About two-thirds of New Zealand insurtechs intend to expand overseas in the next 12 months in search of greener pastures, consultant EY says in a joint report with InsurTechNZ. They are keen to collaborate with insurers, with three-quarters of insurtechs regarding such engagement as important to their growth. However, New Zealand insurers’ “apathy” and an array of other obstacles such as the small domestic market mean many see their future opportunities in foreign markets including Australia. While 72% of New Zealand’s insurance-focused startups are already working with insurers, it’s telling that 63% disagree there is enough collaboration with insurers and brokers to achieve a successful insurtech ecosystem. Incumbents often cite different company cultures and data security as reasons behind their reluctance to team up. About 65% of insurers and brokers surveyed for the report concede they are not proactive in engaging with insurtechs. The report says greater collaboration would produce win-win results for the two sides. 64

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“Our survey shows the New Zealand insurtech sector is growing fast,” the report says. “There is a need for reciprocal cross-sector collaboration, particularly between insurtechs and incumbents. “Together they could deliver improved customer engagement and experience in a market that is challenged from intermittent engagement with their customers. “Now is the time for [both parties] to think ahead and establish innovation strategies together to become a world-leading insurtech ecosystem.” Like their Australian peers, the digital start-ups in New Zealand are focused on utilising their technological knowhow to improve the delivery of insurance products and services. There is very little evidence that they see themselves in direct competition with incumbents. “New Zealand’s insurtechs seek to solve the challenges the insurance industry as a whole is facing, with a focus on improving customer experience,” the report says. “The main drivers New Zealand insurtechs are focused on are ‘customer-centricity’ and longer term strategic decision-making. This is in line with Australian and international trends.”


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Over 90% of policyholders will go digital if offered through a call centre

40% The amount by which the average length Current Insurance Apps only experience a 28% take up

of a claim is cut (of whatever description)

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CLAIMS COST CONTROL

77 Average NPS for all our customers using an end to end online process to settle claims

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Challenging events: claims from New Zealand’s 2016 Kaikoura quake totalled more than $NZ2 billion. Credit: Julian Thomson, GNS Science

Taking an independent view Akshay Gupta is leading BHSI’s analytics work to sharpen up the understanding of customers’ specific catastrophe risks By Wendy Pugh

C

yclones and earthquakes have proved challenging for Australian and New Zealand insurers assessing how to profitably cover natural catastrophe risks and provide value to customers. Berkshire Hathaway Specialty Insurance (BHSI) is taking on this challenge with a fresh approach after expanding across the Pacific and opening its doors in both countries four years ago. “The [BHSI] business at that time was more USfocused,” Head of Catastrophe Engineering and Analytics and Senior Vice President Akshay Gupta tells Insurance News. “That is where we started, but as we opened up our offices in Australia and New Zealand we quickly realised that the tools available in the market to understand risk were not sufficient for our purposes.” New Zealand market views were understating the risk compared with BHSI’s appraisal, while the predominant models for Australian cyclone presented varying assessments that didn’t meet BHSI’s specific requirements. The insurer decided that developing its own methodology and analytics would be a more effective way of delivering the information it needed. “We would like to take a view of the risk that is

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Understanding risk: BHSI’s Akshay Gupta

much more location-specific, and it is different from taking an average view of the risk that other models might provide,” Dr Gupta says. “Given that we are doing account-by-account underwriting, and that we don’t buy reinsurance and are retaining all the risk on our book, we need to have a much better grasp and understanding of the risk.” BHSI is a relatively new but fast-growing part of the highly respected Berkshire Hathaway group. The specialty commercial insurer launched in 2013 in Boston and now operates from cities including Munich, Hong Kong, Kuala Lumpur, London and Toronto. Locally, it gained its licence from the Australian Prudential Regulation Authority in 2015 and has offices in Sydney, Melbourne, Brisbane and Perth, and across the Tasman in Auckland. The business underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from S&P. Dr Gupta, who is based in San Francisco’s Bay Area, joined in January 2015 after working at modelling group AIR Worldwide and consultancy Exponent Failure Analysis Associates. He earned a master’s degree and PhD in earthquake engineering from Stanford University. At BHSI he is responsible for global catastrophe engineering analytics and modelling, bringing science, engineering, data and technology together to better understand risk and provide critical information for underwriters. The insurer in part draws on publicly available data from government organisations such as Geoscience Australia and GNS Science in New Zealand, engineering and site-specific assessments, and insights from new technologies. The predominant focus is on earthquake, wind and flood, although it may look at bushfires as the business expands. Dr Gupta says BHSI’s approach provides an independent and transparent view for customers and offers consistency and stability in their insurance programs.

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“If we are going to be a long-term partner for our customers, what we are trying to do is make sure that when a loss takes place, the loss is within the expectation. If we are not surprised by the loss, there is no reason for us to react irrationally.” BHSI Head of Property Australia Craig Taylor says insights from Dr Gupta’s team are supporting local growth. The property group has expanded to 30 people and the business has gained good support from local and international brokers. “We are growing in every respect,” he tells Insurance News. “It is very pleasing that the footprint we have in Australia has grown in terms of our team numbers and there is also growth in terms of the top line.” The customer risk focus has allowed it to cover clients in areas of Queensland that other underwriters have avoided, and the business has brought the same commitment to the New Zealand market. “We don’t have an adversity to volatility, we just need to eliminate a lot of uncertainty,” Mr Taylor tells Insurance News. “We are certainly there for our customers through the catastrophes that play out in Australia and New Zealand, and for some of the larger losses that have taken place in the Australian market.” Globally, BHSI has thrived amid difficult market conditions, while the past two years have also thrown up significant catastrophe activity, with hurricanes in the US, cyclones in Australia, typhoons in Asia and New Zealand’s Kaikoura quake. It is keeping an eye on climate change research and has atmospheric scientists on staff examining the issues as evidence shows global warming taking place. Trends related to the frequency and severity of storms and potential future impacts are less clear at this stage. “The observational record is small, so there isn’t too much statistical certainty,” Dr Gupta says. “The good thing is, since we are mostly writing annual policies, you have an ability to keep on collecting the data year after year, understanding the science and engineering and adapting as you need to.”


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Supporting customers: Head of Property Australia, Craig Taylor

More cities worldwide are examining their ability to withstand catastrophes. Insurance is recognised as part of the solution to improve resilience, although client-level appreciation of the risks varies widely. “Flood risk is understood on the residential side – people are really aware of it – but when you get to commercial assets, maybe the understanding is not that clear and you can see that reflected in different ways,” Dr Gupta says. “Let’s take the data that the market will provide. You could have a 30 to 40-storey building, but you won’t have value distribution over the height of the building. You won’t know whether there is a basement or how many levels of basement you have in the building, what is in the basement and if you have electrical or mechanical equipment in the basement.” At the location level, much can depend on asking the right questions and encouraging customers to provide information that may not have been requested by other insurers. “It is a slow process; you have to talk to the brokers and talk to the customers. I think the key element here is really saying, why is it important, how is it going to be utilised and how does it change the perspective of their risk? “Once you go through that process it becomes a whole lot easier and you start to see the data flow come through.” For earthquakes, structural drawings and geotechnical reports provide critical insights into how a building will respond to intense shaking. For severe wind, it’s critical to gain information on design characteristics, building condition and the vulnerability of roofing, windows and other features. In the case of flood, the placement of a building, number of storeys, details of basements and what they contain, and the way assets are distributed provide some key data elements. “You would be surprised how many times the number of storeys is not identified,” Dr Gupta says. “If I take a building that is 10 storeys tall and I put all the value of

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the building in the first storey as opposed to distributing it over 10 storeys, you can easily see how the view of the risk will be dramatically incorrect.” At the same time, customers can’t be overloaded with demands as the amount of information that can be gathered increases. “The industry sometimes runs after too many variables and too much data and that becomes a hindrance for the customer to provide all that information,” Dr Gupta says. “As an industry, we have to work with the customer, we have to work with changing the mindset a little bit to say we are going after the relevant data, we are not just asking for all the data in the world just so we can force it into a model and come up with a Frankenstein view of the risk.” The quality of information from organisations such as Geoscience Australia and GNS New Zealand continues to improve, providing more assistance for insurers. In other areas, Dr Gupta says more work is needed on major event engineering impacts, while artificial intelligence and machine learning can mine public-domain data to augment information on exposures. Technological improvements are taking location-level risk assessment to heights not possible a decade ago, and further gains are on the way. “Over the next few years, I would say the focus really has to be incorporating the science that is becoming available, developing the engineering, changing the market’s view on the relevant data sets that are needed, and then also augmenting the data as you go,” Dr Gupta says. The Australian and New Zealand risk landscape will become better understood as BHSI hones its capabilities in key global markets. “From day one we have embarked on this path of developing our internal views, internal methodologies,” Dr Gupta says. “There is a lot of information available today that allows you to do that. You just have to have the vision and the time to put it all together.” 0


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Picture this Analysts have shared their vision of how the industry may look in 2025 By Benjamin Levy

F

rom insurance to pretty much any consumer product you can think of, industries worldwide have entered an era of rapid change. Automated technology and software that directs customers towards the right products is becoming a reality. Large amounts of data are being generated from customers’ online buying habits, social media, wearable technology, the Internet of Things and many other sources. And as much as they benefit customers by clarifying and expanding choices, many leaps in technology are

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also expected to bring benefits to insurers through faster decision-making, products more closely matched to customer needs and lower costs. But this will alter risks and how they are managed. Traditional underwriters will face significant changes (see panel on page 74). So, what does the insurer of the future look like? Consultant Oliver Wyman has imagined one: a “digital” insurer that it has named Cognition. This new type of insurer – launching six years from now – is intended to be at the forefront of changing how customers buy


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“By 2027 the best underwriting teams will be a heady mixture of statisticians, engineers and technology developers.” insurance products and are assessed for key risks. In the future envisaged by Oliver Wyman, potential customers will be given insurance advice via a financial planning and coaching service. They will interact with the service via an anthropomorphic virtual assistant, which will lead them through the purchasing process. It will be able to access huge amounts of data – with approval – from customers’ social media accounts, online shopping habits and banks, plus the Apple Watches on their wrists, their Tesla cars and the many connected devices throughout their homes and workplaces. This will be used to generate automated pricing and underwriting. This new way of pricing and underwriting completely changes the way insurance risks are thought about, and traditional static risk factors such as age will play a much smaller role. However, because a significant proportion of Cognition’s processes will be undertaken by intelligent software, there is a risk it will make “suboptimal decisions on behalf of the company”, Oliver Wyman says. This has turned many of an insurer’s operational risks into digital risks. The use of intelligent adviser algorithms has also raised the risks associated with mis-selling and conduct, making them systemic in nature rather than idiosyncratic. The frameworks that control risk assessment and quantification will have to be adapted to manage this. Cyber risks are higher under such technological advancements, because all Cognition’s systems are envisaged as being interconnected. They must therefore be managed carefully to reduce the likelihood of a cyber attack.

Oliver Wyman says volatile market and insurance risk profiles must be managed in real time, and robust asset liability management processes will be needed to stay within risk limits. As well as that, by the time Cognition is a reality new risks will have emerged and old ones will be changing. Under the scenario envisaged by Oliver Wyman, Cognition will have strengthened and automated its risk identification processes to deal with the more complex risk landscape. It will combine structured data from external sources with social media and other unstructured data, plus its own internal data sources, and use it to measure and predict risks that were previously hard to quantify, such as political and reputational risk. “Vanilla” risks that are not specific to Cognition – such as interest rate risk – will have to be outsourced to an external company, freeing Cognition to focus on those unique to its business. It will perform dynamic analyses on demand against specific risks to understand the impact on solvency, profit and liquidity. In this scenario, wholesale changes to risk functions and management will have forced insurers to rebuild their workforces. There will be fewer financial and actuarial specialists. Technology and business skills will be at a premium, and Cognition will be competing with banks and tech companies to attract employees from the limited pool of specialists with coding skills. All of which throws up some very big challenges. In the brave new world of the technological insurer, managers will be constantly thinking up new ways to attract 0 new employees and develop their staff.

The new commercial underwriter Digital automation and emerging risks are bringing extensive change to the commercial insurance market, Oliver Wyman says. The economics of the British branch-based insurance model will continue to deteriorate as insurers use more automated or model-based pricing, with centralised broker platforms gaining a greater share of the market. Insurers are being forced to re-engineer their operating models and service platforms as customers demand cheaper products and more price transparency, it says. These trends are also seen in Germany and the United States. The consultant warns that traditional insurers must start moving away from legacy systems and distribution assets, and tackle the major costs needed to create new platforms and offerings. The result for underwriters will be much less traditional

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case-based underwriting in regional offices for small business. Automated business underwritten by portfolios will bring opportunities for people who can fit into teams combining analysis, data engineering, and tech and entrepreneurial skills, Oliver Wyman says. “By 2027 the best underwriting teams will be a heady mixture of statisticians, engineers and technology developers.” Some traditional underwriting roles will disappear or shrink in number as a result. It warns that underwriters will need to become more creative in assessing, pricing and limiting risks for clients. In large corporate and wholesale insurance, there will be a much greater need for data-driven analytics and sophisticated modelling, and underwriters will need to be deeply familiar with data engineering approaches.


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New beginnings: IQumulate moves head office IQumulate Premium Funding has relocated its head office to 259 George Street, Sydney, and its Melbourne-based operations team will shortly be moving to 8 Exhibition Street in the CBD. The moves come two months after Steadfast agreed to purchase the remaining 50% of the premium funder it did not already own from Macquarie Bank. “As we continue to operate as an independent business, establishing our own footprint is an important step in building our identity,” the funder tells Insurance News. “We have begun the transition of our six offices across Australia and New Zealand out of Macquarie and into our own.” Its four other offices in Perth, Adelaide, Brisbane and Auckland will move to new premises when the transition is completed. The business, formerly known as Macquarie Pacific Funding, was rebranded soon after Steadfast announced it was seeking outright ownership. Formed in 2003, the business offers more than $1.5 billion in premium funding loans each year to more than 60,000 clients. Raj Nanra, previously Zurich chief executive, was recruited last October 0 to run IQumulate.

Motoring ahead: Fleetsure wins claims award

Great honour: the Fleetsure team celebrate winning the Sue Ronai Memorial Excellence in Claims Award

Specialist motor underwriting agency Fleetsure has won this year’s Sue Ronai Memorial Excellence in Claims Award. Managing Director Sean Rafferty calls the success a triumph for employees and says it validates the company’s focus to put customers first. “We are absolutely chuffed to receive this award,” Mr Rafferty said. “The day-in day-out hard work and client focus of the claims handlers, assessing team, repairer panel and the claims staff at our broker partners are all to thank for this recognition.

“Fleetsure’s mantra over the last 20 years has been to deliver quality products that ensure customers’ expectations are always met.” The award honours Ms Ronai, who worked in claims at various major insurers and was claims manager of Austbrokers Phillips. She died after battling cancer in 2007. Originally judged by AB Phillips, the award is now decided by all Austbrokers members in Victoria and Tasmania. In winning this year, the agency edged out AIG and Chubb, which 0 came in second and third respectively.

Delivering insights: The Bridge International marks first anniversary

International reach: David McDonald, left, with Stuart Blake

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Management consulting firm The Bridge International is operating in Australia, New Zealand, the US and the UK following its start-up a year ago, and its geographical reach is helping to assist clients. “We are seeing many similarities in Australia and overseas on the challenges confronting insurers,” co-founder and Director Stuart Blake says. “There are many areas where Australian companies lead the way and vice versa.” There are few problems being tackled that haven’t been solved somewhere in the


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world and bringing case studies and insights to the table helps the firm find solutions, he says. Mr Blake and co-founder David McDonald both have extensive experience in insurance and say their hands-on management background and practical knowledge ensures they can “walk in the shoes” of the organisations they deal with. Mr Blake has been a senior executive at IAG and Wesfarmers and led the successful launch of Coles Insurance as it rapidly expanded. Most recently he headed IAG’s Satellite division, established to house challenger brands within the group. Mr McDonald also has more than 20 years’ experience in insurance and other industries, holding senior management and operational roles and working with companies such as IAG, ING, QBE, Wesfarmers and Origin Energy. The firm has attracted additional experienced industry specialists to build out capabilities within the consulting practice, and is recruiting a US chief executive to help expand the North American business. The Bridge looks to improve performance simultaneously across the three key tracks of commercial, customer and culture in a “triple play” philosophy. “In my experience many organisations focus on only one or at best two of these parallel tracks. Inevitably that results in something breaking or a sub-optimal result,” Mr Blake says. Driving out costs through innovation and improved customer experiences is where strategic value is created, while it is also critical to adopt disruptive thinking in technology, data and customer experience as well as delivering on the operational side, he says. In Australia the firm is assisting several insurers in areas across pricing, digital, operations, sales and marketing, claims, risk and compliance, while in the US it is working with organisations such as Allstate and Farmers Insurance Group. Mr McDonald says management consulting must provide pragmatic, executable solutions. “Listening to what the client, their staff and customers are saying is essential to building trust and internal ownership of these solutions,” he says. “As a trusted adviser, we can then help our clients operationalise our 0 recommendations so value is realised.”

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South Australia soars at Allianz Young Eagle event A South Australia team edged out six other groups to win this year’s Allianz Young Eagle training program. The state has taken out the top prize three times since Allianz launched the program nine years ago. Members of the winning team were Daniel Pomeroy, Karl Stephens, James Tiller, Paula

Rapisarda, Heath Rodda and Allianz’s Helen Auricht. They achieved the best score in the program, which involved a live simulation of running a general insurance company. All seven teams had the opportunity during the two-day event in April to network and gain valuable insights from senior Allianz executives.

Join us in celebration of the best claims professionals. July 25, 2019 Establishment Ballroom, 252 George St, Sydney

Tickets on sale now mansfieldawards.com

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Matson Driscoll & Damico forum attracts full house More than 200 participants attended forensic accounting firm Matson Driscoll & Damico’s one-day forum on hot topics facing the industry at The Westin hotel in Sydney. Speakers touched on cyber, subrogation issues when assessing first party claims, challenges of renewable energy, and mining-related business interruption losses. The panel format gave attendees the chance to take part in discussions and pose questions to speakers. The firm later marked its tenth anniversary with a party at the same venue. Senior management celebrated the occasion with guests and employees.

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American International Group, Inc (AIG) is a leading global insurance organisation. Building on 100 years of experience, today AIG member companies provide a wide range of property casualty insurance, life insurance, retirement products, and other financial services to customers in more than 80 countries and jurisdictions. These diverse offerings include products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. AIG commmon stock is listed on the New York Stock Exchange. This document is provided as a general overview of the subject matter and should not be taken as providing any specific advice, legal or otherwise. Availability of cover modules is subject to underwriting approval. Insurance products are issued in Australia by AIG Australia Limited ABN 93 004 727 753 AFSL No 381686. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our websites at www.AIG.com and www.AIG.com.au © AIG – All rights reserved.


ABOUT US


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Time to engage with DXC The DXC Insurance Conference was this year based around the theme “engage�, and the event brought together participants from many parts of the industry. Sessions looked at how new technologies are changing relationships with customers, colleagues and partners, with local and global industry experts providing updates on the latest thinking. The international keynote address was delivered by AIG executive Jeff Scobee while panel discussions included representatives from broking, insurance and reinsurance companies. Networking cocktails to conclude the event featured the announcement of the DXC Technology insurtech competition winners. Judges named artificial intelligence start-up Daisee and motivation and rewards platform Perx Health as the successful applicants after assessing more than 30 entries. The competition is a joint initiative with collaboration platform CoVentured. The half-day conference and drinks was hosted at Doltone House Hyde Park in Sydney, with an executive lunch held in Melbourne the next day.

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ICA celebrates industry achievements at Annual Dinner The Insurance Council of Australia’s Annual Dinner in May entertained a full house of almost 400 guests at the Hyatt Regency in Sydney. Chief Executive Rob Whelan and President Richard Enthoven used the occasion to celebrate the industry. The industry’s handling of the Townsville floods catastrophe and other significant summer disasters came in for special mention. Mr Enthoven thanked insurer members and thousands of front line staff for the “tireless efforts” they put in to help customers recover. A mobile app for residents to check their

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property’s exposure to natural hazards was unveiled at the event. Mr Enthoven says the initiative will reduce “information asymmetry” between insurers and customers. Mr Whelan told members the new draft General Insurance Code of Practice will be critical to the industry’s future. He says Hayne royal commission reforms will be “game changing” for the industry but is confident insurers will adapt and deliver positive consumer outcomes. Former SBS news presenter Lee Lin Chin was the event emcee and comedian Anh Do had the guests in stitches with his performance.


YOUR THING IS OFFERING STRONG SOLUTIONS. OUR THING IS PROVIDING YOU WITH EXPERTISE. In order to give clients the solutions they need, it helps to have the latest knowledge. We invest heavily in developing our broker education programs. • Annual broker training days held in six states

BROKER DEVELOPMENT Earn accreditation points by attending training.

BROKER SUPPORT Local underwriters, global insights.

• Agendas blended with education, self-development and networking • Hear from industry experts on insurance trends and innovations We aim to help you provide robust insurance solutions that lead to happy, loyal clients. To learn more about Allianz Training Days near you, visit allianzengage.com.au/engage/brokertraining

Allianz Australia Insurance Limited ABN 15 000 122 850 AFS Licence 234708. Allianz does not provide advice based on any clients’ objectives, financial situations or needs. Before making a decision please consider the product disclosure statement or policy wording available at allianzengage.com.au

INDUSTRY LEADING ANZIIF Large General Insurance Company of the Year 2018. Gold Mansfield Award for overall excellence in claims.


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AIMS enjoys taste of Hollywood Brokers and insurers headed to the home of Hollywood this year for the Austbrokers and IBNA Member Services (AIMS) annual conference. More than 400 broking principals and senior insurance executives networked over three days at the Los Angeles event, and listened to keynote speeches by inspiring leaders including US astronaut Captain Scott Kelly, Pink drummer Mark Schulman, and best

selling author Cal Fussman. At night the attendees kicked back at an opening conference dinner in the beautiful back garden of the Langham Huntington in Pasadena, with nibbles and drinks at Hollywood’s Universal Studios, followed by a closing dinner under Air Force One at the Ronald Reagan Presidential Museum. They were entertained by Las Vegas entertainer Jeff Civillico.

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A LOT HAS CHANGED SINCE WE LAUNCHED HERE 20 YEARS AGO. OUR COMMITMENT TO AUSTRALIA HASN’T.

When we launched as a commercial insurer in 1999, Australia had just voted to keep the Queen, the PM was three years into his decade in the Lodge, and Sydney was getting ready to host the world for the Olympics. 20 years later, Australia is a different place in many ways. But what hasn’t changed is our stability and dedication to maintaining a consistent risk appetite, providing exceptional service, and ensuring we maintain integrity and deliver on our promises. We value the long-term partnerships we’ve formed over 20 years and look forward to many more to come. LIUaustralia.com.au LIINOS2256/IA


maglog >

Terry McMullan Publisher

T

he General Insurance Code of Practice is under pressure from consumer interests who want it placed under the corporate regulator, and from the Hayne royal commission’s well-meaning but confusing recommendation calling for legal enforcement – a provision that compromises the concept of self-regulation. It’s useful at this stage of the debate to look back to the thinking that saw the industry embrace a code in the first place. It was conceived and driven in the early 1990s by the Insurance Council of Australia, which had already introduced a consumer complaints facility, Insurance Enquiries and Complaints (IEC), which eventually became the Financial Ombudsman Service. ICA’s chief executive at the time was the irrepressible Peter Daly, who is now sort-of retired but nevertheless active in insurance business and environmental projects. His recently published autobiography, aptly titled Be Reasonable – Do It My Way, includes a section on the birth of the code, and demonstrates that its arrival on the scene “was not without controversy”. Here’s his take on the situation, which has been abridged to fit on this page:

Surprisingly, or maybe not, the life insurance industry was under pressure [in the early 1990s] as a result of the disclosure of unfair practices and the Government was in the process of mandating a legislative solution. It was pointed out that the general insurance industry was facing the imposition of a solution to someone else’s problem. Our response therefore was to propose a voluntary code. We argued that it would give the industry a sense of ownership and a strong commitment. We also argued vigorously for a code based on principles of good insurance practice rather than a prescriptive code. This was not universally welcomed by the industry, particularly compliance managers. They wanted a prescriptive code where they could tick the boxes. However, what ICA and its board wanted was a principles-based code that would drive innovation, competition in service delivery and positive consumer outcomes.

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Because we had a track record in delivering on the IEC, the Government accepted my undertaking that we would make the code work. We drafted the first code and then it became a toand-fro exercise with the Government, with consumer lobby groups in the background. The final crunch came when I met with the Consumer Affairs Minister, Jeanette McHugh, on Christmas Eve at her constituency office in Marrickville, where we actually changed some of the words in the code sitting across the table. Based on that the Minister gave her approval and the code was launched. I have to admit that our legal adviser had some difficulty understanding the words that [deputy chief executive] Alan Mason and I had crafted. Nevertheless, that was it! I’m pleased to say the concept of the code as a “living document” has performed to expectations and has been a 0 catalyst for continuous change in the industry.


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Profile for Insurance News (the magazine)

JUN/JUL 2019 - Insurance News (the magazine)  

In this issue we take a long look at authorised representatives, finding the surge in AR numbers is being driven by a search for business in...

JUN/JUL 2019 - Insurance News (the magazine)  

In this issue we take a long look at authorised representatives, finding the surge in AR numbers is being driven by a search for business in...

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