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REINSURANCE RATES RISING – OR ARE THEY?

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PAY HOW YOU DRIVE: A NEW WAY TO RATE

BOSSES ON BUSINESS: JLT AND CGU

Determined to fix flood insurance Assistant Treasurer Bill Shorten on insurers, consumers, policies and reform April/May 2011


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6 8 8 1 E SINC

YEARS

At QBE, we’re proud to be celebrating 125 years of business innovation. From our early beginnings as North Queensland Insurance back in 1886, QBE has grown to become Australia’s leading insurer on the world stage. Throughout this time, QBE has adapted and evolved, leading the market with new business opportunities and innovation, and importantly, building strong relationships. We are proud today, as we have been for the past 125 years, that time with QBE is time well spent.

WH42833

QBE Australia Proud to be your NIBA General Insurer of the Year 2002–2010* ANZIIF General Insurance Company of the Year, 2010 To learn more about QBE’s latest initiatives, contact your local QBE representative or visit www.intermediary.qbe.com QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545. *Awarded to a QBE Group Company


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Contents 8 Newsmakers » 12 Determined to fix flood insurance » Assistant Treasurer Bill Shorten won’t let the issue go until it’s sorted out, once and for all.

16 Rates set to rise – or will they? »

Local premium jumps seem inevitable, but the intentions of the global reinsurance industry are still an open question.

20 Picking up the pieces »

Putting tragedy and terror behind them, Christchurch insurance staff are adapting to new realities.

24 Turning around CGU »

A former Aon heavyweight is bringing some broking knowhow to the venerable insurer.

28 Pay how you drive: the future of motor risk rating »

New smart technology measures driving behaviour in detail, and it’s coming soon to your car.

32 Winning from fourth place »

JLT is doing very nicely competing against its much bigger rivals while staying true to its vision.

36 Flood mapping isn’t just about insurance » Here’s why insurers think it’s the Government’s role to map Australia.

37 Insurance on flood and other water perils: what you need to know » 41 Blueprint for a flood pool »

Australia’s terrorism reinsurance arrangements demonstrate how it can be done.

42 Rising above underinsurance »

There’s are ways to solve the problem, but first there has to be a will.

April/May 2011

companyNEWS

44 Picture perfect » A Perth company wants to provide a national flood map, and lots more besides.

46 Expect the unexpected »

A rising risk of regulatory or legal actions leads to pressure for management liability cover.

48 Excess buydown option a plus for brokers » … and for people trying to insure in cyclone zones, says Indemnitycorp.

48 A cure for fraud »

Insure against it. Ace launches a fraud policy with lots of extras.

peopleNEWS

50 Stranger in a strange land » International loss adjusters are helping out in Australasia’s disaster zones.

54 Records tumble as Steadfast invades Melbourne » 61 Video thrills the industry stars » 62 Staying afloat with the Zenith crew » 64 Sunshine and relaxation at Berkley’s harbourside Bash » 66 Getting down to business at CGU » 68 NTI moves north and up » 70 Youthful smarts beat Boomer guile at Vero’s WA expo » 72 Fancy feasts for Lumley my.clubbers » 74 maglog »

Cover image: Andrew Lucas


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newsmakers at

insuranceNEWS.com.au A matter of definition: ment is “using the pressure of government to name and shame insurance companies who do the wrong thing”. Exactly what those “wrong things” might be she didn’t say, but Shorten was far less conciliatory before a live audience than he was in an interview conducted a few days earlier by Insurance News (see page 12). For Whelan, who arrived 45 minutes late for the meeting – his flight from Sydney was delayed – it was a lonely experience. He told the meeting insurers had

Federal Assistant Treasurer Bill Shorten launched a new draft standard flood definition at a rowdy meeting with flood victims in Ipswich, Queensland, on April 5. Insurance Council of Australia (ICA) Chief Executive Rob Whelan was the only industry representative to attend the meeting – which led Prime Minister Julia Gillard to accuse insurance companies of “lacking the courage to go”. She told ABC Radio in Brisbane that while “we don’t live in a ‘command and control’ economy” the Federal Govern-

accepted 85% of the claims, even though “it might not be the experience of people represented in this room”. The Queensland floods have caused 49,400 claims worth an estimated $2.31 billion, while Cyclone Yasi caused 59,990 claims worth more than $868 million. Payments for the Queensland disasters have averaged $15 million a day since February 24. Total insured losses from all the recent Australian catastrophes are now more than $3.6 billion.

The new definition, reached in consultation between ICA, Federal Treasury and consumer groups, states that “flood” means “the covering of normally dry land by water that has escaped or been released from the normal confines of: (a) any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or (b) any reservoir, canal or dam. The definition is now open for public consultation and will eventually be enshrined in legislation to sidestep competition concerns which sank ICA’s 2008 attempt at a standard definition. It said: “Inland flood is the covering of land that is not normally under water by: - water that overflows or escapes from a naturally occurring or man-made inland watercourse (such as a river, creek, canal or storm water channel) or a water pool (such as a lake, pond or dam), whether it is in its original state or it has been modified; or - water released from a dam whether it be accidentally released or intentionally released to control, mitigate, regulate, or otherwise respond to excess water, or water that cannot drain or run off as a result of water that is overflowing or escaping from an inland watercourse or water pool preventing the escape of water.”

Zurich does the splitz: Zurich Australia has split its local operations into two separate businesses, with Chief Executive David Smith leaving the company and General Manager General Insurance Shane Doyle (pictured) becoming chief executive of the new general insurance operation. The split is part of a global operation to free up the cost of corporate operations worldwide. In Australia the company has been split to form two operating businesses – General Insurance, and Life Insurance and Investments. Doyle is also the company’s Country Manager Australia. Colin Morgan has become Chief Executive, Life Australia. This incorporates the investment management business, with General Manager Investments Matt Drennan being appointed Executive General Manager Investment Management. Zurich Australia Chairman Terry Paradine says the new model enables Zurich to “singularly focus on seeking opportunities in highly competitive markets”.

Figure this

20

30

4.4

Percentage of mortgages that are insured, according to the Insurance Council of Australia

AIR Worldwide’s estimate of insurers’ exposure to the Japanese earthquake and tsunami in US dollars

Amount in dollars of claims from Cyclone Carlos, which affected the Northern Territory in February

8

BILLION

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MILLION


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Kevin Chamberlain

Steadfast powers ahead:

Coles makes its play: The already overcrowded car insurance market is getting hotter, with major brand AAMI challenging supermarket chain Coles to prove it’s willing to sustain a price war in the ritzy North Shore of Sydney. Customers are being offered a saving of at least $100 off quotes from NRMA Insurance, AAMI or GIO, which hold 80% of the North Shore market. It’s also offering free roadside assistance for a year, 12 cents a litre fuel discount for a month and a two-year price freeze on their premium. Suncorp Chief Executive Personal Lines Mark Milliner is unimpressed, saying AAMI and GIO offerings aren’t overpriced, and Coles is just another competitor struggling for market share. “It’s a bit like selling milk for $1 – it gets you attention, but is it sustainable?”

Major broker group Steadfast is moving cautiously ahead with plans to eventually list on the Australian Securities Exchange, with 93% of shareholder brokers giving approval for the group to “take Steadfast to the market”. The approval marks one more chapter in a long-running saga, with the question of listing still requiring plenty of answers over exactly what the 276broker group might evolve into. But despite the uncertainty, the shareholders meeting in Melbourne before the Steadfast Convention earlier this month demonstrated a company confident in its place in the market. In a marathon meeting conducted by Chairman and Chief Executive Robert Kelly (on stage, left), the Steadfast Virtual Underwriter platform was revealed to be close to completion, with most underwriters now participating. Steadfast is claiming substantially faster operations than its competitors, saying the time spent processing four quotations on the platform is 25 minutes faster than a similar operation on Ebix Australia-owned Sunrise Exchange. Twelve insurers are connected to

the system for PI, seven for ISR, five for liability and two for business packs, with two more scheduled to integrate soon. More classes of business are being added. The only major insurer not supporting the Steadfast platform is QBE, which is understood to be opposed to a feature which enables brokers to easily compare different insurers’ quotes. Ebix controls the three major broking systems used in electronic interchanges, and has not yet committed to integration. And Steadfast received 90% shareholder approval to develop an awareness campaign under the slogan “Trusted Choice”, moving member brokers “from giving a quote to giving advice”. Kelly says the campaign will grow public awareness of Steadfast and “build brand equity and loyalty” and “take our business to the next level”. The annual Steadfast Convention is also moving from strength to strength, with the four-day Melbourne convention attracting 2780 delegates – nearly doubling the record number of delegates at last year’s Perth event. A report and pictures from the 2011 convention begin on page 54.

Bidmead US boss:

How much? To insure or not insure – that is the question facing the Queensland Government as it struggles to deal with its reinsurance predicament. Premier Anna Bligh has agreed to look into taking up privately run reinsurance rather than depend on state and federal government cash to rebuild destroyed infrastructure. But she hasn’t given a 100% guarantee she will move forward with the program, saying the government has to be “very careful” with taxpayers’ money and will not have an “open cheque” policy. An inquiry into the need for a flood levy revealed that Queensland had foregone reinsurance cover because it wasn’t seen as “value for money”. Finance Minister Rachel Nolan says the price and the

policy will have to be right, and Queensland is seeking quotes “in good faith in order to play a constructive role in this debate”. The Federal Government got its $1.8 billion flood relief levy on taxes through the Senate by agreeing to Senator Nick Xenophon’s demand that it penalise states that don’t insure their natural catastrophe exposures. But Bligh says unless the private market can offer a significantly better deal than it quoted in 2004, the Queensland Government “will stick with its own arrangements”. Ms Bligh says it could take up to 12 months before a decision could be made, as the commercial reinsurers will need to assess the risks across the state before quoting.

370

17.8

Amount in New Zealand dollars of expected Accident Compensation Corporation claims for injuries caused by the second Christchurch earthquake

Amount in US dollars of the US National Flood Insurance Program’s deficit

MILLION

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April/May 2011

BILLION

Australian broker David Bidmead has been appointed Chief Executive of the US operations of Marsh. The former Chief Executive of Marsh Australia moved to San Francisco about 19 months ago to lead Marsh’s western US zone. Aside from his role as Marsh Australia Chief Executive, Bidmead was previously region head of Marsh Pacific. He will now guide the US arm of the major brokerage firm in its retail operations and report to US/Canada President Joe McSweeny. His successor in the Australian operation, John Clayton, says it’s unusual for a non-US citizen to be appointed to such a position.

28 Expected percentage rise in finance and insurance jobs from April to June 9


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newsmakers at

insuranceNEWS.com.au Vero’s Wallabies: What do Aon, QBE, CGU and Vero have in common? Answer: their brands adorn the manly chests of some of sport’s highest-profile teams. Aon does it with Britain’s Manchester United (after AIG gave it up), QBE does it with the Sydney Swans AFL team, and CGU has recently taken up sponsorship of AFL premiers Collingwood. Now Vero’s doing it with the Australian Wallabies rugby union team. The insurer is taking over the sponsorship from parent company Suncorp, which apparently doesn’t need the marketing glory. Vero’s Jane Barlow and Pilar Gonzales are pictured trying to pretend this isn’t fun as they stand between, from left, Wallabies Luke Burgess, Kurtley Beale, Pat McCutcheon and Benn Robinson at a function in Sydney launching the new sponsorship.

An innovator steps back: It can’t be easy organising a corporate makeover that will lead to the abolition of your own position in the company, but David Smith faced up to that task with his usual resolve when he was given it last year. Over the months up to March 31 he oversaw the split-up of the company’s general insurance and life and investment areas into separate companies with their own chief executives. It was a sad parting for the often-controversial figure. Smith came to Zurich with a solid reputation earned in his five years as chief executive of IAG New Zealand. Over the next five years at Zurich Australia he stared down the Insurance Council of Australia when it tried to dissuade him from introducing universal flood cover across Australia, and also masterminded efforts to lift the industry’s profile in the climate change debate. Smith was also a leader in the battle to remove

PUBLISHER/EDITOR: TERRY McMULLAN McMullan Conway Communications Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 Email: publisher@insurancenews.com.au ADVERTISING: NAOMI CONWAY McMullan Conway Communications Pty Ltd Tel: +61 3 9499 5538 Fax: +61 3 9499 5535 Email: naomi@mccmedia.com.au ARTWORK DELIVERY TO: McMullan Conway Communications Pty Ltd PO Box 116, Ivanhoe VIC 3079 Australia or 763 Heidelberg Road, Alphington VIC 3078 (COURIERS ONLY) Email: naomi@mccmedia.com.au

state-based taxes from insurance premiums. Zurich Australia Chairman Terry Paradine says Smith “led this transformation process” and has “established a strong, dynamic business [that is] well placed to face future challenges”. Smith recalls being told by then-Zurich Group Chief Executive Jim Schiro to make the company a test-bed for new ideas and to boost Zurich’s public image after controversial reinsurance deals drew regulator sanctions and tainted the company’s reputation. “We took a lot of criticism when we introduced flood insurance, but I think history will prove we were right to do so,” he told Insurance News. “I’m very proud of what the team at Zurich has achieved with me during my time here.” Smith, 50, says he will take a short break, “but I’ve been 32 years in financial services and I want to remain in it”.

SUBSCRIPTION ENQUIRIES: www.insurancenews.com.au/subscribe Email: admin@insurancenews.com.au 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. PRINTING: Printgraphics, 14 Hardner Road, Mt Waverley VIC 3149, Australia www.insurancenews.com.au/magazine

A McMullan Conway production

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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 paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.


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Determined to fix flood insurance

Assistant Treasurer Bill Shorten won’t let the issue go until it’s sorted out, once and for all By Terry McMullan

ANYONE IN THE INSURANCE INDUSTRY who thought Bill Shorten would eventually grow tired of flood insurance and, like so many politicians before him, move on to other issues once the crisis had passed, should now have figured out that’s not how he operates. Having stepped into the flood insurance crisis that gripped Australia in January once the Brisbane central business district and many suburbs went under water, four months later he’s still focused on finding solutions that will change the way Australian householders – and insurers – deal with flood insurance. The Federal Assistant Treasurer and Minister for Financial Services and Superannuation is a tough, experienced negotiator. Unlike all those previous politicians who have tried and failed to find a solution, he has gained a clear understanding of the reasons and the scale of the problem, and he accepts that the answer lies in the hands of a variety of authorities and industries. In other words, it’s not just an insurance problem. In an interview earlier this month with Insurance News at his Melbourne electorate office, he agrees there is no one easy solution to the flood insurance issue. But while he’s sympathetic with some of the industry’s 12

difficulties in universally providing flood cover, his primary concern is the people who feel they’ve been abandoned by their insurers. “We want flood insurance to be affordable, and we’d like to see more Australians insured against floods,” he says. “We’d like to see the coverage of insurance expanded. We also want to make sure that consumers know what they’re doing, that they know what they’re insured for and what they don’t.” And he accepts that in the longer term, “it’s about how we have a functioning private market for insurance combined with good public policy around long-term risk mitigation”. Mr Shorten hasn’t been in Federal Parliament for long. He arrived in 2007 with a mighty reputation as a backroom industry and political dealmaker. A leader of the Australian Labor Party’s Right faction, the former Australian Workers Union National Secretary was appointed Parliamentary Secretary for Disabilities and Children’s Services – a low-profile role in which he nevertheless excelled. He became Assistant Treasurer and Minister for Financial Services and Superannuation after last year’s election. In December Insurance News placed Mr insuranceNEWS

April/May 2011

Shorten at No 3 in its list of the “top 20 most influential people in the insurance industry” – a decision that caused considerable surprise and debate. Describing him as “charming, ambitious, ruthless, articulate, clever, impressively connected, a super-networker, consultative and results-driven”, this magazine assumed Mr Shorten’s impact on the industry would come through consumer-friendly reforms, most likely related to reforms of intermediary payments. A month later the Brisbane floods changed the scenario, but not the Minister’s consumer-focused approach to finding a way through the maze. Today he’s confident the flood insurance dilemma will be resolved, with agreement on the standard definition of exactly what flood is just the first hurdle. “A lot of the thinking work’s already been done,” he says. “It’s just a matter of political and industry elbow grease to be applied to finish the deal. “But there are some issues which do require more thought and can’t be solved in a relatively quick timeframe.” Despite the protestations of insurers and claims experts that policies – and flood exclusions – are framed in clear and simple


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“I don’t share the view that insurance companies should hand money out as charity … But there’s a vast gulf between being a charity and being a very black letter, litigious corporation”

language, he’s critical of the complications of insurance documents. “I think Australians who were affected by floods, and indeed the rest of Australia, were again reminded that insurance home and contents policies and small business insurance policies are not in plain English,” he tells Insurance News. “We are seeing people who are frustrated by definitions of ‘flood’ [about] whether or not the water over their floorboards is caused by a river being flooded, water coming up being caused by a storm causing the rain to fall and the water levels to rise… “If you’re a person whose house has been flooded you’re not too fussed about the cause of the water; you just know what’s happened. “Once the definition is set [it was launched to considerable fanfare in the Queensland dormitory town of Ipswich on April 5] then we’ve got to have a slightly longer debate – but not a debate which goes on for years – about how do you improve the accessibility and affordability and coverage of flood insurance.” Mr Shorten admits he hadn’t been “so starkly aware” of the flood insurance issue until the January Queensland and Victoria floods. “I saw the bushfires in Victoria [in 2009]

and I saw the dilemmas about not carrying insurance there,” he says. “Although once you scratch the surface you realise that we’ve been debating the impact of natural disasters and floods since Cyclone Tracy in 1974. There were inquiries and reports written by 1976; it’s now 2011. “I am surprised this is a problem which hasn’t been solved in the time since Cyclone Tracy. I am surprised it’s taken this long. “Since Cyclone Tracy we’ve invented things like the internet; we’ve become more aware of the impact of natural disasters on people. A lot’s happened since then, but the definition of ‘flood’ still remains in the toohard basket.” Despite his frustration at the lack of movement on the issue over a long period, he’s sympathetic about the situation insurance companies find themselves in, although the attitude of some insurers obviously irritates him. “To be fair to the industry, some have moved to covering flood, and I think the brands of those organisations have [benefited] better than those companies who are taking very narrow definitions of floods, or indeed not offering products at all. “I still think some insurance companies are too defensive. I think some insurance companies take the attitude, ‘Well, we can’t win here so we’re going to get bad press, so just weather the storm’. “There’s always a high road and a low road to take in any disaster, whether it’s manmade or natural. “There’s a way to handle bad news – you either suppress it, deny it and fight it or you can embrace it, understand it’s part of the risk of the industry that you’re in. “I don’t share the view that insurance companies should hand money out as charity. They’re not charities; they’re commercial organisations responsible to shareholders. “But there’s a vast gulf between being a charity and being a very black letter, litigious corporation.” However, while some insurers’ attitudes may irritate him, Mr Shorten is hasty to make it clear that his criticism doesn’t extend to the insurance professionals working on the front lines of the flood disasters. “A lot of people in the insurance industry – a lot of the ‘foot soldiers’ of the insuranceNEWS

April/May 2011

insurance industry, the clerks, the claims agents, the surveyors, the assessors, the call centres – they’re all working very hard,” he says. “So I’d be wary of when we talk about insurance companies and generalise. That’s unfair to literally tens of thousands of Australians in insurance who are doing their absolute best. “But I would say there’s some companies who really shouldn’t be frightened of the public, because that’s what they’re in – they’re in a retail public business. “It’s not for me to judge the industry; it’s for me to assist the industry and consumers. But you’d have to ask yourself if you were in the insurance industry – why not try and be as competitive in your product offerings as you can be to consumers?” The draft standard flood definition now agreed between the industry and Federal Government is the first step in a long haul to solve the problem. The final definition is likely to be enshrined in legislation to overcome competition regulations. Reminded that he said in February the definition is “a first step, not the silver bullet for improving the flood insurance market”, he says if it is balanced correctly it will assist. “It is a first step and a first step only. If the standard definition is too narrow then it’s no good to most consumers. And if it’s too wide, it makes it very hard to insure on all circumstances. So getting that balance right is one point. “But having said that, that’s not beyond the intelligence and the wit of the insurance industry; we’re not the only jurisdiction in the world who deals with these issues. “There are three or four common causes why water will come over the floor-line of your house. I think that where you have consumers who at least have a common denominator in terms of definition, then they can price competitive policies.” Mr Shorten says having a common denominator makes things much easier for consumers, and uses the analogy of buying a car, where the features are commonly understood and it becomes a matter of price and choice of supplier. “So I think a standard definition is only a first step. But once you’ve got people speaking the same language, it’s a bit like the Tower of Babel – you can get on with 13


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building the tower, can’t you, if you all speak the same language.” One of the longer-term issues Mr Shorten alludes to is flood mapping. The Insurance Council of Australia has called on the Federal Government to pay the estimated $50 million cost of mapping the entire country. The Minister indicates there’s still room for negotiation on this point. “Let’s deal with the principle first,” he says. “ Better data mapping will assist in the capacity to offer risk-based products at the most accurate premiums. So there’s no question mapping is of assistance. “And I don’t blame the private sector for saying the Government should pay for all the mapping. “There’s an old saying in business: Privatise the profits and socialise the losses. “I don’t think the Government should vacate the field on this question. If the information has a distinct commercial advantage, and if, by the provision of co-ordination the Government allows the material to be gathered in a more efficient fashion than individual private sector operators could, then it’s a win-win for the private sector. “So I don’t see why they couldn’t assist to defray the cost.” Other matters related to flood insurance will be tackled over time, and Mr Shorten’s confidence that resolutions and solutions are just a matter of negotiating and making the right decisions is very obvious. “Once we’ve got those early matters ticked off about a clear facts guide for insurance, what you’re covered for, what you’re not, the common definition, there’s no reason why we have to take too long to put that into legislative form and get a legislative solution.” The same goes for other issues related to insurance – and more specifically consumer protection in the wake of the flood insurance debate. In February Mr Shorten put insurers “on notice” that universal legal protections for all consumers should not exclude the insurance industry. It’s likely the Insurance Contracts Act will be altered to align it with the recently amended Trade Practices Act provisions covering consumer rights. Insurance was the only industry exempted from the new laws enacted in January which provide consumers with protection from unfair contracts, with the Insurance Council arguing the provisions are already included in the Insurance Contracts Act, “which takes precedence over all other acts”. But consumer groups have argued since that the Insurance Contracts Act is weighted too heavily in favour of insurers’ interests. Mr Shorten told Insurance News that Parliamentary Secretary to the Treasurer David Bradbury “is working with industry and consumer groups in relation to how the insurance industry should be lined up with consumer law generally.” “I can see pros and cons with that. It’s still an open question, and there is a bit of a way to go with that. I can see arguments each way.  “We’ll keep working at it.”

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“I don’t blame the private sector for saying the Government should pay for all the mapping. There’s an old saying in business: Privatise the profits and socialise the losses”

14

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Rates set to rise – or will they? Local premium jumps seem inevitable, but the intentions of the global reinsurance industry are still an open question By Michelle Hannen

FOR THE INSURANCE INDUSTRY, 2011 HAS BEEN A YEAR to forget. Catastrophe upon catastrophe, particularly in our region, has resulted in huge losses, obliterating claims budgets and decimating profit forecasts. The cycle of losses really began two years ago, with the Black Saturday bushfires and since that time, Australia and New Zealand have seen major storms, more bushfires, cyclones, floods and earthquakes. The experience has changed the face of risk in this corner of the world; rather than being viewed as a good play for diversification, the true nature of the risks we pose have been put under the magnifying glass. In response, the tale of a changing market is beginning to unfold, not in our major cities but in the tropical paradise that is Far North Queensland. First floods, then a cyclone – and now commercial and industrial property-owners in the area are taking a 16

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Reuters

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The devastation begins as the first tsunami wave thunders ashore in eastern Japan: while the insurance impact is massive, it’s probably not enough on its own to impact global reinsurance rates

battering from insurers and reinsurers scared of doing what they are in business to do – underwrite risks. Stories are emerging of risks becoming markedly harder to place, with huge excesses and retentions being imposed, and rate increases in the order of 40% – and that is for those able to get cover. It’s little wonder capacity providers both here and overseas are spooked; they had believed Australia was a relatively safe bet. But with a horror run of catastrophes – many of which are unmodelled perils – sources say the talk echoing around the underwriting room at Lloyd’s is that Australia’s 2% share of global premium income does not equate with its recent 15% share of global losses. “They are saying the days of making excuses for this region are coming to an end,” one source says. Stephen Catlin, Chief Executive of the largest Lloyd’s syndicate, Catlin, confirms that insuranceNEWS

pricing in Australia and New Zealand has been “very low” and must increase to reflect the true nature of the risks posed. Quite simply, there are questions as to whether Australia is worth the risk, and certainly not at the bargain basement prices of the past. But in the business of risk, everything has its price. So while a mass exodus from the Australian and New Zealand markets is not expected, significantly higher rates in order to more accurately reflect the risks posed by this region and recalibrate the loss ratio are. Indeed, it is believed some of our major local insurers are considering issuing catastrophe bonds to help offset inevitably rising reinsurance costs, while others may significantly reduce their exposures in riskier regions in order to reduce the price of their reinsurance treaties. Those unfortunate enough to have renewed already have felt April/May 2011

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Austra

the brunt, while everyone else is battening down for the June revestment income and balance sheet strength”, along with a catasnewal season. trophe, as potential rate accelerants. That’s when Queensland’s malaise is expected to spread across The world’s largest reinsurance broker, Aon Benfield, is posthe country with the contagion infecting classes of business far resibly more bearish. Reflecting on the April 1 renewals, it says that moved from commercial property. while “meaningful regional adjustments” are afoot, there is more However, doubts remain about the prospect of global rate inthan $US470 billion in capital involved in the reinsurance market. creases. Many believed the accumulation of events, culminating Therefore “the kind of meaningful capital-impacting event that with Japanese earthquake and tsunami, would be enough to turn is necessary to stop the decline in US and European markets has the market, and both reinsurers and insurers have been yet to occur”. talking the market up. Aon Benfield says a number of reinsurance proBullish analysts are basing their investment grams in Japan were extended by three months theses on the belief that despite the massive to allow for the impact of the earthquake claims, the outlook for the insurance and and tsunami to be fully assessed. But the reinsurance sector is positive because renewals that occurred saw earthquake capital levels remain adequate and programs increase by 25-50% and typrices will rise. phoon programs up 5-10%. “Given that the immediate priorities in Japan It’s a tested theory: following Rates for US property catasare likely to be social and not economic, the Hurricane Katrina in 2005, reinsurtrophe programs that renewed at aftershocks to the global economies from this ance rates rose to their highest April 1 – including those that feadisaster may unfold very slowly. levels since 1994, ending a two-year tured hurricane risks – fell by “Rather than the physical destruction of the production decline. 5-10%. facilities, most of the supply chain disruption from this The total loss tally for the inBut as the year goes on Aon catastrophe is likely to be caused by issues dustry for 2011 varies widely, from Benfield expects to see some rate associated with infrastructure, energy, utilities, as low as $US20 billion to as high as hardening in the US market, with transportation, and restrictions on highway/port $US70 billion. programs renewing in June and July access.” Mr Catlin, who puts the estiforecast to experience less of a fall, – Marsh Risk Consulting Head of Supply mated losses at the upper end of at 5% down to flat year on year. Chain Risk Gary Lynch speaking to $US50-70 billion, says that while the The other major reinsurance Insurance News market is still a $US25 billion event away broker, Guy Carpenter, doesn’t agree, from the losses becoming a capital rather characterising the April 1 renewals in the than earning event – therefore forcing the US as “showing signs of being in transition”, hand of reinsurers – rates should be increased in with pricing “roughly flat to up slightly”, coma measured way in the interim to prevent such a pared with decreases of 6-10% at the January 1 “kneejerk reaction”. renewals. Speaking to Insurance News at the Steadfast Convention in Lloyd’s Finance Director Luke Savage is another who believes Melbourne earlier this month, he says the next six months should a global hardening of reinsurance rates isn’t a given. see a gradual correction – “in the order of 10-25%, depending on In a recent interview he said that because the capital of the the class of business” – to lessen the blow on clients and to enable reinsurance market has not been dented, this year’s catastrophes the price uplift to be sustainable. are unlikely to immediately lead to an overall increase in insurance Mr Catlin says the low interest rate environment further rates. strengthens the case for rate increases because investment income He says analysts have been estimating that the global insurance will not provide the earnings buffer it has in recent years. industry has about $US50 billion worth of excess capital and, He says 2011 is on track to be the “worst” year in recent times based on loss modelling, he puts the 2011 total cat bill at between as far as investment returns are concerned. $US20 billion and $US50 billion. But the major reinsurance brokers remain sceptical, with Aon “But even if the $US50 billion is eaten up in the surplus, it’s and Willis both pouring water on speculation of a hardening not putting people’s capital ratios under sufficient pressure,” Mr global market. Savage says. In Japan reinsurance treaties were renewed on April 1 and While many market players are sending mixed signals, in order Willis Re, the country’s second largest reinsurance broker, characto take a true temperature the market could do worse than to look terised the renewals as “relatively orderly price movements” despite to Munich Re as a barometer. the recent earthquake. Financially strong with capital several times higher than regulaWillis Re says that while rates on natural catastrophe excess of tory requirements demand, Munich Re was nonetheless forced to loss covers increased between 5-50% at renewal, “the Tohoku and reveal before the first quarter had even ended that it would be unChristchurch earthquakes are not by themselves sufficient to drive able to meet its 2011 profit target of €2.4 billion ($3.3 billion), due up market-wide pricing”. to 2011 cumulative losses of over €2.5 billion ($3.4 billion). However, it concedes the market is one event closer to turning. Analysing the announcement, Paul Jardine, the Chief “The total tally of first-quarter devastation... has significantly accelOperating Officer of Catlin, says that when a company like Munich erated the likelihood of a market-wide turn should reinsurers be Re – large, stable and conservative – has to admit a shortfall in tested again this year.” profit to shareholders who may look to invest elsewhere, the And that test need not necessarily come in the form of another world’s largest reinsurer will undoubtedly push through rate rises. significant claim, with the broker listing “inflation, the reversal of And the inevitable consequence of that is a hardening global  back-year reserve releases or wider financial issues impacting inmarket.

THE LONG TAIL

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Reuters

Scene of a tragedy: three Marsh employees died when the Pyne Gould Corporation building in central Christchurch collapsed during the February 22 earthquake. Seven other employees who were inside the Marsh office at the time were rescued

Picking up the pieces Putting tragedy and terror behind them, Christchurch insurance staff are adapting to new realities By Tania Martin

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PICTURES THAT SHOCKED THE world of survivors stumbling out of crumbled buildings, bloodied and terrified, were surreal for those watching on television after Christchurch suffered yet another devastating earthquake on February 22. But for those who were there it was far worse as “another day at the office” turned in the space of a minute into a nightmare. The earthquake rocked Christchurch shortly after 12.51pm on February 22, as office workers strolled through the central business district on their lunchbreaks. Buildings which had survived the initial earthquake on September 5 collapsed. Bricks rained on to streets, and historic buildings that gave the city its charm simply collapsed. The quake killed 166 people, including three members of the insurance industry. Marsh employees Carey Bird, Melanie Brown and Barry Craig were working in the company’s branch office in the Pyne Gould Corporation building when it collapsed insuranceNEWS

April/May 2011

under massive shearing pressure. Marsh Head of Country Grant Milne says the company is still coming to terms with the loss of three well-liked colleagues. He says 27 people normally worked in the office, but only 10 were there when the quake hit. Like many other brokerages and insurance companies which occupied Christchurch’s business centre, Marsh is now working from temporary premises on the eastern edge of the business district. The city centre remains out of bounds to the public and to businesses which occupied the area’s buildings. A number of buildings, including some modern high-rises, have been “redstickered” by engineers, meaning they are considered too dangerous to enter. This decision also affects tenants in surrounding buildings, who have also been unable to access their offices and shops. Christchurch has been rocked by more than 6000 earthquakes of all sizes


Reuters

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since the first 7.1-magnitude quake on September 4. About 10,000 buildings have been destroyed and another 10,000 may have to be demolished. For many Christchurch-based insurance professionals, the recovery effort has been doubly difficult. While helping clients pick up the pieces of their shattered businesses, they are experiencing their own turmoil. Marsh’s Grant Milne told Insurance News he knew within two hours of the quake that seven of his Christchurch staff had made it out of the collapsed building alive and that three remained unaccounted for. It took almost a week before their deaths could be confirmed. He says it has been a challenging time to not only recover emotionally from losing three colleagues, but also finding new premises and giving the Christchurch staff the time they need to recover. Their colleagues in Wellington picked up the load, while Christchurch staff were given two to three weeks off

“The funerals were like a milestone. They’ve been a line in the sand where one door has closed so a new one can open and we can move on” to come to terms with what had happened, attend the funerals of their fallen workmates and sort out any damage they might have experienced at their own homes. “It’s been a very personal time for everyone, especially with the fatalities and staff who have lost their workplace, while some have lost cars and have damage to their homes,” Mr Milne says. “The funerals were like a milestone. They’ve been a line in the sand where one door has closed so a new one can open and we can move on. “Now Christchurch staff have to relocate to a new office and everything is completely unfamiliar.” Broker Greg Greenwood says the region is now facing one its “biggest challenges”. The Christchurch-based South Island Operations Manager for Rothbury Insurance Brokers says many people showed a great depth of understanding and patience following the September 4 quake, but “it’s a lot different” after February 22. “People are a lot more demanding now,” he says. “Their stress levels are really high – they are trying to put their lives back together and start make a living again, but the enormity of the damage makes it difficult. 22

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“And the continuing aftershocks don’t help.” One of the lessons learned in the quake aftermath is that despite the loss of CBD offices, companies can continue to operate, thanks to technology. While as little as 10 years ago the lack of physical access to files might have been an insurmountable problem, smartphones and laptops have made it possible to carry on regardless. Using wireless technology, brokers and insurers have been able to make effective offices in temporary accommodation. The Christchurch office of Rothbury is just one of many that is now classified as uninhabitable, but staff have been able to access files via the internet. Auckland-based Senior Broker Wayne Amer says the Christchurch office is now operating from a local workingmen’s club. “The system is pretty much internet-based now, so our people can work remotely,” he told Insurance News. “But it has been a test of how good our electronic filing of documents has been.” Marsh’s Grant Milne says it has been tough coping with incoming claims while trying to set up a new office. He says it’s lucky Marsh is an international company, given the destruction of its local office. It has meant brokers still have instant access to any information needed to help clients. “Our infrastructure is pretty good, and everything is done over the web now, so all our files are held electronically.” Mr Milne anticipates that some Marsh staff may, in common with many office workers around the city, be apprehensive about returning to work in multi-storey buildings. It’s a fear that was first noted in high-rise office workers in New York after the 9/11 terrorist attacks. There are also unexpected insurance issues related to the quake that are making brokers’ lives difficult. The ban on access to the city’s CBD is impacting on businesses, particularly retailers and those in the hospitality industry. “Once and if they can regain access to their businesses they are faced with the quantum of people not wanting to venture into the city,” he says. “And a lot of smaller businesses who haven’t had damage are now not getting cashflow because they can’t get trade.” Some are even losing skilled staff such as engineers, who are drifting away from the city and seeking alternative work in other cities and even Australia. “As much as people are proud and patriotic at the end of the day the bottom line is that they need to feed  their families,” Mr Amer says.


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Turning around CGU A former Aon heavyweight is bringing some broking knowhow to the venerable insurer By Jan McCallum IT HAS BEEN SUGGESTED TO PETER HARMER THAT he joined CGU at a bad time, just when floods, fire and cyclones were about to descend on the country. But the Melbourne-based chief executive has a different view. Now he knows how CGU performs under pressure. Before joining the insurer in November, Mr Harmer thought he knew CGU pretty well, having observed it for the best part of his 30 years in the industry. But he says the strength of the organisation surprised him, “probably because I saw the brand through the eyes of a big international broker”. “Now I have some perspective of what our authorised reps and many of our smaller brokers see in CGU and just how important we are to them, particularly given many of the smaller brokers are in rural and regional areas.” Mr Harmer is continuing the reforming work of his predecessor Duncan West – who left the company late last year after beginning a turnaround in the company’s performance two years ago – and he intends to bring a greater focus on sales to CGU. He acknowledges this is a legacy of his background in broking. He was Aon’s Chief Executive for Australia, New Zealand and the South Pacific before going to London as Chief Executive of Aon UK. He says broking generally is a more sales-driven business focused on the need for profitable growth. “I do think that’s something from the broking world that could benefit CGU. “This company has not had a particular sales focus over the years,” he told Insurance News. “We have been very good at managing relationships, but probably in a manner where sales have been almost an accidental outcome of the management of that relationship.” He says the leadership team is working through how CGU can be more sales-oriented but still relationshipbased in account management. One outcome of this would be the organisation having the confidence to ask for the business it wants. In fact, he believes CGU staff should be encouraged to have more self-confidence. “We have genteel humility, and I don’t want to lose that – but I really feel that we have every right to be more confident than we are. “This is a very content-rich organisation, with some wonderful tools and data. That information is not always easiest to get to, but it’s there.”

Mr Harmer says resources that have gone unrecognised include the amount of customer information available from staff talking to customers every day. Work is now going into capturing and using that knowledge “so we have the best opportunity to have the right product and service in front of our customers”. He says that with 16% market share in the intermediated space, CGU has plenty of opportunities to grow. The group has invested heavily in the corporate market, where Mr Harmer says CGU has had “a spotty history”, having been in and out of the market. In the past three years it has methodically built a position, taking time to learn about the market and establish credentials with the major brokers. This has meant refraining from a leadership role, at times taking a relatively modest co-insurance line while building the knowledge and capability to serve intermediaries. “Now we are in a much stronger position where we are seeking to be a more prominent player, and in many cases taking the lead insurer role on some quite complex risks,” he says. The corporate team has identified above-ground mining, food and beverage, transport and logistics and commercial operations/real estate as areas of growth. But Mr Harmer says the company is also researching other industry sectors where it would like to grow, and looking at whether it has existing relationships or has to recruit authorised representatives or find local brokers. CGU has invested heavily in the corporate business in the past three years, and Mr Harmer expects to see it deliver considerable growth in the next 12 months and beyond. He notes that pricing is improving. “In our retail business we see growth pretty much across the board. We have a tremendous geographic footprint and we could probably leverage that harder. It is a more valuable asset than we have appreciated in the past.” CGU has secured some new – and as yet unannounced – relationships in its financial institutions business, and he also expects significant growth from them. Mr Harmer says a couple of relationships tarnished the whole book of business, but they have been exited from or remediated. Challenges remain in discontinued lines such as novated leases, commercial motor and some fixed-price contracts as CGU manages its way out of these portfolios,

“I really feel that we have every right to be more confident than we are”

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CGU’s Peter Harmer: our future is in our hands

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Peter Harmer came to CGU with an impressive track record in change management. The former Victorian country boy and reinsurance broker was appointed Chief Executive of Aon Australia when he was just 40, and two years later transferred to London to run Aon UK and turn around its ailing operations – a task that required some big layoffs and tough but ultimately successful negotiations with the UK industry regulator over a massive fine. In April 2007 Mr Harmer was appointed to the high-profile chairmanship of the Lloyd’s Market Reform Group. When Mr Harmer quit last year to return to Australia, Aon Corporation President Greg Case acknowledged his “extraordinary leadership and efforts both in the UK and as a key player on the global Aon stage”.

and Mr Harmer says some rural products that are strategically important in terms of providing an offering to intermediaries and customers still require work. While Mr Harmer was awaiting the result of CGU’s Victorian Worksafe tender in early April when he was interviewed by Insurance News, he says he’s happy with the way things are going around the country. He says the workers’ compensation business in New South Wales continues to grow at modest rates and he foresees good growth in Western Australia because of the economic development there. In the meantime there are plenty of aspects of the business that he believes can be improved. Like working on better understandings of how brokers want to interact with the company, for example. They have told him CGU “can be difficult” to navigate. Some have indicated they are looking for a much more structured approach to business planning by CGU, with robust conversations about the expectations and desires of each party and what it can bring to the business relationship. Although market pricing might be soft – for now, at least – Mr Harmer is unflinching in his view that a tough market cannot be used as an excuse for low or no growth. “Our future is in our hands,” he says. “Conventional wisdom says that in any 10-year period you will have a soft market for eight years and a hard market for two. “So clearly you gear your business model towards eight years and not towards the two. That’s what we have been doing for the last couple of years, and I will be continuing with that.” CGU does not insure for 26

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flood, and its parent IAG has made it clear the group will need flood-mapping data to price risk by location. With the devastating Queensland floods providing the impetus for this to finally happen, CGU has a taskforce working on how it will respond, although Mr Harmer cautions that significant changes to systems will be required. “If the data is available, we will eventually have a product available.” He says the past summer has given plenty of opportunity for feedback from customers and shown the value of investing in the claims service. “The best window that customers have on an insurance company is how they perform at a time of crisis.” And he says CGU has provided excellent service. “Even in cases such as flood claims where we have been unable to pay, we have had the courage to get out there early and give people some certainty as to whether they would be paid or not. In cases of combined storm and flood damage we have settled those claims empathetically and generously and I am very proud of our staff.” He found the floods also demonstrated the value intermediaries bring to the geographic network, with a personalised service – particularly in rural and regional Australia – that is very important to customers and brokers. “I have been really heartened by what I see as the relationship between CGU and its intermediaries and customers.” When Mr Harmer joined the company he found the company brand was strong internally, with many staffers clocking up more than 25 years’ service. Staff were familiar with the targets set by Duncan West and Mr Harmer decided early on to refine the strategy if necessary rather than reinvent the transformation plan. He has kept Mr West’s leadership team of nine, saying it’s “fresh and energetic”. Another surprise has been the depth of hidden talent within CGU, and Mr Harmer is keen to “kick over a few more rocks and expose some of the younger talent”. He says that two years into the turnaround CGU has more clarity “about the things that will move the needle”. These include investing in systems, improving the business focus while retaining the primary focus on the customer and intermediary, and continuing to improve CGU’s understanding of markets that are attractive, while understanding that trade-offs are needed at times. “One of the opportunities we have is to get a lot closer to our customers and understand more deeply the products and services they value,” he says. “I think the insurance industry generally is often guilty of assuming it knows. So we are investing in capacity around further developing customer and market insights.” With the turnaround momentum well underway, Mr Harmer admits it’s not a case of easing back now. “I’m in  no position to take my foot off the accelerator.”

April/May 2011

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Moving past gender-based risk ratings: telematics records data on such things as behaviour and travel

New smart technology measures driving behaviour in detail, and it’s coming soon to your car By Michelle Hannen

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PAY-HOW-YOU-DRIVE INSURANCE IS set to be the next big advance in Australian motor underwriting, with some of Australia’s largest car insurers known to be investigating the new pricing approach. Hot on the heels of pay-as-you-drive, pay-how-you-drive is already being rolled out in the US and UK. The risk rating approach uses telematics – smartbox technology – which monitors when, where and most importantly how vehicles are driven to provide accurate risk pricing on an individual basis. Paul Stacy, the Managing Director of UK-based telematics supply, research and data company Wunelli, is heading to Australia next month to attend high-level meetings with three of the country’s top five motor insurers. “They’re taking the first steps, underinsuranceNEWS

standing what’s been done in the UK, the benefits to loss ratios and what benefits can be given to young drivers,” he says. Mr Stacy – an Australian who worked in insurance at Accenture before moving to the UK in 2004 – declined to reveal which insurers he is meeting with, but an industry source named Suncorp, IAG and Allianz as likely companies. “[Suncorp Group Chief Executive] Patrick Snowball was a leading proponent of telematics during his time at Norwich Union, and both Allianz and IAG subsidiary Equity Red Star underwrite Wunelli’s Coverbox product in the UK,” the source says. Mr Stacy says Wunelli was founded in 2006, initially to investigate telematics and its potential. In 2009 it launched a broking business, Coverbox, as a pilot brand to test

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pay-as-you-drive telematics in the young driver market. A panel of six insurers underwrite Coverbox, which has around 20,000 live policies in the UK market, a number which has been limited in line with the brand’s pilot status. However, Mr Stacy says those policies, which represent around 12,000 years on risk, have provided enough data to show clear improvements to loss ratios from using telematics. Telematics-based insurance differs from the more simplistic pay-as-you-drive models, such as that offered in Australia by Hollard’s Real Insurance brand, as premiums are based on data captured by a smartbox fitted to the vehicle rather than by information supplied by the policyholder. The smartbox captures real-time vehicle usage data which is transmitted back to the insurer’s systems via a mobile phone signal. Early trials and products have focused on pay-as-you-drive telematics policies mainly by monitoring mileage, but more sophisticated policies are focusing on pay-how-you-drive by combining mileage with monitoring of trip duration, trip time of day, speed and driving habits such as acceleration and braking behaviour. As a result premiums can be based on the actual risk posed by an individual’s driving, and policyholders can view information about their driving habits online, allowing them to address safety issues and compare themselves to other drivers. Smartboxes can also be used to locate stolen vehicles and provide instant notification of accidents to insurers. Big Brother concerns about tracking and privacy surrounded the first UK telematics trials, but Mr Stacy says such concerns have dissipated. “We don’t track individuals, we track vehicles,” he told Insurance News. “Smartphones track individuals, and people can’t seem to get enough of them.” Insurers supply and install the smartboxes, covering the cost involved in that process, but with every new car sold in the UK from next year to be fitted with a SIM card, Mr Stacy says smartboxes, and the costs associated with them, will soon be redundant and insurers will instead buy driving data from car manufacturers. The first pay-as-you-drive telematics trial was launched by Norwich Union (now Aviva), in the UK in 2004, using a licence to the technology and pricing method it acquired from US insurance giant Progressive. Norwich Union extended the trial to motor fleet customers in 2005 and rolled out the product more widely in 2006. Progressive launched a telematics research project in the US in 2004, before rolling out its My Rate telematics-based product in 2008. This year it has launched Snapshot, a more advanced pay-how-you-drive product, across the US. insuranceNEWS

In 2009, Progressive launched onlineonly motor insurer Progressive Direct into the Australian market, but the Australian arm does not yet use telematics. Last month UK insurer Co-operative Insurance announced the launch of Young Driver Insurance, a pay-how-youdrive telematics policy for 17 to 25-year-olds. Wunelli has helped Co-operative develop the policy and is providing it with smartboxes and data analysis. Under that policy, drivers are assessed every 90 days and responsible driving behaviour is rewarded with a discount of up to 11% of the annual premium. Conversely, bad drivers can see premium increases of up to 15% applied. Mr Stacy says more UK insurers will be launching pay-how-you-drive products this year, which may go some way to solving problems in the UK’s motor market, where inflation on personal injury claims and insurance fraud have hit insurers’ profits. The problem has been particularly pronounced in the younger driver segment, resulting in motor premiums for younger drivers rising on average by 58% to more than £2200 in the past year. The developments also provide insurers with a new way of risk rating following the European Union’s decision to outlaw insurance underwriting based on gender, which comes into force from December 21 next year. Mr Stacy says demand has “picked up enormously” since the EU decision. “I’m getting calls from CFOs and MDs angry with us because we can’t attend meetings quickly enough,” he says. He believes a ban on underwriting based on age will soon follow across Europe. To tackle these issues, Wunelli has developed a method for scoring the safety of drivers called Driving DNA, using information provided by smartboxes rather than gender as a risk factor. Driving DNA can predict the chance of a driver making an at-fault claim by scoring drivers out of 100, where 100 is extremely safe and zero is extremely unsafe. Mr Stacy says Driving DNA scores often have a strong correlation with traditional gender preferences used by insurers. He believes Australia will inevitably follow Europe down the gender antidiscrimination path. “[Australian insurers] will need to justify why they discriminate in this way,” he says. “One complaint will do it.” Even without a gender ban, the business case for telematics in Australia is becoming stronger. “While the overall accident rate may be falling, the accident rate for young drivers in Australia is not dropping.” But in the end, he says, it may simply be a question of economics. “There’s money to be made from being able to more accurately price risk.” 

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Winning from fourth place JLT is doing very nicely competing against its much bigger rivals while staying true to its vision By Terry McMullan

SOME ADVICE TO ANY JOURNALIST INTERVIEWING JARDINE Lloyd Thompson (JLT) Chief Executive Dominic Burke: don’t ever suggest his company is too small to compete with Marsh, Aon and Willis. Think instead of the London-based company as a middleweight boxer going head-to-head with three heavyweights and winning on points. A sportsman who obviously gets a huge kick out of competing, Mr Burke sees JLT landing punishing punches as its much larger competitors lurch clumsily around the ring. The choice of a boxing analogy to explain JLT’s place in the highly competitive world of global broking says much about the man, who breeds thoroughbred horses on his English country estate and takes an active interest in racing. It also says much about his attitude to the top end of the global broker market, where quick thinking and nimble reactions are highly regarded by his company’s topdrawer clients. “I think we compete every day in the boxing ring of the middleweight boxer against those heavyweights,” he tells Insurance News during a visit to Sydney last month. “And I just feel that we’re landing many, many more punches than they are. “Today we are representing some of the biggest buyers in the most complex areas of insurance, in a fast-changing risk framework. Our clients range from the largest oil and gas companies in the world to the biggest telecommunications companies and the biggest life science companies. We look after 30% of the FT500 companies. We are a significant broker.” It’s a point Mr Burke is at pains to make throughout our interview: that while JLT is No 4 in the global broker pecking order, there are some real advantages in not toughing it out at the very top. And that JLT is outperforming the big guys by being a broker, full stop. Which means, says Mr Burke, that JLT concentrates on the needs of its clients to the exclusion of all else. “We do not commoditise our products, we bespoke them; we act in the best interests of our clients at all times. I’m not sure that that could be the claim of all of our competitors.” While JLT has some additional services available in Australia – its Echelon risk management and advisory services, for example, and its new Thistle operation which is as close to underwriting as most brokers get – Mr Burke says broking is what it’s all about. “Being a holistic powerful financial services firm, as some of our competitors have become, may fit their model; it may fit their strategy and their direction. But I’m not sure it’s fitting the clients.” Mr Burke joined JLT in 2000 when the Burke Ford Group he cofounded merged with JLT. When he was named chief executive five years later the company wasn’t in great shape and was even being tipped as a potential takeover target for the big three. “We had become a little confused,” he says. “Our strategy wasn’t clearly articulated; I’m not even sure we had a strategy. insuranceNEWS

“But we’ve always had great people who were very committed to the organisation. And we always had a reputation of being smart, innovative and client-led. So my job was just to refocus us back at what we truly were. “We made some big changes. We exited from the United States as a retailer, we thought about what our strategies were, we changed the balance sheet, we de-leveraged ourselves and created an environment where people wanted to stay.” He says his contribution to the company’s revival has been to articulate a clear strategy and return the focus “back to what we always were”. “This was always the best insurance and employee benefit business. I think our competitors out there today – if they were honest with themselves – would say that JLT is a really good organisation, a worthy competitor and one that nobody would take lightly. “And if you’re in competition with JLT you need to be at the best of your game to compete.” He has positioned JLT “in a very different place” to his larger competitors, and if the company’s financial results are any guide, it’s a profitable strategy. “We don’t want to have a flag in every part of the world; we don’t want to compete at every level,” Mr Burke tells Insurance News. “We just want to be a market leader in the specialties and the areas of focus that we have. “What we do is we compete in the segments and the specialties where we have real depth and technical expertise.” He says JLT’s client-led focus makes his company the strongest transactional broker in the world. “We keep underwriters honest. We’re hard. We look after our clients’ interests and I think we’re winning market share because of those dynamics. “I think, genuinely, that JLT is a top three player in every part of our business we choose to be in, and increasingly becoming a very distinctively different business. And clients are given a real choice between the international global players and an international specialty broker such as JLT. “We achieved close on £750 million ($1.17 billion) in revenue last year. We’re not a small business. And for us to drive revenue growth is just the same challenge for us as it is for our competitors.” JLT’s client-as-driver strategy is a point Mr Burke returns to constantly. “Wherever I go around our business I find that the clients we’re winning today are significantly different to [those] we were winning five or six years ago,” he says. “I think our market share gains are a substantial issue, and we’re achieving it because of the clientled dynamic of the business. I think that separates us.” He agrees with recent industry reports which suggest clients are increasingly wary of the big three brokers’ move to holistic service offerings which maximise their revenue. “I think you only have to listen to clients that choose JLT,” he April/May 2011

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says. “The JLT message is resonating with clients today, and that’s really very rewarding. Our positioning has been an exciting journey we’ve all embarked on over the past few years.” Last year JLT’s revenues across the group grew by 21%, with equal parts 7% organic, acquisitions and foreign exchange gains. “We achieved strong organic growth in Latin America – 25% – and we also had 20% organic growth in Asia. So emerging markets are clearly very important for JLT. “But I thought some of our trading margin growth and organic revenue growth from the rest of our more mature businesses were an outstanding feature of 2010. “If you look at our London market business, our big specialty business grew last year by 6%. Our reinsurance business organically grew by 8%, and Europe actually achieved 6% organic growth. “We transact a lot of risk from Australia into the London and Bermuda markets, because we’re about trying to extract the right deal for our clients. And we place just over $US8 billion of premium into the global market, so we’re an organisation with real leverage, and that ensures that we can continue to have very strong and powerful trading relationships with underwriters to enable us to get the best transactional deals for our clients.” The Australian operation forms 23% of the total JLT group, and Mr Burke says it suffered last year through intense competition on the corporate side. “We didn’t see the same levels of growth as we saw elsewhere, but our public sector business did very well over here.” He says the group’s profit shows some “pretty impressive numbers when you compare them with some of our competitors. Some of them are struggling to find any growth at all, and 7.2% organic growth is far and away the best of all of the major brokers. “For the past three years we’ve had the market-leading rate of organic growth.” While competitors are exploring middle market opportunities, JLT isn’t so much following them downmarket as moving in a new direction to meet SME clients’ needs. The formation of Thistle, a JLT operation which focuses on affinity groups and specialised bulk placement facilities, is a new approach, Mr Burke says. Managed in Australia by industry veteran Steve Ball, Thistle “is really where we’re looking after clients from the cradle to the grave. We’ve aligned ourselves with new capital providers and we’ve almost disintermediated ourselves and become, in effect, the underwriter. “We’re not taking the risk onto our balance sheet. We in effect rent in the capital and align ourselves with a capital provider in relation to the underwriting profitability. If we can drive underwriting profits out of that business we can provide the client with a more competitive price, and the client can benefit from the pricing environment as well as the scope and the degree of wording that is really more befitting their needs.” Mr Burke says Australia’s booming economy on the back of strong growth in the construction, oil and gas, mining and financial institutions sectors is playing to JLT’s strengths. “Our global specialty focus is absolutely bang on,” he says. “We certainly sense that we’re in a great place to be. The insurance rating environment remains very competitive and there’s a surplus in capacity down here, which is good from our clients’ perspective.” 34

But there is a downside to an intensely competitive market like Australia’s. “When clients are trying to make long-term investment decisions around capital expenditure, they want to understand the true underlying cost of risk. And they want to see underwriting in a disciplined way,” he says. “I worry today that there isn’t quite the discipline going on that one would hope or expect to see.” And just as premiums set in a competitive market aren’t always to the long-term benefit of the client, Mr Burke also has some firm beliefs about broker commissions. JLT clients are given the choice of paying through commissions or fees, and at last month’s profit announcement in London he threw down the gauntlet to the Big Three by calling for a marketwide move to net terms – “that is, there are no commissions and you negotiate your fee with your client”. “I absolutely believe that if we went to net terms, JLT would be a substantial winner,” he tells Insurance News. “Operating with clients in an open and transparent way with real integrity is the only way you build long-term relationships and trust. “Now, of course, you get an environment where growth becomes difficult, and so some of our competitors resort to extracting more and more and more revenues from the underwriting community. I don’t think that’s in the long-term interest of our industry. “Clients need to understand the price of risk transfer, not the price of the distribution channel. I think if you can get to net terms clients can truly understand the cost of risk transfer and they can decide what we’re worth. Clients are sophisticated; they know what they’re prepared to pay for.” He says the commission structure “only supports the big three”. “We reckon that about two-thirds of our total revenues now are negotiated commissions or fees. So, when I say, ‘Let’s go to net terms,’ it probably is only going to impact about a third of our business. “I have a strong belief that we’d be a bigger business on a transparent platform. We don’t have the leverage of the big three, and they have greater leverage and they extract a greater proportion of the pie for their own benefit.” He says underwriters are finding their relationship with the big three brokers is increasingly difficult. “The leverage the big three have over the insurance market has perhaps now come to an unhealthy level. And I think we recognise that that is giving underwriters challenges.” Mr Burke told attendees at JLT’s March profit announcement in London that the insurers find it difficult to push for change in remuneration practices “when you’ve got 50% of your distribution going through three relationships”. As for JLT’s place in insurers’ hearts, he says they want to see a strong next tier of brokers, and his company is leading the way. “We’re the one that takes the fight to the big three,” he tells Insurance News. “I think we can stay loyal to our vision and I think we can challenge our competitors by saying, ‘Come on boys, let’s all work on a level playing field’. “Put JLT on a level playing field with everybody else and we will  score more goals; we’ll score more runs.”

“The leverage the big three have over the insurance market has perhaps now come to an unhealthy level”

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Flood mapping isn’t just about insurance Here’s why insurers think it’s the Government’s role to map Australia By Ian Berg, Vice President and Australia Operations Manager of FM Global and a director of the Insurance Council of Australia THE JANUARY 2011 FLOODS IN THE eastern states of Australia caused tremendous hardship and loss. They have also challenged the response of governments and the insurance industry to what is one of the largest catastrophes – and the largest insurance loss – in Australia’s history. Uncertainty and controversy arose regarding the extent of flood coverage that may be available and, among other things, the different policies and policy language that exist in the consumer end of the market. In the past, efforts by the industry to address a common definition failed as a result of a determination by the Australian Competition and Consumer Commission (ACCC). However, after the Brisbane flood the Federal Government decided to work with the industry to classify common definitions for policy terms, as well as ensure clearer disclosure about flood coverage in insurance policies. A conclusion will soon be reached and will ultimately lead to better consumer knowledge. Another area of discussion has been about the availability of flood maps, and why the insurance industry needs them. In order to underwrite and price risk, an insurer needs to understand the risk and be able to quantify the severity and the probability of that risk of loss occurring. Flood is no different from any other risk. If the likelihood and severity is high, the premium will need to be high to adequately fund the insurance pool – that is, unless there is a specific strategy of crosssubsidising the bad risks with the good risks, and this will rarely be within the risk appetite of a private insurer. For flood risk, an assessment means identifying the potential flood height and return period at potentially exposed properties. This requires a reliance on flood maps. There is no Federal Government body responsible for flood mapping in Australia. It is the responsibility of disparate local governments and a number of different bodies. There has been no single access point for those flood maps for anybody – insurers or otherwise. This is quite different to other developed countries. For example, flood mapping in the United States and the UK is the responsibility of the central govern36

ments, and the information is available to many stakeholders. In 2007, the Insurance Council of Australia (ICA) committed considerable funding to the establishment of a database of available flood maps for Australia. The establishment of the National Flood Information Database (NFID) was to enable the industry to access that information and then hopefully be able to offer flood insurance more broadly. And this has happened. Choice magazine’s regular surveys of insurance products indicate that in 2006 less than 5% of household policies offered flood insurance, whereas in 2011 some 50% do. The existence of the NFID has made a big difference, and demonstrates the industry’s commitment to providing more broadly based flood coverage. However, there are vast limitations. The NFID draws from current available data sources. This includes mostly local councils and various statutory authorities (for example, Melbourne Water). The flood information is far from universally available and, in many cases, authorities are reluctant or unwilling to release it. We can all speculate why. Inaccuracy and inconsistency of the data are also issues. Having no common basis, many councils or authorities have adopted their own methodology, with differing degrees of accuracy. Another problem is that flood mapping is not static, and much of the current available data is out of date. For example, even the most recent flood maps are – among other inputs – based on rainfall and runoff data that is more than 30 years old. With additional infrastructure such as new developments, buildings and roads in the intervening period, the flood mapping that was relevant 30 years ago will not be helpful now. Flood mapping needs to be ongoing and kept up to date. The Federal Government has only recently agreed to provide funding to update this critical information. Flood mapping has advanced and can now provide very comprehensive, predictive modelling of floods of all origins, including water runoff, riverine flooding and the effects of the sea. Interest in the latter has been heightened by concerns over climate change and the risks to coastal communities. insuranceNEWS

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The starting point is to create digital elevation mapping of the land and overlaying areas with sophisticated flood modelling using a variety of scenarios, including deposition of rainfall. The technology exists and is in use in some parts of Australia, as well as many countries. This is where Australia needs flood cover to be on a broader scale. Some commentators have suggested the insurance industry should embrace flood mapping. The insurance industry disagrees for a number of reasons, not the least being the concern that the industry could become a de facto approval authority for land development. Flood mapping is and should be a government responsibility, and the data and methodology used needs to be transparent. Accessible, accurate and reliable maps will assist in ensuring sustainable communities and the information can be used by many stakeholders. And insurers can use accurate flood maps to underwrite and design their products. Local governments can use the information to ensure that responsible development takes place and that development on flood plains is avoided. Property owners and potential acquirers of property can understand what their risks are and make informed decisions. Critically – and this is the biggest advantage – authorities can use the information to take mitigation measures that hopefully lead to a reduction in the impact of the inevitable flooding that will occur again in the future. The Federal Government’s impending National Disasters Insurance Review has broad terms of reference. The industry supports the initiative and hopes it will be a forum that propels the case for a national approach to flood mapping forward. The debate about flood mapping is not just about insurance. Of course, neither standard definitions nor flood mapping alone will stop floods; nor will they ensure that all properties can be covered by insurance at reasonable cost. But flood mapping will contribute to sustainable communities, better mitigation and more transparent decision-making by a  host of different stakeholders.


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Insurance on flood and other water perils what you need to know By Allan Manning This article explains in simple terms what ordinary Australians need to know about flood and the insurance industry. The author has agreed to make it widely available to assist insurance professionals in explaining to clients the present situation. A high-quality PDF file of the article can be obtained free of charge from Insurance News. Email your request to admin@insurancenews.com.au.

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IN THE FIRST SIX WEEKS OF 2011 nothing gained more media attention than the storms and flooding that affected much of Australia. The insurance industry is expected to pay out close to $3 billion in claims from these losses over and above all the other regular claims lodged. This of course is great comfort to the more than 100,000 claimants and of equal benefit to the economy. The amount of protection the insurance industry routinely provides to home and business owners and to the Australian economy in general is often overlooked. In the year ended 30 June 2010, more than $16.5 billion was paid out in claims by insurers. That is the equivalent of $2.05 for every man woman and child in Australia every day of the year. This has an enormous spin-off effect to builders, panel beaters, retailers of all types, professionals – the list is endless. Despite this great benefit, insurance is not considered important to most people – until a claim arises. Often it is just regarded as an expense that should be minimised, with no thought of the implications of buying on price – until it’s too late. We then typically see the blame game start with victims and villains. As if to script, immediately after the Brisbane floods the general media criticised the insurance industry for hiding behind “small print” and leaving their customers hanging. The intimation was that insurers’ customers were the victims of some gigantic fraud. Other than perhaps drive up viewer ratings, I am not sure that this did any good for anyone, and in fact may have had two negative consequences: • It may discourage people from taking out insurance, believing it will not respond anyway; and • It de-motivates the thousands of claims officers, loss adjusters and assessors who worked extraordinarily long hours in very difficult conditions to meet the needs of their customers. It must be remembered that these same claims staff have hardly drawn breath since the Victorian bushfires in

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February 2009. This was followed by 100,000-plus claims from the Melbourne hailstorm in March last year, followed six weeks later by another 100,000 claims on the other side of the country arising from the hailstorm in Perth. Each of these events cost insurers well over $1 billion. Apart from these hailstorms and the recent storms and floods across Queensland and Victoria, many insurance professionals have worked tirelessly in Christchurch following the massive earthquakes. The current estimate of insurers’ losses from the two Christchurch earthquakes is now $NZ13.3 billion$NZ18 billion ($9.8 billion-$13.3 billion). Following the Brisbane floods much was made by some journalists that flood is not covered by many policies. However, even after the massive floods of 1974 in Brisbane there was only a limited demand for the cover – until of course now. But it is far too late to consider flood cover after a home or business has been flooded. What occurs during a time of great trauma is that a home or business owner, who in the vast majority of cases has never read their policy, has expectations of protection that are at odds with the coverage afforded by their policy. But the fact is: Unless you live in a blatantly floodprone area, flood cover is now more readily available than it ever was before – and it has been available for several years. The insurers which offered the cover did not receive the support that was expected for their initiative. The insureds and brokers that did support them are of course now pleased they did so. To say that the policy hides behind small print or hidden exclusions is also simply not true. Policies make it quite clear – often in the first few pages and/or in large print and/or in many places, that flood is not an insured peril. There were at least 203 different home and contents policies that were in force at the time of the Queensland floods. I am not sure how you could make it any clearer. Example A is the AAMI home building insurance policy.

Example A

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“If you don’t take the time to und take out reasonable protection to all other things being equal, an in fault, nor the governments’, nor a

Example B

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Reuters

e to understand life’s risks and ection to cover yourself, it is not, ual, an insurance company’s ts’, nor anyone else’s”

Example B is from page 2 of an RACQ Insurance household insurance policy, which makes the exclusion equally plain. As these examples below left illustrate, the advice on flood is in a larger font and in italics so that the reader’s eye is drawn to it. This is the first of five places in the policy where it explains that flood is not a standard cover. I am not sure what more these or any of the other insurers who were attacked could reasonably have done to bring the issue to their customer’s attention. Flood is the second biggest cause of building property damage in Australia.

This is over a long period and is not biased by the latest events. The major perils are shown in the accompanying graph. While it’s regrettable that the vast majority of people do not take the time to read their insurance policy, the same could probably be said for their mortgage documents, hire purchase agreements, credit card contracts, lease agreements and, dare I say it, the instructions on how to assemble a child’s toy. Why this is so could be the subject of a paper in its own right. The point is that if you don’t take the time to understand life’s risks and take out reasonable protection to cover yourself, it is not, all other things being equal, an insurance company’s fault, nor the governments’, nor anyone else’s. If a business or homeowner is not sure, they can engage the services of a general insurance adviser at little or no cost who will identify their needs and provide advice on what covers are available and what is best for them. Such experts have access to LMI’s PolicyComparison and other research tools. So what does a typical insurance policy cover when it comes to the water perils? A brief outline of each is set out below. However, this should only be treated as a general guide, as it is not designed to be exhaustive or address any one policy. It also needs to be clearly understood that while coverage is certainly important, the financial strength rating of the underwriter, the claims service and price all need to be considered. Storm and tempest There are no legal or other differences between “storm” and “tempest”, but as it is such a well-known expression in the insurance industry it remains in modern use. This peril includes violent wind, including cyclones and tornadoes, thunderstorms and hail. Any of these may be accompanied by rain or snow. In Australia, most household and business insurers provide storm and tempest cover as standard. The most important thing to understand is that flood, while it may be caused by a storm, is not covered by the standard insured peril of “storm and tempest”. “Storm and tempest” does not cover insuranceNEWS

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loss or damage caused by rain, wind, hail or snow entering a building unless it enters as a result of structural damage made by the storm and tempest. As some exclusions cover more than one water peril, I would urge the reader not to stop here but to read the exclusions section of the paper. Rainwater Rainwater is typically described as rain falling naturally from the sky, including rainwater run-off over the surface of the land. It excludes loss or damage: • To the external paintwork or other exterior coatings of the buildings; • From rainwater seeping or percolating or otherwise penetrating into the buildings as a result of structural defects, faulty design of the buildings or faulty workmanship in construction, or neglect of maintenance. There is often an overlap of the cover afforded by “storm and tempest” and “rainwater”. In some areas such as rain entering an open window it extends the coverage afforded by the “storm and tempest” cover. Bursting, leaking, discharging or overflowing This covers the bursting, leaking, discharging or overflowing of water tanks, pipes, gutters, drains and other water-carrying apparatus. Often garden hoses are excluded. However, many policies now extend the cover to include other liquids such as oil from fixed oil-heating systems. While the cost of repairing the leaking pipe is a maintenance issue and typically not covered, the cost of locating the leak and making good the damage caused in finding the leak is covered in better-quality policies – albeit to a monetary limit in some cases. Policy exclusions There are a number of common exclusions that apply to the three perils discussed above. These are loss or damage: 1. By flood. This is typically described as the inundation of normally dry land by water escaping or released from the normal confines of any natural water39


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“None of us, including state governments, can afford to adopt an ‘it will never happen to me’ attitude to risk management and insurance” course or lake (whether or not altered or modified), reservoir, canal or dam. 2. To gates, fences, retaining walls, textile awnings, external blinds, paths, driveways, terraces, tennis courts, boat jetties, swimming pool covers or the plastic liner of a swimming pool. Some policies may provide cover for some of these items, although there may be a monetary limit capping what will be paid for any one event. 3. Directly or indirectly by the sea, which can include tidal wave, storm surge, tsunami and high tide. Again policies do vary and tsunami and storm surge can be covered by some policies but not in others. 4. By erosion, subsidence, landslide, mudslide, shrinkage or other earth movement but damage caused by mud, soil and other debris entering or striking a permanent building is usually covered. Again some policies may provide some cover for some of these risks. 5. To buildings and their contents where the building has not been well maintained and this is known or ought to be known to the insured. Insurance is not designed to cover inevitable losses. Flood as an insured peril Flood is not typically a standard cover across the entire insurance industry. Some insurers do provide it as standard, others provide the cover but reserve the right not to grant cover if the risk is outside their underwriting guidelines. Others offer the cover as an optional extra cover, while some are not prepared to insure the risk at all. The definition of flood does differ across the industry but arguably the most common definition of flood used in the Australian market at present is: “Flood means the inundation of normally dry land by water escaping or released from the normal confines of any natural watercourse or lake (whether or not altered or modified), reservoir, canal or dam.” The important words here are “escaping or released from”. This includes situations – as in Brisbane – where the government authorities released water from the Wivenhoe Dam at the same time as the rain was falling, which could only have compounded the situation. Many people who should have had flood cover elected not to take it. Examples here are business owners, in particular those on the upper levels of high-rise buildings. They overlooked the fact that their buildings’ electrical switchboards, backup generators, lift motors 40

and the like are often located in the basement. Damage to this property can cause interruption losses to their business. Similarly, a successful claim for prevention of access, or for losses arising out of damage to customers and suppliers’ premises, is dependent on the insured’s policy covering flood. Flash flood as an insured peril Some insurers wishing to grant some form of flood cover to their clients have introduced a relatively new cover known as “flash flood”. It was introduced to domestic home and contents policies first, but now some commercial policies also offer the cover. A typical definition of flash flood is: “The overflow of any lake, river, creek, stormwater channel, canal or any other watercourse (whether natural, altered or man-made), caused by a storm, where the flooding occurs within 24 consecutive hours of the storm having commenced.” While this would not provide cover for the losses arising in Brisbane in 2011, it would and indeed has provided insurance protection to those in Toowoomba and Grantham after the tragic floods in January. Even insurers without this specific cover accepted that much of the damage in towns like Toowoomba fell within the definition of rainwater and accepted their clients’ losses as claims. Motor vehicle insurance If vehicles are insured for full comprehensive cover, then flood is covered. For those with fire, theft and third party or just third party property cover only, flood is not insured. Delays in decision-making on claims Perhaps the greatest criticism levelled at the insurance industry has been the delays in advising some floodstricken clients if they have a valid claim. Where a client has flood cover this is simply not an issue. If it is clearly flood, with absolutely no doubt, clients are advised immediately. But there is a delay is where the policy does not cover flood and there is

some doubt as to whether the loss was caused by flood or some other water peril. Insurers have to review each claim on a case-by-case basis, using the services of hydrologists who will produce reports advising on their view of what caused the water damage in each case. If there are one or two claims or even 100 or so, this can be done quickly. But where there are losses across an area the size of Germany and France combined involving literally tens of thousands of losses – as was the case in Queensland in January – providing hydrological assessments, which have to be done accurately, takes time. It cannot, and should not, be rushed. Having said this, being out in the field myself, it is clear that everyone involved is doing their very best to complete this work as promptly as possible. Underinsurance Having no insurance at all is one thing. Just as important is the need to be fully insured, and if you are a business owner, to have business interruption insurance. In conclusion Flood is a devastating natural disaster which can affect large numbers of homes and businesses, particularly in heavily populated areas. And a flood can strike with little warning, inundating areas that have been dry for decades. The damage to property and subsequent business interruption can be financially devastating and can literally destroy a lifetime’s work. When these latest floods hit, socially responsible insurers were providing more flood cover than has ever been available in the past – certainly much more than at the time of the 1974 Brisbane floods. None of us, including state governments, can afford to adopt an “it will never happen to me” attitude to risk management and insurance. Everyone needs to carefully read their insurance policy and if they are not sure of the cover afforded seek expert advice from an authorised general  insurance adviser.

Allan Manning is the Managing Director of LMI Group. He has 40 years’ practical experience managing and preparing claims, and has written seven books on insurance. He holds the post of Research Fellow with Victoria University in the faculty of Business & Law’s Graduate School of Corporate Governance. Dr Manning is also the moving force behind such online research tools as PolicyComparison.com, BIcalculator.com, RiskCoach and ContinuityCoach.com, which are used by the insurance industry and businesses across Australia.

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Blueprint for a flood pool Australia’s terrorism reinsurance arrangements demonstrate how it can be done

Reuters

By Ben Oliver

A pool for everyone in Brisbane’s flooded St Lucia: Australia’s terrorism pool is a good model to consider

FLOODS IN AUSTRALIA COME AND go, but the severity and scale of the Queensland disaster – and the Brisbane disaster in particular – has given a new impetus to flood insurance reform. Negotiations between Assistant Treasurer Bill Shorten and the insurance industry have been ongoing for months, covering issues such as flood definitions, mapping and infrastructure needs. Amid 10-point plans, official reviews, media and consumer confusion and political determination to make sure this situation never arises again, two points are clear: there is a lack of affordable and available coverage in flood-prone areas, and reform to address the issue is coming. As insurers push for universal flood definitions – which they would prefer not to be binding and which won’t guarantee one more insurer entering the flood market – a growing chorus of government and industry figures are calling for a flood insurance pool. If the idea of a pool with a government backstop sounds familiar, it’s because Australia has been running such a scheme since 2003 – albeit covering terrorism attacks rather than natural disasters. It was the evaporation of terrorism coverage following the destruction of the World Trade Centre on September 11 2001 that

forced many countries, Australia included, to establish national insurance pools. The Australian Reinsurance Pool Corporation (ARPC) was unpopular with the insurance industry at the time of its introduction in 2003, but has proven a successful model since. Despite being introduced as a temporary measure, eight years and two reviews later the pool is still collecting premiums and showing no signs of being wound down. In fact, as of the 2009/10 financial year the pool stands at $604 million, with various reinsurance contracts providing an additional $2.6 billion in coverage. That’s before the Government’s $10 billion backstop kicks in. Government intervention in terrorism insurance was forced by the affordability and availability of cover drying up as insurers grappled with a very hard market and unknown terrorism-related risks in the wake of the September 11 attacks. The same metrics are now being weighed against flood insurance, the slowburn issue that much like terrorism cover was exposed as deeply flawed post-event. Greens Leader Bob Brown and senior Nationals senator Ron Boswell – the latter a former insurance salesman – agree the idea of a flood pool has merit. Marsh Chief Executive John Clayton insuranceNEWS

April/May 2011

and Jardine Lloyd Thompson Partner for European Real Estate Bill Gloyn have both told Insurance News a flood pool requires proper scrutiny, while even Allianz General Manager of Corporate Affairs Nicholas Schofield believes a pool involving industry contributions is worth considering. Mr Clayton told Insurance News earlier this year the industry has largely failed to come up with a solution to flood and a reinsurance pool could provide protection to insurers. He says insurance pooling arrangements work well for other risks “and could provide better protection against flood losses in the future”. Mr Gloyn agrees pools are not popular with insurers – the Insurance Council of Australia has already rejected the idea – but says the only option that can deliver widespread insurance “(may well) be a government-controlled pool”. “The prospect of no cover being available – with just about all property-owners, domestic and commercial, having a contractual obligation to be insured against flood – cannot be contemplated.” Insurance against flood is hardly a problem unique to Australia, and Insurance News has featured the various models used by developed countries. For example, the US National Flood Insurance Program was established in 1968, while France has been 41


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running its own system since 1982 following catastrophic floods the previous winter. In fact, Australia is one of the few industrialised nations without a government-supervised flood cover arrangement. The ARPC is precisely the sort of pooling arrangement many commentators are suggesting would provide a long-term solution to flood reconstruction. But how does it actually work? The pool has been collecting premiums from insurers since 2003 by calculating a levy charged on property insurance. The levy is set as a percentage of the premium paid by the policyholder, which varies between 2% and 10%, based on the population density of the area covered. Insurers pay a premium each year, and as the pool grows more money is spent on retrocession. In 2009/10 the pool paid $80 million to 59 reinsurers for an additional $2.6 billion in coverage. While the pace of the pool’s growth has slowed since the introduction of retrocession in 2008, based on its current growth rate of 9.6% a year the pool could pass $1 billion by 2016. So how does the ARPC measure up as a model for a potential flood pool? David Matcham sits above the fray on the flood pool debate as Chief Executive of the ARPC. The former chief executive of Lumley Insurance doesn’t take a view on the merits of a flood pool, but does say the ARPC could provide a blueprint. He points out that when the ARPC was created there was simply no cover for terrorism insurance. Flood, Mr Matcham told Insurance News, is a different beast. “In flood cover, there is some flood cover already out there and some want to maintain the status quo,” he said. “It’s really all about affordability and availably. There are disaster funds and pools all over the world and they all are slightly different. “In most jurisdictions where there has been government intervention in flood, in every case there has been the setting up of a pool or something similar.” Mr Matcham says while there are similarities between international flood pools and the ARPC, global models differ depending on the type, frequency and severity of risk transferred. “Whether it’s reinsurance for the industry or direct cover to the public, most [disaster pools] are about risk transfer or risk cover,” he says. “In some places it’s a levy, in others it’s a premium based on the sum insured. There isn’t a standard model. “In some places – Iceland for example – it’s driven by conditions around volcanic activity, while other places suffer different sort of catastrophes. “The other big issue is whether there is subsidy or not. Is it priced on the risk or the sum insured?” The key point for Mr Matcham is the lack of widely available flood cover. “Going forward, the environment is going to get tougher if you believe in rising sea levels and the frequency of natural events,” he says. “The issue going forward is this: will there be a market failure for flood? Some people think there already has been a market  failure.” 42

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Rising above underinsurance There’s are ways to solve the problem, but first there has to be a will By Michelle Hannen

UNDERINSURANCE IS LIKE A BAD penny – it just keeps turning up. The floods in Queensland and Victoria earlier this year, as well as the New Zealand earthquakes, have once again raised the issue of underinsurance. So is it possible that finally, this time, the will and the way may be put in place to take the issue out of circulation once and for all? Perhaps, if talk counts for anything. The Insurance Council of Australia (ICA) believes improving community understanding of insurance products could play an important role in solving the problem. It has put an education and financial literacy campaign forward as one of the proposals in its 10-point plan, released in response to the Australian flood disasters. The ICA plan proposes that “government and industry commit to a community education campaign to increase awareness of insurers’ obligations to consumers and dispute resolution arrangements. This includes promoting the insurance industry code of practice.” “Clearly a more informed consumer, more able to discern between the types of cover that they can effect, is a desirable outcome in any circumstance,” ICA Chief Executive Rob Whelan says. To that end, ICA piloted a program with charity group The Smith Family in Queensland providing around 220 people with general insurance education as part of a financial literacy program. The independent review of the program says it was “very well received”, according to ICA’s General Manager of Policy, Economics and Taxation Alex Sanchez. However, long-term improvements are harder to track. “Like all the financial literacy programs, what is the result three or insuranceNEWS

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four years down the track? Researchers are still turning their minds to how to measure behavioural change. We have not got there yet.” Mr Sanchez says that while financial literacy programs in Australia have tended to focus on banking transactions and credit cards, they should be widened to include basic insurance information. “If we are in a rapidly changing climatic condition and these sorts of events are becoming more common – and we have seen over the past half decade that this is the case in Australia – then maybe we need to upsize it and think about general insurance literacy,” he says. “Perhaps we ought to examine more closely how communities understand risk, irrespective of the nature of risk. How do we increase the capability of Australians to understand risk, whether it be retirement risk, property risk, personal injury risk and the like, and how much you ought to bear yourself and how much you are prepared to offload to others?” The relationship between lack of knowledge and underinsurance is well established. The 2008 ANZ Survey of Adult Financial Literacy in Australia found ownership of insurance products was considerably higher among those with higher financial literacy scores than people with lower financial literacy. But even among those who have policies, the understanding of how they actually worked was low. Only slightly more than half the respondents were aware that a claim could be refused if the policyholder did not meet their duty of accurate disclosure, while just 30% considered adjusting their levels of cover upon renewal. “These figures were not significantly different from those recorded in the 2005


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“Perhaps we ought to examine more closely how communities understand risk, irrespective of the nature of risk”

survey and suggest there has been little improvement in the community’s awareness of the risk of being underinsured,” the report found. Back in 2008 the Australian Securities and Investments Commission (ASIC) was handed responsibility for improving the community’s financial knowledge and understanding, and it has also made the link between increasing understanding and improving levels of underinsurance. In a speech last month ASIC commissioner Peter Boxall said increasing consumers’ financial literacy “is of key importance in tackling the issue of underinsurance and ensuring that consumers hold cover that is appropriate for their circumstances”. ASIC’s Senior Executive Leader for Consumers, Advisers and Retails Investors, Delia Rickard says financial literacy has become a “core skill” for survival in modern society. The consumer education program is currently focusing on two areas; the first is improving the financial literacy of future consumers by targeting programs at school children. To this end, ASIC is lobbying for the inclusion of financial education into the new Australia-wide national curriculum being established, not as a separate subject, but integrated into learning in key areas such as English, maths and science. In order for the program to be successful, Ms Rickard says educating teachers is essential, so $10 million has been allocated for providing online teacher training and resources over the next three years. “You can guarantee insurance will have a

place in a number of those [resources],” she says. The second area of work on ASIC’s agenda is its newly launched consumer website www.moneysmart.gov.au, which combines and replaces www.fido.asic.gov.au and www.understandingmoney.gov.au.

“I think the key message we want to get across is that you can’t afford not to have insurance,” Ms Rickard says. But while educating future generations insuranceNEWS

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is a start, it will take many years for the results to improve levels of underinsurance. Likewise, producing online resources is well and good, but it is up to the community to seek them out and use them, acts which in themselves assume a certain level of access to and understanding of technology. ICA is pondering whether the concept can be taken further by making financial literacy mandatory for some people. Speaking recently at the House of Representatives Standing Committee on Economics inquiry into the Federal Government’s $1.8 billion flood levy, ICA’s Mr Sanchez said the organisation has been considering whether people who receive welfare assistance after natural disasters – such as those who received the $1000 government assistance payment via Centrelink after the floods – should be required to undertake financial literacy training, essentially in part return for the payment. “The question that we have been asking ourselves is: is it possible to introduce an arrangement where you encourage a financial literacy component in exchange for the assistance?” Mr Sanchez says. He likens the idea to such schemes as unemployment benefits, where welfare payments are linked to a requirement for the recipient to provide details on their actions and activities related to looking for work. While ICA doesn’t have the power to legislate such an idea, it does currently have the ear of a government whose interest in insurance is piqued. But it would take real political will to turn talk into action on underinsurance – an issue that is  often paid little more than lip service. 43


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companyNEWS

Picture perfect: A Perth company wants to provide a national flood map, and lots more besides

To infinity and beyond: the pod which is a vital component of NearMap’s vertically integrated system

MOST DAYS OF THE WEEK, SOMEWHERE above an Australian population centre, an aircraft flies at a steady 7000 feet snapping high-definition details of the landscape below. The pictures are being taken by NearMap, a Perth company which every three months charts the places where 75% of the nation’s population lives. After providing valuable services during the January floods in Queensland, NearMap now wants a shot at recording every square metre of Australia for the insurance industry’s flood-mapping project. And while the Insurance Council of Australia continues to negotiate with the Federal Government over the actual cost of the project – the industry wants the Government to pay the estimated $50 million cost – NearMap says it could do the whole job in just four months for $75 mil44

lion, using Australian-developed technology and providing data that transcends flood mapping. NearMap Chief Executive Simon Crowther says overhead topography for a national flood map would cost an additional $50 million. That’s a really big opportunity for us,” he says “But what we would like to make clear is it’s not just an opportunity to capture or create a national flood map; it’s an opportunity to capture a national map of the country for not much more money. “Each insurer out there could have access to images and elevation content for things like risk management forecasting and number-crunching.” NearMap is a newcomer to the insurance business, but it’s learning fast. It boasts a diversified portfolio of 64 insuranceNEWS

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clients in the public and private sectors – including IAG, its first insurance industry client. The company has an edge over Google’s product, Mr Crowther says. “We trade on the notion of clarity, currency and change, and more and more people are using our content to complement Google Maps or as a substitute for it.” Typically, Google Maps provides images with a resolution of 15cm. NearMap scans at 7.5cm and has the technology for 2cm resolution, but avoids doing so to steer clear of privacy issues. Its edge over Google is driven by the technology created by founder Stuart Nixon. Considered by many as a world leader in spatial technology, Mr Nixon developed and trademarked a vertically integrated system that stands NearMap


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apart from its peers – a proprietary camera array called Hyperpod; the software that captures the data called Hypervision; and the web viewing program, called Hyperweb. When combined, this system can take an image request and turn it into viewable data in less than 36 hours. It has been a heady rise for the company that started life in 2007 as a three-man operation working out of a garage in Perth to 25 full-time staff with revenue that is doubling every year. NearMap’s acquisition for $4 million by diversified group Ipernica in November 2008 set off a new sequence of expansion for the company. Mr Crowther says NearMap’s first clients were mostly government agencies using the technology for compliance and maintenance purposes. And it has been highly successful. After building its base of government clients, NearMap expanded into the private sector via the mining industry and a lucrative contract with the Queensland Gas Corporation. Negotiations with BHP and

Rio Tinto are also ongoing. But it was the Queensland floods in January that provided an opportunity for the company to consider the insurance industry as a potential client. When the scale of the flooding became clear, NearMap made the decision to survey Brisbane and Ipswich as a matter of historical record. “We felt it was the right thing to do, quite frankly,” Mr Crowther told Insurance News. Brisbane City Council and Ipswich City Council – both clients – later commissioned NearMap to do the work anyway, and the imagery was later released to the public and various government departments. “It was on the back of the floods we approached the Insurance Council and pitched to them to be able to use our content locally in Brisbane,” Mr Crowther says. “They declined at that point. They felt price was an issue, and while they accepted the fact that what they had was inferior, it was much cheaper. “We then approached individual companies and got a licence deal with IAG.”

NearMap hopes to use the debate around flood mapping as a springboard. “Mapping all of Australia was one of the original objectives for the company,” Mr Crowther says. “When we heard about the flood-mapping plan, we were really excited. We want to be a part of that conversation.” Australia is a global leader in geospatial systems, and Google Maps uses technology developed by Sydney group Where 2 Technologies, which it acquired in 2004. “We don’t see ourselves as competing with Google,” Mr Crowther tells Insurance News. “Their images are of inferior resolution and much older than ours.” Google Maps rarely updates its images, while NearMap updates its coverage maps quarterly and, in the case of major cities, monthly, using a fleet of Cessna aircraft flying over at 7000 feet. Google Maps mainly uses satellite imagery, and has no capacity to show cumulative changes. NearMap records changes over a period of time and is developing software that will detect differences  between snapshots automatically.

Expect the unexpected: A

LUMLEY INSURANCE IS CLAIMING an industry “first” by launching its new management liability program as either a standalone product or as part of a commercial business package. The insurer is also offering management liability insurance through its my.place@lumley platform via Sunrise Exchange. It comes at a time when the need for good governance practices is at an all-time high, with increased regulatory surveillance and class actions. Lumley believes SME businesses are now starting to recognise the importance of protecting themselves from claims against not only their companies but also directors and officers. The new program’s launch last month was accompanied by a marketing campaign adopting the theme that businesses can now avoid potential and “unwelcome surprises” by being prepared. Lumley has used a multitude of real-life stories to communicate the risks for SME businesses including a restaurant owner, café, electrical contractor and director of a small consulting firm. A “Jack-in-the-box” character has been used in this campaign to represent the “unwelcome surprises” many of these real businesses may face and highlights the importance of having the new management liability product. As the number of litigious actions increase in the business sector this kind of cover is steadily becoming a staple in the general insurance market.

Lumley believes that although many international brokers have long had specialist departments, it’s a relatively new area for other brokers with SME clients. “Given the severity of these types of claim, it’s worth knowing what management liability insurance can offer, regardless of the size of a client’s business,” Lumley says. The new product will focus on four key areas – directors’ and officers’ liability, employment practices, statutory liabilities and legal expenses. Lumley says the legal expenses feature ensures SME operators can have adequate cover to defend any liability claims it may be faced with. The management liability product will be offered either as a stand-alone product or as an added section under either Lumley or Steadfast commercial business packages. Chief Operating Officer John Nagle told Insurance News this choice was a key feature of the Lumley offering. “Management liability is a natural extension of our popular commercial business package,” he says. Lumley “is offering a discount across all sections when management liability is purchased as part of the package”. Brokers can choose a comprehensive package with aggregate single or separate limits for each of the four covers ranging between $250,000 and $5 million. “Every day more and more precedents are set in the court system that heighten the operating risk for businesses of all sizes,” Lumley says, and this kind cover can miti gate those “unwelcome surprises”.

rising risk of regulatory or legal actions leads to pressure for management liability cover

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companyNEWS

Excess buydown option a plus for brokers: … and for

Reuters

people trying to insure in cyclone zones, says Indemnitycorp

Flattened by Cyclone Yasi, but not wiped out: excess buydown keeps policy excesses under control

AS PEOPLE IN FAR NORTH QUEENSLAND continue to pick up the pieces from Cyclone Yasi, they have been offered an attractive way to protect their assets against future property-destroying events. Specialist broker Indemnitycorp has launched a new program that allows a cyclone excess buydown option to be included in property policies. The new facility promises to assist brokers and their clients who face large cyclone excesses under their property insurance programs.

Indemnitycorp’s new product will provide up to $750,000 in excess buydown capacity in any one location using an underlying property policy. Indemnitycorp Managing Director Jonathon Upton says there is capacity in the market for such a product, with insurers increasingly adding this kind of cover for clients at risk. “And with the devastating effects of Cyclone Yasi, this is set to escalate,” he says. “Even now, we are seeing insurers add high cyclone excesses to properties located as far

south as the 26th parallel.” Indemnitycorp believes this new product will assist brokers to negotiate cover in locations that are normally difficult to insure. The combination of higher cyclone excesses backed by the buydown policy is expected to sway some companies that might not otherwise be willing to insure certain risks in cyclone-prone areas. The product is being underwritten at  Lloyd’s.

A cure for fraud:

ACE INSURANCE IS MARKETING ITS new Elite Fraud Protector product with some timely reminders to employers about the financial and emotional damage of errant staff. Its new brochure uses a series of business fraud experiences around the world and draws a lesson from each. The overall lesson is clear – businesses need to consider the risks of fraud and protect themselves against it. The risks include such things as thieving employees, collusion with suppliers, manager excessive access risk, fund transfer authorisation losses, contract allocation kickbacks and personal expense abuse. KMPG forensic partner Gary Gill, who last year produced a report on commercial fraud, says if fraud is allowed to get out of control in a company it can end up costing companies millions of dollars. The report found that the value of fraud cases coming before the courts in the first six months of last year exceeded $100 million – for the fifth consecutive year. “When fraud happens, it starts small and gets bigger and bigger over time,” Mr Gill says. Accounting fraud is by far the

most common, making up $41 million of large fraud losses – and some of the biggest fraud cases are committed by accounting or payroll staff. Mr Gill says other major types of fraud include theft of client money, investment scams and “outright deception”. It’s a growing market Ace is launching its Elite Fraud Protector into. The product includes cover for direct financial loss as a result of fraud or dishonesty by employees, while “external crimes” involve such things as third parties committing computer crime, forgery or counterfeiting. Theft, physical loss or damage, destruction or disappearance of money or securities and client loss are also covered, as are the costs involved in using an auditor or other investigator to identify losses, legal fees incurred and costs to restore computers. The extras that justifies the term “Elite” include payment of interest the insured would have received or been legally liable to pay to a client following a covered loss; cover for losses suffered as a result of the fraudulent acts of employees or outsource companies; contractual penalties, the hire of a public relations firm; and protection  against extortion.

Insure against it. Ace launches a fraud policy with lots of extras

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Stranger in a strange land

International loss adjusters are helping out in Australasia’s disaster zones By Tania Martin

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ANSWERING CALLS FOR ASSISTANCE from the other side of the world is nothing new for a growing band of loss adjusters who travel from disaster zone to disaster zone. For Cunningham Lindsey’s Steve Zibilich, it’s not only the best job in the world, it’s also “the most amazing feeling” meeting and helping people anywhere he’s sent. The 47-year-old New Orleans native says loss adjusting is one of the few professions that can bring hope to people affected by devastation. And as a victim of Hurricane Katrina he knows just how these people are feeling. Mr Zibilich is just one of many international loss adjusters called in from around the world to help deal with the damage following the Queensland floods and Cyclone Yasi. Shortly after talking to Insurance News last month, he was heading off across the Tasman to help in the daunting task of asinsuranceNEWS

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sessing and managing repairs on thousands of buildings and homes in earthquake-ravaged Christchurch. He expects to spend at least the next three months in New Zealand, but says he goes wherever help is needed the most. On his first trip “Down Under” he says he has found Australia “one of the most wonderful and beautiful” countries he has visited, despite the devastation. “As a loss adjuster we see the worst parts of any place we visit, but here we have seen people who have had the worst thrown at them, but they are still the most polite and genuine people,” Mr Zibilich told Insurance News. “They want to help out their neighbours and they have a friendly view of their adjuster.” As a survivor of 2005’s Hurricane Katrina, which levelled large areas of New Orleans and killed 1836 people, he says


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Helping locals get over the hump There’s still a big need for more local adjusters to be recruited

Next stop Christchurch: New Orleans-based loss adjuster Steve Zibilich in Cairns

there are distinct parallels between the damage in New Orleans and what was experienced in Far North Queensland. The aftermath of Hurricane Katrina has given many members of the team of adjusters brought in by Cunningham Lindsey a unique perspective of the Queensland event, because they’ve “been there and done that”. But that’s not to say this job has been without its challenges. Mr Zibilich told Insurance News that although the job is relatively similar from country to country, language differences can create some interesting situations. In one instance, he was left confused when one of his clients talked about wheeling out his “gurney” (a high pressure water cleaner) from the garage. For any American a gurney is a trolley used to transport bodies to the morgue. “It made no sense to me at all, and I had

SENDING OUT AN SOS TO THE GLOBAL loss adjusting community in the midst of disasters like those which caused devastation in Australia and New Zealand since late last year provides some insight into just how stretched the loss adjusting profession has become. In the past few months earthquake, flood and cyclone victims have been visited by adjusters from Britain, the United States, Canada, several Asian countries and even South Africa. The phenomenon of global loss adjusters moving from country to country to assist after a large-scale catastrophe is becoming more and more common as the available stocks of domestic loss adjusters continue to thin out. Crawford & Company Australia’s Chief Executive Andrew Bart says it’s not surprising the industry would be stretched at times when a number of events take place simultaneously. “No one has a large number of surplus staff,” he says. “We allow for some surge in demand, but not extraordinary circumstances like those we’ve experienced recently.” He told Insurance News the Australian and New Zealand industries are learning to rely on the international adjusters to ensure they can service insurers when major catastrophes strike. “It occurred to us during the storms that took place in Melbourne and Perth in March last year. We brought in adjusters from New Zealand Asia, the United States and the United Kingdom. “The circumstances were extraordinary, but it was certainly not unprecedented – and it will happen again.” Mr Bart says it’s important to ensure the appropriate inductions and handovers take place so there is a continuity of service for the affected customers, no matter who is attending to their claim. He agrees that bringing people in from other countries “isn’t without its challenges”, but extraordinary circumstances call for additional resources. “The management of resources is a key issue and we need to balance the cost and the benefit,” Mr Bart says. Teams of loss adjusters making themselves available to travel anywhere they’re needed means there is always going to be capacity available. But catastrophic events aside, the biggest challenge facing loss adjusting and the claims industry as a whole is the gradually depleting stocks of technically qualified people. Mr Bart says more succession planning is needed “ relatively urgently” to address these issues.

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He told Insurance News unless investment is made to equip people with the knowledge to deal with larger and more complex claims, the skill set of loss adjusters will be progressively lost to the industry. “Many of those that remain probably won’t be in the industry beyond the next five to seven years, or a bit longer,” Mr Bart says. He says there is a “relatively high” turnover of personnel within the industry. When companies look at filling the gaps that result, they need to find people with both the “life skills” to cope with claimants and technical abilities in such fields as law, engineering, building and other specialised areas. He says the fact that many of these experienced people are unlikely to still be in the industry 10 years from now is a real issue that needs to be dealt with urgently. Some larger claims service providers are already investing in succession planning and training, which Mr Bart sees as a step in the right direction. “I think the insurance industry is starting to recognise that there has to be a sustainable business structure which allows high-quality people to be recruited, trained and retrained. We are seeing some recognition of this in terms of the way in which service agreements have been structured in recent years, but there is still a way to go.” Mr Bart says the consolidation of the insurance industry itself has been mirrored in the loss adjusting field, where there’s a smaller number of larger companies. “There are still some small or niche agencies around, but the bigger corporations now hold the majority share of loss adjusting business.” The way in which claims are handled has also become more complex. There has been a shift towards utilising “non-loss adjuster” assessors and an increase in the use of builders or alternative assessment methods. “It’s about determining what option – whether it’s builders, loss adjusters or some other format that best suits the particular circumstances and insurer profile. It’s about finding the right balance and what produces the best outcome.” Jane McNeill, a senior regional director at recruitment specialists Hays Insurance, says the loss adjusting pool has always been a small one. “The industry needs to profile the career more and try to attract individuals from other areas into the field,” she says. “If the major players were more flexible about considering transferable skills it would ultimately increase the pool of talent in this sector.”

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“They still have the view that everything’s going to be all right – as long as they have their life and health”

to ask what he was talking about,” Mr Zibilich says. “It makes it challenging every day.” Despite comparing the Australian and US loss adjusting systems to apples and oranges, Mr Zibilich says it’s part of his job to be able to adapt. He says one of the key differences was the use of measurements such as metres instead of feet and inches. There are also variations in the way estimates are compiled, with the US using computerised estimating programs while Australians still tend to use pencil and paper. “But the basic principles of loss adjusting are the same anywhere you go,” he says. “We can adjust to any situation in any country – it’s what we do.” So far he has worked in Brisbane, Toowoomba and Grantham for the floods and from Cairns to Cape Tribulation for Cyclone Yasi. He says that rather than being suspicious of an American talking to them about the damage to their properties, people have been grateful their insurance company had the foresight to call for help from other countries. “I find in the insurance industry we can and do help each other out a bit like the Red Cross after natural disasters.” Mr Zibilich is convinced all Australians are friendly people. He’s come to rely on that friendliness when travelling between jobs, which can be more than 60km apart. “If you’re lost you can stop and ask someone on a tractor – everyone knows everyone else. 52

A global job Loss adjusters from around the world are working with local adjusters to deal with the unprecedented amount of work flowing from the Christchurch earthquakes, floods in Queensland, Victoria and New South Wales and the devastation in Far North Queensland from Cyclone Yasi. Apart from having hundreds of loss adjusters from Australia and New Zealand working for them as staff members or as contractors, Australia’s three major loss adjusting firms have also called in a combined 138 international adjusters to work on the enormous task. Cunningham Lindsey has flown in 41 adjusters from across the globe including Canada, Singapore, Malaysia, Indonesia, the United States and Britain. Crawford & Company Australia is using 56 US-based loss adjusters, and one from Singapore. MYI Freemans also has “around 40” helping out from the US, Britain and Canada.

“I have worked on commercial, residential and farm claims and I have yet to meet the first person that wasn’t friendly and genuinely happy,” he says. So far in Australia he has had to use a 10metre boom crane, two helicopters and two boats to gain access to some of the properties on his list. insuranceNEWS

April/May 2011

“You don’t get the opportunity to do that in many countries.” What has endeared Queenslanders to him has been the attitude that while they’re recovering from flood and cyclone devastation “they still have the view that everything’s going to be all right – as long as they have their life and health”. He says this attitude makes the loss adjuster’s job much easier. His job essentially revolves around making sure customers get everything they need to recover. “They [the customer] paid a lot of money in premiums over time, and they don’t demand but they do deserve the best service,” Mr Zibilich says. “And if that means sitting down with a 75-year-old woman listening to her life story, then that’s what we have to do.” Mr Zibilich says this part of the job is almost as important as documenting the loss. “You need to provide empathy, to show you really care and be genuine in your concern, because that could just as easily be your grandmother or great-aunt on the other side of the world.” Although it’s difficult being away from his wife and three children, Mr Zibilich says it’s exciting to have the opportunity to visit new countries and “meet some amazing people” in very different situations. He says he has “fallen in love” with the vastness of the Australian countryside and the friendly people who live there. “If my wife would let me I’d move here tomorrow. “We will all take back to the States with us two words – no worries!”


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peopleNEWS

Records tumble as Steadfast invades Melbourne Melbourne turned it on for broker group Steadfast earlier this month with a record-breaking convention that combined expert speakers, a huge exhibition and top entertainment. The convention kicked off on Saturday April 2 Melbourne Convention and Exhibition Centre with a massive 2217 people registered, but finished three days later with 2780 – almost twice the number who registered for last year’s Perth extravaganza. Convention Committee Chairman Greg Stewart attributes the unexpected surge in enrolments to local industry professionals taking out day registrations. He says future conventions aren’t likely to be as large, which is probably just as well – there’s a limited number of locations which can accommodate the burgeoning Steadfast crowd. The convention’s 100 or so exhibitors got into the spirit of the occasion, filling the huge exhibition space with a variety of plain and fancy booths. Most reported doing a roaring trade, thanks to the traditionally high level of brokers and their staff who attended. Highlights included Zurich’s Hummer covered in disaster pictures and CGU’s mini-football stadium capitalising on its support for 2010 AFL premiers Collingwood. LMI also attracted plenty of attention thanks to the 1940 US fire truck parked alongside their stand, and Lumley’s coffee bar also attracted many visitors. Rockhampton broker Peter Peirano is a popular figure at the convention with his interesting wardrobe selections – technicolour dream trousers and sharp boots were in vogue this year. Inside the huge conference centre hall a remarkable variety of speakers strutted their stuff – from leading international insurance figures to inspirational adventurers to entertainers. Speakers included polar explorer Professor Robert Swan, Catlin Group founder and Chief Executive Stephen Catlin, and brand expert Simon Hammond. Entertaining more than 2000 people can be a stretch, but Melbourne and the convention organisers made it look easy, with the last-night dinner featuring Guy Sebastian in the Crown Palladium Ballroom a special treat. The Monday afternoon saw companies treating Steadfast brokers to a wide range of activities. They included abseiling down a city building, visiting the massive Eureka Tower, a trip to the Yarra Valley vineyards, a behind-the-scenes tour of the MCG, adventures at Scienceworks and lunches at Melbourne’s leading restaurants. Rising stars on the broker scene were also recognised through the annual Steadfast-Australian and New Zealand Institute of Insurance and Finance awards for outstanding achievements in the Diploma of Financial Services (Insurance Broking) course. Christopher Ragusa of Victorian-based Kinnane Insurance Brokers took the top prize of the Young Insurance Professional Scholarship, winning free registration and accommodation to the convention, a scholarship to pay for his remaining studies and also a module award for his outstanding achievement in the “providing customer advice” module. Clinton Vonow of Finance & Insurance Brokers Australia won the top award for “claims handling”, Adam Mott of Associates Insurance Brokers took home honours for the “insurance law and regulation for brokers” module. New South Wales-based Bree Williams of Finn Foster & Associates won the award for “risk assessment and management”, claiming an award for every module she has undertaken in the past three years. The module award for “managing insurance broker operations” went to Emily Stevens of Bricher Insurance Brokers, and Leigh Playford of Cowden SA received the “insurance products” award. Next year’s convention will be held on the Gold Coast from March  17-20. It may be wise to start getting in shape now… Images courtesy of Kevin Chamberlain

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peopleNEWS

Video thrills the industry stars Like any good movie, a new in-house corporate video for the Allianz Broker & Agency Commercial division had to be launched with appropriate fanfare, so a group of brokers and Allianz managers gathered in Sydney to check out some new industry stars. Because among the group at the launch were the 11 brokers who feature in the video, which is a testimonial-style presentation showcasing their experiences dealing with Allianz. The video was shot in several locations around Sydney and Melbourne, and is now on general exhibition at selected venues around Australia.

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peopleNEWS

Staying afloat with the Zenith crew It was nothing but smooth sailing for Zurich’s annual Zenith program launch in February as brokers around Australia experienced a relaxing afternoon at sea. If you count hauling lines and winching or paddling a kayak against the current “relaxing”, that is… More than 350 brokers attended the program launch at events in Perth, Melbourne, Sydney, Brisbane and Adelaide. This year’s Zenith theme emphasises the concept of pure partnership – delivering on broker support, business practice management and professional development. Each event featured a morning of business discussing the program, followed by an afternoon at sea sailing or kayaking, before enjoying a sumptuous dinner ashore.

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peopleNEWS

Sunshine and relaxation at Berkley’s harbourside Bash February is traditionally “back to work” time in the insurance industry, although thanks to natural catastrophes in the region many professionals this year missed out on a January holiday. Never mind – refreshed or exhausted, more than 100 brokers weren’t going to miss out on WR Berkley Insurance Australia’s Back To Work Bash at the Cruise Bar at Sydney’s Overseas Passenger Terminal in Circular Quay. A classy event with conviviality and jazz thrown in, the Bash hosted by General Manager and Underwriter Christian Garling was a chance for the insurer to show its appreciation to brokers for their continued support. Mr Garling says that since joining the Australian market, WR Berkley Insurance Australia has written more than $150 million in premium.

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YOUR CLIENT’S WINDOW FACTORY BURNT DOWN. YOUR ADVICE KEPT HIS DOORS OPEN. Together with CGU you had recommended Business Interruption cover. Fortunately, though unfortunate, your client has seen why we did. When there are bills to pay, orders to fill and no income to pay them or capacity to honour them, Business Interruption cover can provide your customers with the financial support they need until their business gets back on its feet.* Speak to your CGU Account Manager today or visit cgu.com.au for more details.

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* For the duration of the indemnity period selected. The insurer is CGU Insurance Limited ABN 27 004 478 371 AFSL 238291. When making decisions about the product you and your client should consider the product disclosure statement available from CGU at www.cgu.com.au. This is general advice only and does not take into account your client’s individual objectives, financial situation or needs (“your client’s personal circumstances”). Before using this advice to decide whether to buy CGU0004 this insurance policy, you and your client should consider the appropriateness of it having regard to your client’s personal circumstances.


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peopleNEWS

Getting down to business at CGU CGU’s authorised representative partners got the chance to work closely together at the insurer’s inaugural national conference. The three-day event held in March at the Novotel Twin Waters Resort on the Sunshine Coast featured a number of fun teambuilding activities, as well as a lot of serious learning and discussions. The conference also concentrated on shaping partnerships between CGU and its authorised representatives through brainstorming sessions and business plan developments.

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peopleNEWS

NTI moves North and up National Transport Insurance (NTI) staff toasted new beginnings in March as the company celebrated the opening of its new head office in the heart of Brisbane. Chairman Bob Wagstaffe joined more than 70 staff, brokers, supporters and business partners welcoming the move from the old suburban Springwood location in the southern suburbs to a floor high above central Brisbane. The move – more than 18-months in the making – brings NTI closer to transport hubs and local brokers. Chief Executive Tony Clark says the move has boosted NTI’s environmental credentials further because staff now work in a five-star energy rated building.

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peopleNEWS

Youthful smarts beat Boomer guile at Vero’s WA expo Western Australia, the economic powerhouse of Australia, seemed a logical place for Vero to stage a debate pitting the up-and-coming Generations X and Y against the establishment – the retiring Baby Boomers. More than 200 brokers attended the debate at Vero’s first expo in Western Australia – and not surprisingly the younger team, with new ideas and approaches, came out on top. The expo at the Burswood Entertainment Complex in Perth in February was a chance for Vero to showcase its products and exchange ideas with brokers. It also included workshops on the SME market, teamwork and leadership, communication and succession planning for brokers getting ready for retirement. But the highlight of the day was the inaugural “Great Insurance Debate” on whether retiring Baby Boomers would leave the industry stranded. A resounding 78% of the votes went to the Generation X and Y team, with the pro-Baby Boomer team leader, Vero Executive General Manager Intermediated Distribution Andrew Mair, conceding defeat. It’s all yours, Gens X and Y!

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peopleNEWS

Fancy feasts for Lumley my.clubbers Brokers joined the foodie revolution, cooking up a storm and testing their tastebuds with fine wines at Lumley Insurance’s my.club events across the country. The my.club program offers brokers who use my.place@Lumley via Sunrise Exchange the chance to win a place at exclusive my.club events. Insurance professionals from across the country recently got the chance to take part in one of these events, putting their culinary skills – and their noses – to the test at cooking masterclasses and wine-tasting sessions.

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Club Marine Business Insurance Expert protection for your marine business

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Insurance is underwritten by Allianz Australia Insurance Limited (Allianz) AFSL No. 234708 ABN 15 000 122 850. Club Marine Limited (Club Marine) AFSL No. 236916 ABN 12 007 588 347 is a related body corporate and an agent of Allianz. Please read the Product Disclosure Statement (PDS) available by phoning 1300 402 040 before deciding if this product is right for you.


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Ben Oliver Insurance News journalist

AMID REPORTS OF JAPAN’S DEATH TOLL, THE crippling financial cost and nuclear reactor meltdown, the shrewdest commentary on the earthquake was, as usual, left to America’s satirists. Parody news website The Onion – whose fake news items have in the past been mistakenly used in the “serious” news by Fox News, MSNBC and Reuters – reported that in the aftermath of the Japanese earthquake and tsunami, humanity “was afforded a good 15 minutes during which its inhabitants behaved like actual human beings”. “After the 900 seconds had passed, however, this behaviour reportedly ceased,” it wrote. While the networks debate its authenticity, The Onion makes a brilliant observation about the fleeting nature of human empathy: that concern rapidly gives way to apathy as the 24-hour news cycle moves on to the next human tragedy. The sad reality of the human condition is that our shock and goodwill towards Japan will last only a fraction of the time it will take for these devastated regions to rebuild and return to a semblance of normality. Japan’s plight also hasn’t been helped by the recent run of natural disasters, resulting in a kind of “catastrophe fatigue”. Many journalists are too often bogged down in detail. Financial publications, with their own audiences to consider, are the worst offenders as the devastation wrought by the tsunami is reduced to an economic calculation of opportunity costs and rebuilding estimates. Others, like Fox News’ rightwing pundit-at-large Glenn Beck, exacerbate an already horrid situation by insinuating the earthquake was some sort of biblical payback. Despite the sometimes cold, indifferent attitude of sections of the commentariat, many stories of gripping human emotion have found the light of day. Some are tragic, others uplifting, many a combination of both. The shocking discovery of 128 elderly residents inside a medical clinic 10km from the Fukushima nuclear plant was reported by The Guardian newspaper after Japanese soldiers stumbled upon them during an evacuation of the surrounding region. Medical staff had abandoned the mostly elderly group, most of whom were comatose. At least 14 died shortly after they were found. Deaths and evacuation notices have turned once thriving regions into ghost towns reminiscent of Chernobyl. More than 140,000 people once lived in Okumamachi on Japan’s east coast, but the town’s popu74

lation has since been reduced to single figures. The Independent spoke to Tetsuo Sakuma, whose family has been forced to evacuate due to radiation threat posed from the nearby Fukushima Dai-ichi nuclear power plant. “We hope to come back, but it’s difficult to tell when,” he said. Seiko Taira gave the International Herald Tribune an insight into life after the tsunami. “Her sons forage for firewood; she and a daughter lug water from the marsh; and her grandson waits for their one meal a day, a package from the town office that usually contains a piece of bread each, a few cans of tuna and one cup of instant noodles,” the paper reported. Humans are not the only ones to suffer. Video footage of a dog keeping vigil over an injured companion amid a scene of apocalyptic destruction has become one of the most watched clips relating to the earthquake on YouTube. Time reported it took rescue workers an hour to “convince the sentry to leave the ward”. Perhaps the most gripping story to emerge from Japan has been the selfless act of the “Fukushima 50”. On March 15, an explosion in the pressure suppression room of the Fukushima Dai-ichi nuclear power plant sparked a fire involving spent fuel rods from the reactor. The resulting radiation spike forced the evacuation of 750 workers at the plant. Despite a meltdown of the plant imminent, 50 engineers chose to remain. For three days, they worked in darkness and were exposed to unknown levels of radiation until 530 employees of the nearby Kashiwazaki-Kariwa nuclear power plant arrived to help. The Guardian reported that 500 bone marrow transplant centres across Europe “have been put on alert to treat nuclear power station workers whose lives may be threatened in the battle to avoid a meltdown”. While little contact has been made with the Fukushima 50, heart-wrenching emails and tweets from family members illustrate their stoic resolve. “My dad went to the nuclear plant,” Twitter user @nekkonekonyaa wrote. “I never heard my mother cry so hard. People at the plant are struggling, sacrificing themselves to protect you. Please dad come back alive.” “My father is still working at the plant,” read an email from the daughter of a Fukushima 50 volunteer. “They are running out of food… we think conditions are really tough. He says he’s accepted his fate… much like a death sentence…” As The Onion article demonstrates, this is, above all else, a human tragedy. Our thoughts and prayers are with the people of Japan.

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22/03/11 2:38 PM

Profile for Insurance News (the magazine)

APR/MAY 2011 - Insurance News (the magazine)  

Assistant Treasurer Bill Shorten has spoken out on flood insurance and insurers’ attitudes in an exclusive interview with Insurance News (th...

APR/MAY 2011 - Insurance News (the magazine)  

Assistant Treasurer Bill Shorten has spoken out on flood insurance and insurers’ attitudes in an exclusive interview with Insurance News (th...

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