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REGAINING TRUST: How FOS helps insurers

TERRORISM TAX: A levy that pays and pays

REINSURANCE ROUNDABOUT Behind the scenes at the Monte Carlo Rendezvous

October/November 2012

CHANGING THE WORLD: Professionals reach out


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Zurich Australian Insurance Limited ABN 13 000 296 640, AFS Licence No. 232507. 5 Blue Street North Sydney NSW 2060 www.zurich.com.au


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”One brand, a whole world of options.“ Insurance solutions to suit all your customers’ needs. Zurich provides risk management solutions for all your customers‘ needs. Backed by our global strength, security, integrity and service, our insurance solutions are available exclusively through you, the insurance broker. To learn more, contact your local Zurich Broker Manager or visit zurich.com.au

AWHN-006069-2012 - ZU21007 V3 08/12


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Jonathan Poole Chief General Manager - Broker & Agency

Allianz – supporting your goals with our experience, knowledge and training initiatives. Allianz has a long history of working with our broker partners to deliver security and certainty to Australians. Today, technology is changing how we interact with our customers and run our own business. Meeting your goals means leveraging these changes. Allianz is committed to helping our broker partners do just that through: specialist information, industry sponsorships and premium broker programs such as our Blue Eagle, Young Eagle and National Partners programs as well as our One Allianz Training Days. For more information on how Allianz can help you, please contact your Allianz representative today. Major sponsor of Thought Leadership Day, NIBA Convention 2012

Think More. Achieve More.

Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL 234708 MKT-31 09/12


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Contents 6 Newsmakers » 10 Reinsurance roundabout » From Monaco to Baden-Baden, reinsurers are talking premiums up and brokers are reminding them they have other options.

12 The real Rendezvous »

Our Sydney Editor recalls the glitter and glitz of that one big week of the year.

14 FOS: Improving communication, regaining trust »

The Financial Ombudsman Service wants to help improve links with wary consumers.

16 A shift in approach »

The General Insurance Ombudsman says the industry has learned to listen and embrace the customer.

21 Prepared for the worst »

Lessons learned two years ago were applied in March when Wagga Wagga’s levee bank saved the city from flooding.

26 Made for each other »

Andrew Godden finds challenge and fulfilment managing Arthur J Gallagher’s local operations.

30 A flaming good idea »

US insurers are using their own firefighting teams to protect the properties they cover.

32 Sorry, but I can’t say that »

Many doctors are hamstrung in their ability to apologise to patients for medical errors.

34 The forgotten insurance tax »

The Federal Government is reaping big dividends from terrorism levies on commercial property insurance. But does the terrorism insurance scheme have a future?

40 Lehane at ease in the state of flux »

Zurich’s Irish turnaround specialist is settling into his new SME role.

48 Tough times on the road »

Transport operators want to work with insurers as costs rise and companies go broke.

lawNEWS

44 Insurers strike first blow » A row over a flooded coal mine starts with a clash over a loss adjuster’s reports.

46 You don’t own the place »

Vero wins in the case of the Government’s Antarctic oil spill.

companyNEWS

52 Help when you really need it » Kidnap and ransom? Extortion? Global business travellers can call on specialists when things go very wrong.

55 We’re not getting any younger »

Ansvar and Australis team up to meet emerging aged-care challenges.

56 Online, anytime »

CGU adds PI to its Connect platform.

56 Global village »

XL takes an international approach to the environment.

peopleNEWS

58 Changing the world » Insurance professionals discuss what drives them to build a better future for people in need.

64 Insurance celebrates its brightest » 67 SRS and the Wilsons wrap up ‘the best Games ever’ » 68 A day at the races with UIG » 70 All smiles as Ausure heads north » 72 AILA bridges the generations » 73 Allianz trains brokers to be their best » 74 Calliden’s style secrets » 76 Welcome, Resilium » 78 Queensland brokers get together » 80 Big day out for APIG » 82 maglog »

October/November 2012

Cover: Monte Carlo, home of the Rendezvous de Septembre, Image: Monaco Press Centre Photos


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newsmakers at

Flood of policies: Flood insurance take-up has risen dramatically, with 78.1% of homes across the country now covered, according to the Insurance Council of Australia. Financial Services Minister Bill Shorten has welcomed the figure, saying it is up “from only 3% in 2006”. The dramatic change in the country’s flood insurance profile follows last year’s floods in Queensland and Victoria. The resulting dissatisfaction at the lack of flood coverage in many home policies led to most insurers

Marine market drifting: The marine insurance market continues to struggle in the face of low premiums, losses and stunted cargo growth, the International Union of Marine Insurance (IUMI) annual conference has been told. While the size and scale of vessels has risen, leading to increased exposures, premium increases have not kept pace. Hull insurance has recorded an underwriting loss for the past 16 years, with brokers urged to prepare clients for a hardening of rates and tightening of terms and conditions. But Ocean Hull Committee Chairman Harry Yerkes says the market seems to have “shrugged off” the Costa Concordia loss from earlier this year. “There is still capacity and a lack of discipline in the market and we are becoming a little concerned,” he said. “Unless there is a correction in the future, at present we are at the bottom of the pricing barrel and someone will get out a spade and start digging.” Marine insurance in the doldrums, conference hears, September 24

Friend leaves Insight:

Brokers look offshore:

Bill Friend, the Executive Officer of Melbournebased broker cluster Insight Australia Group, left the organisation on August 20 after six years in the job. A statement from Insight does not give a reason for Mr Friend’s unexpected departure but says he was actively involved in Insight’s transition from an incorporated association to a corporate entity. Mr Friend is credited with managing the rapid growth of the group, which grew from 15 members in 2007 to 53 member companies operating nationally today.

Brokers are placing more business offshore, according to Australian Prudential Regulation Authority (APRA) figures. Intermediaries invoiced $520 million in premiums to unauthorised foreign insurers (UFIs) in the six months to June, up 6.8% on the corresponding period last year. Business placed with Lloyd’s underwriters was at $688 million, up 11.7%, while $6.7 billion was placed with APRAauthorised general insurers, up 5.4%. Intermediaries invoiced $7.9 billion in premiums in the half-year, APRA says.

Bill Friend leaves Insight, August 20

6

Brokers send more business offshore, September 10

offering flood cover and the Federal Government introducing a common definition for flood. Flood insurance is not evenly distributed across the country, with 84% of New South Wales homes covered compared with 80% in Western Australia, 76% in Victoria and 61% in Queensland, where flooding is perhaps most common. South Australia has 76% and Tasmania 78.6%. About 7% of Australians live in areas with some flood risk. Flood insurance coverage rises to new height, September 24

“Insurance companies are the main beneficiaries of a strong fire service, which saves them billions in insurance claims.” – NSW Fire Brigade Employees Union State Secretary Jim Casey argues against removal of the emergency services levy on insurance policies

ICNZ gets a new CEO:

Death ferry: Grim finding The owner of a ferry that sank killing up to 161 people deliberately misled his insurers for many years, a royal commission into the tragedy has found. The royal commission in Papua New Guinea says the Rabaul Queen’s owner, Captain Peter Sharp, had “little or no respect for people, including those in authority”. The Rabaul Queen sank in bad weather in the early hours of February 2 while sailing from Kimbe on New Britain Island to Lae on the main island of PNG (see report, Insurance News, June/July, above). Some 246 people were rescued and four bodies were recovered. The commission has determined that between 142 and 161 people died. Its report, tabled in the PNG Parliament, says a “demonstration of the dishonesty of Captain Sharp was reflected in his dealings with the former insurer of the Rabaul Queen, QBE Insurance PNG, and the insurer at the time of the sinking, Pacific Assurance Group”. It says the Rabaul Queen was unseaworthy and unsafe. Maintenance was poor and the crew was not qualified to sail the ship. The report says the Rabaul Queen was licensed to carry 295 passengers, or 310 people including crew, but was probably transporting up to 411. Captain Sharp insured the Rabaul Queen for 350 passengers. Rabaul Queen sinking: Shipowner misled insurers, September 10

insuranceNEWS

October/November 2012

Tim Grafton (pictured) is to take over as chief executive of the Insurance Council of New Zealand. He will join the council on November 12 to replace Chris Ryan, who will leave on December 21. A New Zealander, Mr Grafton is Executive Director of UMR Research, a market research company in Wellington with clients including the Earthquake Commission, Fonterra and Telecom/ Chorus NZ. Before joining the company in 2003 Mr Grafton worked as an adviser to former prime minister Jenny Shipley and current Finance Minister Bill English. In the 1990s he was a political reporter and columnist with Wellington newspapers. – Grafton to take reins at ICNZ, September 24


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FIGURE THIS

78.1

Percentage of Australian homes now insured against flood, according to Insurance Council estimates

3

Percentage of Australian homes with flood insurance six years ago

9785

Number of disputes the Financial Ombudsman Service closed in the June quarter

135

Cover story star wins achievement award Industry champion Allan Manning was presented with the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) lifetime achievement award in August. The award, which recognises an individual’s contributions towards advancing industry standards, came shortly after Dr Manning featured as the cover story in the August/September issue of Insurance News. He’s pictured at right in the winners’ photograph above at the ANZIIF Insurance Awards night in Sydney.

Suncorp Group Chief Executive Patrick Snowball was named insurance leader of the year, while Allianz Australia was named large general insurance company of the year. Finity won the inaugural Hall of Fame award.

Medium broker: InterRisk Large broker: Aon Law firm/practitioner: HWL Ebsworth Lawyers Life insurance company: AIA Claims service provider: Suncorp Underwriting agency: Brooklyn Underwriting

Other winners:

Service provider to the insurance industry: JB Hi-Fi

Small/medium general insurance company: RAA Insurance

Innovation: Budget Direct Hail Hero

Small broker: Simplex Insurance Solutions

cause of the calibre of its people. “In the 1990s the market was tight and there wasn’t much hiring,” he told insuranceNEWS.com.au. “That has led to a shortage now of managers in the 35-40year-old group.” Mr Nevett says the global financial crisis of the past few years has exacerbated the problem for the big broking companies. “We don’t want to match the inflated salaries being offered because we don’t want to find ourselves in a situation where there is inequity with other people’s salaries,” he said. Mr Nevett points to the “enormous depth of talent in our broking and client teams” which has allowed him to replace recent senior management losses from within the Aon workforce. Money makes the insurance world go round, August 20

insuranceNEWS

25

TRILLION Amount in US dollars of financial assets insurers manage worldwide, according to Swiss Re

Reinsurance company: RGA

Broking churn: paying for past errors The cause of the current spate of musical chairs taking place at the top end of the local insurance broking sector can be traced back as far as the early 1990s. The insurance cycle was at a low-profit point and insurers and brokers were tightening their belts. That included a halt on non-essential recruitment – a decision that’s now resulting in a shortage of experienced and skilled managers. The movement from company to company of senior broker managers over the past few months reflects the difficulties recruiters have in finding skilled people to build new business initiatives, as well as replacements for managers who have left for other companies or been promoted. Recruiters say the most effective way to convince managers to switch companies is by offering them substantially more than they’re earning at present. And they say the situation will persist unless the industry does more to attract people to a career in insurance. Aon has seen some key departures in recent weeks, and Pacific Region Chairman Steve Nevett (pictured) says the company is a logical target be-

Number of insurers subject to ASIC surveillance

October/November 2012

520 MILLION

Dollar amount of premiums Australian brokers placed with unauthorised foreign insurers in the six months to June

39

Length in kilometres of wastewater pipes rebuilt in Christchurch

2.5 BILLION

Dollar amount of general insurers' profit for the year to June 30, according to KPMG 7


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newsmakers at

O’Halloran’s bold move into Steadfast Former QBE Chief Executive Frank O’Halloran is to become chairman of major broker group Steadfast. The move, hailed by observers as a masterstroke for Steadfast as it prepares to enter a public float, was announced earlier this month. Mr O’Halloran, 65, retired from QBE on August 17 after 14 years running the group. He is credited with growing QBE into an international powerhouse with more than 100 acquisitions and operations in 52 countries. He had been expected to join the QBE board next year – a move criticised by some of the market but welcomed by most shareholders – but this is now regarded as unlikely following his agreement to chair a publicly listed Steadfast. Mr O’Halloran’s market knowledge and business know-how is seen as a major advantage for Steadfast as it moves closer to an initial public offering (IPO) in May next year. Under the plan announced by Steadfast earlier this month, the new board will take over from the old member-based board later this month. Steadfast’s present Executive Chairman, Robert Kelly, will become managing director and chief executive of the listed company. Cameron McCullagh, Steadfast’s Executive Director – Strategy and Corporate Actions, will become the chief operations officer. A former chief executive of Employers Mutual, he has been working with Steadfast since 2009. Indemnity Corporation Managing Director and Steadfast Finance Committee Chairman Jonathan Upton, whose company will sell a share into the new Steadfast entity, will continue as a board member representing companies which are selling shareholdings into the group.

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 Level 1, 120 Upper Heidelberg Road, Ivanhoe VIC 3079 (COURIERS ONLY) Email: naomi@mccmedia.com.au

Queensland broker Greg Rynenberg, who is Deputy Chairman of Steadfast, and Chairman of the Steadfast Virtual Underwriter, will represent other shareholders on the new board. At the time of going to press a full list of board members for the listed Steadfast entity had not been announced. Steadfast expects to float as a group with more than 280 insurance brokerages operating from more than 400 offices, and generating more than $3.6 billion in premium turnover. A number of the current Steadfast board members have agreed to continue to work on various subsidiary company boards. While the O’Halloran appointment came as a surprise to members, they have been kept informed of the progress of the IPO arrangement being developed by Steadfast, with plans to float the group on the Australian Securities Exchange in May next year. Meetings around the country have discussed the complex arrangements needed to progress the flotation, with a new logo and brand awareness campaign already finalised. The rebrand is expected to be in full use across Steadfast member companies by the end of October. This is accompanied by an “awareness movement”, a marketing strategy to introduce consumers to the Steadfast brand. The group says the awareness campaign “will provide insights and clarity on the importance of an insurance broker and more importantly, extending this education to the benefits and improved capabilities of a Steadfast broker”.

MIDDLE: The revised Steadfast logo ABOVE: Present Executive Chairman and future Managing Director and Chief Executive Robert Kelly

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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TOP: Incoming Steadfast Chairman Frank O’Halloran

insuranceNEWS

October/November 2012

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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Reinsurance roundabout From Monaco to Baden-Baden, reinsurers are talking premiums up and brokers are reminding them they have other options By Michelle Hannen

FRESH FROM LAST MONTH’S MEETING in Monte Carlo, the global reinsurance industry is set to gather yet again in the German spa town of Baden-Baden later this month. But in contrast to Monte Carlo’s Rendezvous de Septembre, which is all about sailing, schmoozing, and setting the scene for the year ahead in reinsurance, the Baden-Baden meeting is a more sober affair. Established in the days of the Roman Empire, Baden-Baden has been a spa town since the early 19th century. Monte Carlo’s mega-expensive restaurants, champagne receptions and networking soirees will be replaced by cafes and meeting rooms full of cedants, brokers and reinsurers negotiating the details of the January 1 reinsurance renewals. As always, strong pricing signals emerged from Monte Carlo, with reinsurers talking prices up and brokers reminding them of the strength of the market’s capital position. The brokers’ key argument for keeping renewal rates down will be simple: the more capital available to underwrite risks, the more options cedants have to shop around. 10

The lack of major catastrophic losses to date in 2012 certainly makes it more difficult for reinsurers to push through rate increases, with Swiss Re and Munich Re both focusing on the uncertainty of the global economy – particularly in their home market of Europe – as the key factor to support their pricing. This year the argument goes that the low interest rate environment is making it difficult for reinsurers to generate acceptable returns from their investment portfolios, so they need to hold the line on rates in order to make sufficient profit from underwriting. The measured upswing over the course of this year in US primary insurance rates was flagged to support reinsurance rate increases, with the public message very clear: pricing at January 1 will range from flat to slightly up. Privately, however, there are questions over how reinsurers will manage to push through further increases when all the power seems to rest with cedants. The surplus of capital for underwriting reinsurance risks has not gone unnoticed. insuranceNEWS

October/November 2012

Alex Moczarski, President and Chief Executive of reinsurance broker Guy Carpenter, told a press conference in Monte Carlo: “It is tempting and easy to complain that the insurance and reinsurance industry continues to face serious headwinds, especially from the long-r unning global economic crisis. But we enter this renewal season with global reinsurance capital at an all-time record level.” Rival reinsurance broker Aon Benfield puts total reinsurer capital at June 30 at $US480 billion, with existing players bouncing back from 2011’s losses and $US5-6 billion of new capital entering the market since the end of last year. Credit ratings agency Fitch recently revised upwards the single-loss event value it considers necessary to trigger a revision of the sector’s outlook from a $US50 billion loss event to a $US60 billion loss event. Against this backdrop, reinsurers’ cries of poverty seem incongruous, and many privately acknowledge that pricing is more likely to be flat or falling come January 1 – unless there are major losses in the interim.


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Monaco Press Centre Photos

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Property catastrophe lines are one area where rates may go up, or at least be held at current levels, though much of the new alternative capital in the industry – in the form of insurance-linked securities, sidecars or catastrophes bonds – is targeting this high risk/high return area. As a consequence, rate rises could be competed away. But the situation looks slightly different in those regions – such as Australasia – that were hit by 2011’s disasters. Hannover Re Chief Executive Ulrich Wallin says his company booked “vigorous rate increases” in Australia and New Zealand at the July 1 renewals, and expects that situation to continue to January 1. In areas such as Thailand and New Zealand, where ratings agency Standard & Poor’s says the magnitude of the potential for losses was previously misunderstood, the current pricing levels should be considered the new norm. A recent Aon Benfield report says that while demand for property catastrophe reinsurance is increasing, demand for other types of reinsurance has fallen as insurers

benefit from a decade of declining frequency and “very manageable” severity increases in most non-catastrophe lines. With the writing on the wall when it comes to reinsurance demand, there was increased focus at Monte Carlo this year on new opportunities. China was much discussed, with Aon Benfield suggesting that in 2012 China bought 60% more catastrophe cover than just four years ago, with $US500 million purchased this year. While penetration of property insurance in the country is still comparatively low, the broker suggests China could be purchasing similar levels of property catastrophe cover as Japan by 2020. China and other emerging economies in Asia, Latin America and the Middle East certainly do present opportunities, as demand for insurance (and therefore reinsurance) grows with the establishment of manufacturing facilities, infrastructure, land development, construction, growing personal wealth and increased international trade. But many emerging economies are exposed to wide-ranging and severe natural insuranceNEWS

October/November 2012

catastrophes, such as tropical cyclones, earthquakes and floods and the recent extent of the Thai flood should serve as a warning. Guy Carpenter Asia-Pacific Chief Executive James Nash says that while emerging markets hold vast potential, “the major catastrophes of 2011 refocused the spotlight on the need for analysis and modelling capabilities, and in particular caused acceleration in the desire to understand ‘non-modelled’ perils”. Of global insured losses in excess of $US110 billion last year, these so-called “cold spots” or non-peak zones accounted for the vast bulk, with only the Japanese earthquake last year considered a peak risk. While geographic diversification was long considered smart business in reinsurance, last year those reinsurers with a geographically diversified book of business suffered bigger losses than companies writing business in traditional peak zones. All in all, it seems reinsurance is becoming a more difficult – or certainly more complicated – industr y in which to make a profit. 11


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The real Rendezvous Our Sydney Editor recalls the glitter and glitz of that one big week of the year By Michelle Hannen

MONTE CARLO, PLAYGROUND OF THE rich and famous and, for one extended weekend a year, of the reinsurance industry. Since 1957 the major players in the world reinsurance market have met at the Rendezvous de Septembre to discuss the year to date and, most importantly, build relationships and begin negotiations for the end-of-year renewals. More than 2500 insurance professionals from over 80 countries come to the conference at Monte Carlo, which was chosen for this unique event due to its neutrality – the principality is not home to any local insurance company. Of course, it’s convenient to get to (at least from around Europe), and its high-quality hotels are within a small area, meaning most attendees can walk from meeting to meeting. The informal nature of the conference takes many first-timers by surprise. The official program, spread over five days, comprises a sailing regatta where one can engage in a round of spot the celebrity or billionaire among the floating gin palaces. The regatta itself involves fourperson crews aboard J-24s borrowed from the Yacht Club of Monaco, and is always fiercely contested. The crews are registered under country names. If two or more crews represent the same country, the registration is made under the crews’ activities, like insurers/reinsurers, brokers, consultants, etc. Participation is free and the racing starts promptly at noon, just after brunch. Other official events include a cocktail party, a press conference and a single presentation and debate – a fairly leisurely pace for those used to single-day conferences crammed with content-rich presentations, panels and debates. This more European approach is mainly about creating an event which enables all the reinsurance market’s key participants to gather in one place with plenty of time to schedule private meetings. Cafe de Paris on Casino Square is among the most popular venues for such meetings. It is here that chino and polo-shirt clad insurance executives, with the odd (very odd) pair of Bermuda shorts thrown in, hold court. The scene each half-hour resembles a game of musical chairs as reinsurers, brokers and insurers move from meeting to meeting in the 147-year-old cafe. It’s unquestionably a great opportunity to meet with a large number of customers in a couple of days. Of course, many informal events and functions make up the “unofficial” program – or party circuit. For a seemingly unscheduled five 12

Brunch first, then a race: scenes from this year's Reinsurance Rendezvous regatta

insuranceNEWS

days, the Rendezvous is known for its hard drinking. It certainly requires stamina. There’s the Lloyd’s, Canopius and Guy Carpenter cocktail parties, the Bermuda Reception, the Scor Lounge and the infamous White Mountains cocktail party on the roof of the Hotel Hermitage, where arriving before midnight is considered bad form. There is a method to the madness of the late start, of course, as it provides plenty of time for participants to enjoy private dinners at any one of Monte Carlo’s exorbitantly priced restaurants, such as the three Michelin-starred Le Louis XV by Alain Ducasse and one Michelinstarred Le Grill, before joining the party in a somewhat more “relaxed” state of mind. A trip to Monte Carlo would not be complete without a visit to the Casino de Monte Carlo, and it is around the old-school table games where the morning is ushered in, although the younger crowd favour infamous nightclub Jimmy’z. Much of Reinsurance Rendezvous is about status, and one indicator of status is how one is conveyed the 20 or so kilometres from Nice Airport to Monte Carlo. A picture-perfect road hugging cliffs that drop away to the Mediterranean means the drive is very pleasant, but the Truly Important make the trip via helicopter, which is surprisingly price-competitive and rather fittingly James Bond-esque. Another mark of status is the choice of hotel, with importance further illustrated by the type and position of room within it. The key players plump for the Hotel de Paris or Hotel Hermitage, which are five-star Belle Époque beauties in the heart of the action, while other popular status choices include the Monte-Carlo Beach Hotel, Fairmont, Metropole and Port Palace. An event crammed with senior executives such as the Rendezvous attracts all manner of hangers-on such as insurance press, public relations people, software providers and headhunters, and not all have expansive budgets which extend to the five-star hotels de jour. Instead these folk endure the walk of shame each night – or morning – up the hill to Beausoleil, the French town adjoining the Principality of Monaco, where self-catering apartments and a local food market make the Rendezvous somewhat more affordable. The Rendezvous has famously crippled many an expense account, and if the current economic woes continue in Europe and usher an age of austerity into the industry, Beausoleil may be somewhat more in demand in Rendezvous to come.

T w S

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When you work with professionals you get an advantage.

That’s why Vero partners with brokers. And it’s why Vero has teamed with the Wallabies to promote the benefits of using a broker. See for yourself at www.vero.com.au/advantage or scan the QR code.

Our role is to partner with brokers. AAI Limited ABN 48 005 297 807 trading as Vero Insurance

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Chief Ombudsman Shane Tregillis: lack of trust is a problem all FOS sectors share

DISENCHANTED WITH FINANCIAL institutions in general after the global financial crisis and cynical about insurers in particular after last year’s floods, consumers are giving Chief Ombudsman Shane Tregillis plenty to think about. His Financial Ombudsman Service (FOS) is seeing a surge in customer dissatisfaction through a growing number of more complex disputes. Mr Tregillis says the insurance industry has to regain the trust of consumers, and he wants to work with the industry to address the causes. He plans to “mine” the insights gained by FOS in its role as the financial services sector’s independent external dispute resolution service to provide information that member companies can use to avoid disputes and improve resolution when they occur. He says insurers are looking for “richer, better data” from FOS and the service is keen to provide it. “We get a unique perspective because we see across all the firms, across the different sectors and from dealing with individual disputes, not just aggregate trends,” he told Insurance News. A year into the job of Chief Ombudsman, Mr Tregillis says he has been impressed at the level of engagement between FOS and the insurance industry, and the industry’s willingness to have open discussions. He joined Melbourne-based FOS from the Australian Securities and Investments Commission (ASIC), where he was a commissioner, and has also spent several years with the Monetary Authority of Singapore. Insurance comprises 30% of all disputes made to FOS, or around 10,000 disputes a year out of 3.8 million claims. Mr Tregillis says it’s concerning that non-flood disputes are increasing, and FOS is engaging with the industry to better understand what is causing the rise. “It’s not obvious to us from what we’ve seen,” he says. But he believes lack of trust is a common thread across the industries 14

insuranceNEWS

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Improving communication, regaining trust The Financial Ombudsman Service wants to help improve links with wary consumers By Jan McCallum

that are members of FOS, which covers life and general insurance, banking, credit providers and financial planning. He attributes this distrust to the global financial crisis and, for insurers, last year’s natural disasters. He sees it as a global phenomenon. “I think the insurance industry is well aware of it, and the Insurance Council of Australia (ICA) is well aware of it,” he says. “A rebuilding of customer confidence is required. “Once trust is lost, it takes a lot more effort to regain it. Industry and firms have to work hard to regain trust when a view is formed – and that is common across all of the financial sector.” Mr Tregillis believes the rise in disputes indicates consumers are not confident about the products they have been sold or that they will get necessarily get a fair hearing in internal dispute resolution (IDR), leading them to approach FOS because it is independent. But he sees the insurance industry working hard to rebuild trust, and he says the review of the General Insurance Code of Practice is an important step in this journey. As code monitor, he says FOS should not have specific views about what should be in the revised document. But he commends ICA and the industry for undertaking the review early and actively engaging with insurers, the consumer sector and other stakeholders, saying this will create trust and confidence. Important factors in the code will cover how firms deal with claims, IDR processes and particularly the quality of communication when someone makes a claim. “There is nothing magical in that. It’s making sure products are properly understood, fit for purpose, and that when somebody does have a claim that there is proper communication and decisionmaking, and it is communicated very clearly and simply to consumers.” Work by General Insurance Ombudsman John Price following the Queensland floods

has shown that the quality of communication, the level of engagement with the customer and transparency around the decision-making process had a major impact on policyholders and how they felt their claim was handled, whether or not the claim was upheld. Mr Tregillis notes that whatever emerges from the code review, it will be important that the industry applies the provisions in the “spirit” of the code and what it is meant to achieve. For him that is about professionalism, trust and confidence rather than an approach focused on obligations and very technical interpretations. He says how firms abide by the code will send a message about the industry’s professionalism and whether it treats customers fairly. It might seem basic, but he says these are key elements that FOS sees time and again across the financial services sector, and which reinforce the fact “that the basics count”. In July FOS released a three-year plan that identifies its priorities as more active engagement with key stakeholders and enhancing its organisational capabilities. The move to share knowledge with member companies is part of that, and Mr Tregillis believes they will be able to use the insights FOS has to improve their processes. He says that because FOS sees the practices of firms across the industry, it picks up patterns or issues – for example, if there are problems with a definition – and can provide feedback that will enable firms to avoid disputes. And because FOS sees what works well, he believes it can help spread best practice. “There are opportunities within the insurance industry to reduce the disputes that come to FOS; real opportunities to reduce disputes that go into their own internal dispute resolution processes. “It’s not about us telling them what to do. It’s not about saying ‘you must do this’.” He says the industry has appreciated the feedback, and FOS is examining how to insuranceNEWS

October/November 2012

improve the communication stream. The role of FOS in systemic issues management is not as well understood as its dispute resolution brief and Mr Tregillis says there is confusion among many who see FOS as a regulator in this role, equating it with ASIC. “I certainly don’t see FOS as a regulator,” he says. “In terms of ASIC we are an independent dispute resolution body that is formally approved by ASIC. In some ways we are no different from the insurance firms and insurance sector players, being subject to regulatory approval.” He says identifying systemic issues is a natural extension of the dispute resolution function. If FOS picks up an issue that affects more than one customer it will work with the firm involved to resolve the matter rather than take a “regulatory” approach. FOS reports systemic issues to ASIC so the regulator is aware of industry trends, but companies are not named and only will be if the ombudsman feels the company has not addressed the issue properly. He says this rarely happens, and insurance companies have shown they want to resolve issues. Mr Tregillis and Mr Price have identified strategies that are breaking new ground for the service, such as wider use of conciliation to settle disputes and ways to speed up communication between FOS and industry [see following article]. “We’re very pleased a number of firms have taken up conciliation, which will be a key thrust for the next couple of years,” says Mr Tregillis. FOS is working to reduce paper-handling and is piloting a project with the insurance industry to enable more information to be transferred online. By providing member firms with a management dashboard so they can see the status of disputes and trends, it is aiming to meet their requests for “richer, better” feedback. “We are uniquely placed to share our experience and insights because we just see a lot of different firms and different disputes.” 15


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A shift in approach The General Insurance Ombudsman says the industry has learned to listen and embrace the customer By Jan McCallum

THE INSURANCE INDUSTRY LEARNED many lessons from last year’s disasters, the most obvious of which was the need to work much harder at communicating. General Insurance Ombudsman John Price says insurers and other industry players have taken the message to heart and are getting better at talking to customers – and with each other. The Financial Ombudsman Service (FOS) sees the industry at the sharp end of disputes, which is where the shortcomings become all too blindingly obvious and the customer feels their insurer has failed them. Relationships within the industry have improved because insurers, the Insurance Council of Australia and the consumer movement have started working together to resolve disputes. “There has been a disconnect between the consumer movement and the industry that we have been able to get back on track,” Mr Price says. While the two sides still have “disagreements and robust discussions”, Mr Price says the fact that insurers and consumer groups are talking to each other again will be helpful next time the industry is confronted with large-scale disputes and disasters. He says another significant lesson from last year was the need for the industry to put more effort into personal communication with customers. He is now seeing insurers tackle that issue. “The failure of the industry to speak to individual claimants caused a significant level of distress, anguish, dispute and anger,” he tells Insurance News. “I think we 16

Ombudsman John Price: dealing with a disconnect

are seeing a shift in the approach of many insurers towards embracing the consumer a bit more in the contentious dispute areas. “That will hopefully go a long way to resolve matters before they need to come to dispute resolution.” Mr Price says some of these disputes are the result of last year’s extraordinary number of natural disaster claims and the floods in particular, where coverage differed between policies and there was a political agenda to attack the industry – a course of action taken up with enthusiasm by some elements of the media. “The industry is constantly unfairly criticised about the perception that every claim has been refused,” he says. And he points out that many claims staff caught up in the onslaught of claims were themselves victims of the disasters. But there is no avoiding the fact that in many of the cases he and his staff have investigated disaster victims did have relevant and important points to make. Disputes could have been avoided if their contributions had been considered. The various inquiries following last year’s disasters drew many submissions from claimants who complained that hydrologists or assessors did not listen to them, and their complaints have been borne out in many of the disputes that have ended up with the ombudsman. When FOS visited the rural Victorian town of Charlton, which had about 80% of its homes flooded in January last year – some more than once – the investigators discovered vital information that had not insuranceNEWS

been considered by hydrologists acting for insurers and claimants. “Both hydrologists had failed to take into account that the Charlton-St Arnaud Road had been built up in recent years, cutting the natural flow of water to the Avoca River,” Mr Price says. “It acted as a substantial levee wall, diverting run-off to the town.” Disputes are still being processed but a number have been resolved. “Having met with the people there, a large number of these claims will be paid; not necessarily in whole, but certainly in part because of the nature of the events that occurred.” Mr Price says the work by FOS in Charlton proves the value of visiting and listening to the community “rather than trying to determine something from behind a desk”. Another important lesson from last year is that organisations such as FOS, the Insurance Council and even the consumer movement need to be on the ground at a disaster scene as quickly as possible to assist people. The disasters of 2011 tested insurers’ internal dispute resolution (IDR) procedures, but Mr Price says most insurers’ IDR systems worked well. The companies that performed best were those that embraced consumers, informing them of the progress of their claim and the reasons behind decisions. Now he wants FOS to be able to resolve some issues with insurers by agreement rather than through the ombudsman having to make a determination. He says

October/November 2012

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agreement over broad issues could speed up the dispute process – although it might also be difficult to achieve. Conciliation with one particular insurer – he doesn’t name companies – has shown that disputes can be handled more quickly and effectively. FOS acted as conciliator between the insurer and consumers. “In all of these matters the consumers involved were very grateful for the opportunity to sit down and talk about their issues and grievances with the insurer,” he says. “The insurer was fabulous in dealing with these matters and embraced the concept of resolving the issues.” Mr Price believes this restored the insurer’s brand loyalty and enabled a fair outcome for the company and its customers. While some work must be done beforehand to prepare for conciliation, he says it’s quicker than going to a determination. “We are hopeful that less complex matters can be resolved through communication and discussion between the parties, fostered by us as part of our process.”

an excellent job in steering them through the process. The law services’ insurance expertise has grown as a result. Mr Price notes that Victorian Legal Aid does not provide an insurance advice service, unlike its counterparts in New South Wales and Queensland. He says community legal services in Victoria therefore don’t necessarily have the expertise to help on insurance matters. “I think we do need to look at whether there are funds available through legal aid or some other means to assist in establishing that level of expertise,” he says, adding that simple disputes can often be resolved earlier at this level. As for disputed claims that have dragged on, FOS is still getting complaints from the Queensland floods because claimants have exhausted their insurers’ IDR systems and have finally found the energy to take the matter to FOS. Alternatively, they have heard about someone who has had a successful outcome from the ombudsman. Mr Price and his team are bracing for a new round of enquiries following

“The consumers involved were very grateful for the opportunity to sit down and talk about their issues and grievances with the insurer.” The communications lesson hasn’t been lost on FOS itself. The service is looking at how to cut red tape to improve its own communication with insurers and consumers. It recently began a trial of electronic transfer of case files with two insurers, which Mr Price hopes will speed up the process, reduce costs and be more efficient for all involved. The trial with a large and a small insurer began in August and so far the results are positive. This raises the likelihood of the system being rolled out to more insurers and other financial services providers who are also members of FOS. Mr Price says the time taken to resolve general insurance disputes has not blown out much, but disputes are becoming more complex. He says this is “part of the territory”, where policies are adapted to meet the changing needs of a growing community. As for insurance brokers, FOS has not seen many disputes involving brokers – “far less than I would have expected”. Mr Price attributes this to most brokers keeping good records and working to resolve disputes early. Some brokers have criticised consumer lawyers for advising clients to take the legal route on a dispute rather than use the free FOS service, but Mr Price says he has not seen instances of that. He says although some consumers might need help with their dispute, the various consumer law services have been doing insuranceNEWS

October/November 2012

September’s decision that RACQ Insurance must pay out to a policyholder in Goodna, south of Brisbane, after FOS ruled that flash flooding rather than riverine flooding was responsible for their losses in January last year. The decision prompted Goodna councillor Paul Tully to urge all flood victims in Ipswich and Brisbane whose claims have been refused to appeal to FOS. Mr Price says Councillor Tully’s comments are misinforming consumers. “As we constantly say, each individual dispute will depend on the particular factors associated with that dispute.” He fears the Goodna case could give people a false impression about their entitlements. As soon as the FOS decision was publicised, the service started receiving new enquiries. “It is clear that people do not understand the particular characteristics of that decision.” Mr Price believes the standard definition of flood and new key facts statements that summarise key elements of a policy will probably reduce disputes, as long as consumers understand the statements do not replace their policy document. He says the industry has “stepped up and done the work” in its response to many issues that arose from the floods. “I think the industry is probably more advanced than the Federal Government in terms of resolving these issues.”


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Prepared for the worst Lessons learned two years ago were applied in March when Wagga Wagga’s levee bank saved the city from flooding

News Ltd

By Jan McCallum

PLANNING FOR FLOOD PAYS off, but part of preparing for disaster means being flexible enough to react to the unexpected. That was one of the key l essons for the City of Wagga Wagga after the December 2010 floods – and one it put

into practice in March this year when the area was hit again. Wagga Wagga sits on the banks of the Murrumbidgee River in southern New South Wales. It is vulnerable to flooding and had early warning in March that it faced a record insuranceNEWS

deluge which could overtop its levee bank. The city council’s Director of Infrastructure Heinz Kausche says although Wagga Wagga is prepared for floods, each event is different. So it’s important not to plan to the point where it October/November 2012

becomes hard to respond if circumstances change. “We have to be very flexible so we do not over-commit to one particular task or aspect,” he says. “We need to have enough flexibility to react and to 21


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“From an economic point of view, the cost to upgrade and afford that level of protection would be very easily justified compared to the cost of the community being inundated, but it is a big spend for local government.”

allocate resources where they are most needed.” As well as riverine flooding, Wagga Wagga can also suffer localised floods from heavy rainfall. The city usually gets one event or the other, but with the breaking of the drought in the past two years it has seen both occur together. It is an expensive issue for local authorities. Not only do they suffer damage to infrastructure but they must also respond to a greater call on services. The council incurred about $3 million in expenses preparing for the March floods. The bill included such items as buying sand and paying overtime to 100 staff working 12-hour shifts to maintain a 24-hour roster. Staff contacted earthmoving contractors, quarry operators for sand and traffic authorities to oversee road closures. All the council’s job sites were shut down and heavy equipment returned to the depot so it would be available. “We made sure we always had staff and equipment ready

…but where’s the reward for insurance buyers? Wagga Wagga’s levee bank saved the city from flooding but the city’s risk management is not being reflected in insurance premiums, says broker Peter Brown. He and his staff at Peter Brown & Associates had to shut their office for 24 hours when the State Emergency Service ordered the evacuation of the central city. They received an alert via mobile phone in the evening and staff raced back to work to raise as much equipment and furniture as they could off the floor. Mr Brown says the levee has saved the city from untold trauma and insured loss. “But our people are paying just as much for flood insurance as anyone in a town that has no levee banks.” He has seen comparable prices for both intermediated and direct cover, with massive increases and difficulty in getting flood cover from insurers who offer it, “even though these businesses are protected by the levee bank”. “While we do have the benefit of the flood mitigation and it has saved people a lot of angst, it is not helping a lot of insurance-buyers at this time,” Mr Brown says. He says floodwater has reached into the city since the levee was built in 1974. But if councils are going to invest in flood mitigation, he believes insurance-buyers have to get a benefit from the reduced risk. Clients who are not protected by the levee bank made claims, and he says the Austbrokers business package has a wording that covers loss where there is a “threat of imminent damage”. This allowed some clients to claim for lost business when they had to evacuate, even though their premises were not damaged by flood.

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to go in case we had a breach in infrastructure,” Mr Kausche says. “We always had staff patrolling the levee bank. Given the likelihood of flooding higher than the levee, we wanted to find breaches early and address them before they became a major issue.” Mr Kausche says the levee, built in the 1960s, has been upgraded, but because of its age “we watch it very closely”. When it was predicted the flood would top the levee the State Emergency Service moved to evacuate the central business district. But although the river exceeded the 10.7-metre design capacity of the levee, the bank held. When Suncorp withdrew from writing new cover in parts of Queensland this year its Personal Insurance Chief Executive Mark Milliner cited Wagga Wagga’s levee as an example of the benefits of mitigation. He estimates damages of about $100 million


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have been avoided by the levee’s protection. North Wagga Wagga, on the other side of the Murrumbidgee, was not so fortunate; 200 homes were flooded when the flood topped its levee. The council wants to upgrade the levees and has completed designs to guard against a one-in-100-year event in Wagga Wagga and a one-in20-year event in North Wagga Wagga. Mr Kausche says the $20 million cost will benefit the wider area serviced by Wagga Wagga, the largest regional city in NSW. “From an economic point of view, the cost to upgrade and afford that level of protection would be very easily justified compared to the cost of the community being inundated,” he says. “But it is a big spend for local government.” The city incurred about $32 million of damage to infrastructure such as levees, roads and bridges and is making a claim on the Natural Disaster Relief and Recovery Arrangements, but this will only restore the assets to their pre-flood condition. The council aims to use its own budget to upgrade the flood-proofing of vital infrastructure. “We try to build resilience, to replace in such a way that it will stand up to the next flood event, but we have to pay for that ourselves,” Mr Kausche says. “This is really hard for

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local government and smaller councils could not afford to do this.” The council discovered the effectiveness of social media during the 2010 floods and this year used its website and Twitter to communicate with residents. It tweeted warnings to stay off levee banks and to tell people where crews were working. It also posted detailed maps of road closures and information on how flood events unfold. Last year’s disaster inquiries found flood information is not readily available for propertyowners. Wagga Wagga has detailed flood modelling, which the council publishes on its website, but Mr Kausche says after a 10year drought it took time to raise community interest in flood issues and protection. The council will revise its information following the latest floods and is also undertaking a major modelling project on overland flows to identify risks in urban areas. The study will model stormwater flows and what happens when stormwater systems reach capacity. The council was still recovering from December 2010 when this year’s flood hit, but Mr Kausche says Wagga Wagga benefitted from what it learned in the earlier events. “Every time we have been impacted by a flood it has been different; you always take lessons out of it.”

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Big business balance sheet, small business culture: Gallagher Australasia’s Andrew Godden

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Made for each other Andrew Godden finds challenge and fulfilment managing Arthur J Gallagher’s local operations By Michelle Hannen

IT WAS SOMETHING OF A MATCH MADE in heaven when the world’s fourth largest broker, Arthur J Gallagher, acquired a minority stake in niche Perth broking business Specialised Broking Associates (SBA) in 2008. Since that time the relationship has blossomed, with SBA Managing Director Andrew Godden taking on the role of chief executive of the local arm, Arthur J Gallagher Australasia, and the business relishing the tougher post-catastrophe market where brokers with a service-oriented culture really have an opportunity to shine. The way Mr Godden talks about Arthur J Gallagher he sounds more like a 30-year company veteran than a man who parachuted into the hot seat by way of acquisition just a few years ago. It is either a sign of how powerful the Arthur J Gallagher culture is, an indication of how closely the two businesses were aligned, or both. The Arthur J Gallagher culture – enshrined in a document known as The Gallagher Way – is well known in broking circles. It’s a business ethos that puts the customer, rather than the company, at its centre. “Big business balance sheet, small business culture,” is how Mr Godden sums it up. Arthur J Gallagher initially operated in Australia as a reinsurance broker, before it added a general insurance arm and “grew steadily but not with any scale,” Mr Godden says. The two businesses came together initially in 2008 when SBA, a specialist mining, energy, construction and corporate services broker established in 2003, was seeking a global brand and additional resources for its clients. Its directors noticed an Arthur J Gallagher deal half a world away in the Caribbean, where the company bought a large minority shareholding in a broker with a view to a full acquisition in the future. “In our earlier discussions with most people they wanted to have 100% straight away and we weren’t so sure about that,” he tells Insurance News. “We were more ‘try each other out and see, get engaged first and see how we get on’.” insuranceNEWS

October/November 2012

At that point, knowing some of the local Arthur J Gallagher staff from previous employment, SBA approached the US giant to see if they might be interested in a similar deal. In a happy alignment of business interests and timing, Arthur J Gallagher was looking for growth outside of the US, which was in the early throes of the global financial crisis. It was also looking to grow its presence in the oil and gas business, an area in which SBA was already established. An engagement of sorts was agreed with Arthur J Gallagher taking 40% of SBA, with a view to marriage – or a full acquisition – down the track. That eventually happened in 2010. Mr Godden acknowledges the crucial importance of that cultural alignment in makideal work. He says it is due to Arthur J Gallagher’s reputation that it has been able to pull off so many acquisitions globally in recent years, with numerous deals in its native US and in the UK, culminating in the 2011 purchase of London-based top 10 broker Heath Lambert, the largest deal in its history. “It’s a company that’s based on really high values and integrity, and they’re not an acquirer that looks to purchase and then looks to maximise profit by skinning costs and people. They’re really buying the people and the customers,” Mr Godden says. Despite not completing any acquisitions locally since the SBA deal was finalised, Mr Godden confirms the group’s acquisition appetite does extend to Australia. He puts the lack of deals down to timing, competition and also the company’s fairly specific requirements regarding what it wants to buy, which are businesses that complement the existing business in terms of culture, geography and specialisation. Such specialist brokers are at “the top of their trade” and when they are for sale they are fiercely fought over. But the lack of deals doesn’t worry Mr Godden, or his bosses internationally. “I don’t 27


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think our model’s really anything to do with growth for growth’s sake. We’re still inquisitive in that space but we’re not going to do it for the sake of doing it. “We’re a reasonable size as we are and we’ve got the types of growth in staff and the types of clients that allow us to punch our weight in the market as it is.” In Australia, Arthur J Gallagher operates out of offices in Sydney, Melbourne, Canberra, Adelaide and Perth, while it services its customers in New Zealand through an affiliation with a network partner rather than having a local office. Mr Godden admits that geographically the company would like to have a “bigger presence in certain places” but adds that “the corporate view is not about just having flags on the map”. The local entity is a top 20 broker in Australia, but isn’t particularly bothered by its market presence in those terms. “It’s not really of interest to me other than you need some scale to operate in the big end of town, but being biggest is not what we’re all about – it’s being the best,” Mr Godden says. The “Gallagher Way” of being the best is a service-oriented offering which Mr Godden describes as about “relationships and high touch” for clients who want “something different from just a transactional relationship”. “Our whole model is about the inverted pyramid, so it’s getting our best people and our resources at each and every client and prospect.” As a result the company doesn’t break its business down into the traditional multinational, corporate and SME divisions, preferring to resource in terms of geographical locations and specialist divisions. “People have a natural inclination to own things and ring-fence which ultimately limits your opportunities and your cross-selling ability,” Mr Godden says. “We’re trying to offer any customer the full suite of services that we have.” He says customers have been responding to the service-centric approach, especially since the 2011 catastrophes, as clients now have to be more proactive about their risk management and mitigation – particularly those who have had claims. “We go through cycles where anybody can sell an insurance policy. In the tougher times the better brokers really have the chance to differentiate because it’s about quality, not just about the transaction. “There’s a lot more to it than the simple transaction. It’s how and what you deliver and the quality of the deliverable.” While corporate acquisitions remain elusive, the company has found other channels of growth. During Mr Godden’s time as chief executive, Arthur J Gallagher has acquired some new teams, and with them has added new products and services. “We put on a really great team that specialises in trade credit and surety bonds at the start of 2011 and that’s been a roaring success for us,” he says. Another staff hire has seen Arthur J Gallagher branch out into broking workers’ compensation in Queensland, New South Wales, Victoria and South Australia – states where the cover is underwritten by the public sector, where brokers don’t often specialise in it and businesses tend to buy it direct. But Mr Godden says there is “actually a great 28

deal of service and differentiation you can make by providing that brainware”, and says it’s an area that’s been a “great success” for the company. In terms of such new business opportunities, Mr Godden says the company doesn’t have a list of areas it wants to operate in, but nor does it have a “taboo list”. Instead it takes an opportunistic approach. “It’s really about where you find the people and the skills with the appetite to grow something new. As a company we’re totally open to those types of things.” Arthur J Gallagher also operates a number of association schemes at the SME end of the market, targeting professionals such as accountants, real estate agents, tax agents, testing authorities and personal trainers. A recent initiative to distribute its estate agents scheme online saw it almost triple the amount of policies sold to each customer – something that Mr Godden confirms it intends to roll out to its other association schemes.

“We go through cycles where anybody can sell an insurance policy. In the tougher times the better brokers really have the chance to differentiate because it’s about quality, not just about the transaction.” “Smaller scheme, affinity-type business really needs a seamless, low touch, if not zero touch, way of delivering it,” he says. “If you can’t use IT and slick processes to deliver low-cost insurance to a wide audience, then you just can’t afford to do it.” On a personal note, Mr Godden agrees taking over as chief executive of the local arm of the world’s fourth-largest broker has come with plenty of challenges. “It was a big opportunity and a big step in my career, and I still consider it a very big challenge, which was made much easier by the [cultural] alignment.” For the past two years he has split his time between running the company from Sydney and his family, with his wife and two of his three teenage children still living in Perth. Mr Godden admits the fly in/fly out nature of his new job has been tough at times, and he has recently swapped three weeks in Sydney and one in Perth each month to an even split between the two locations to provide a better work-life balance. His enthusiasm for the job ahead is somewhat remarkable, given the personal demands of the role and is perhaps the ultimate testament of what a good match the marriage between Mr Godden, SBA and Arthur J Gallagher has been. insuranceNEWS

October/November 2012


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A flaming good idea

A bit of extra insurance: a Chartis wildfire mitigation specialist applies a home’s defences

US insurers are using their own firefighting teams to protect the properties they cover By Elizabeth Redman IT’S NOT JUST HOMEOWNERS WHO have an interest in their homes being safe from increasingly savage bushfires. Insurance companies also have an interest in reducing the risk of damage or loss. Faced with an increasing incidence of wildfires, US insurers have started working on ways to save their customers’ homes from the flames. They are offering their clients – particularly high net worth clients who may live in ultra-expensive homes – private fire mitigation services. Chartis has 14 wildfire mitigation specialists in its Wildfire Protection Unit, while Chubb’s Wildfire Defence Services has about 150 operating in wildfire-prone areas. While the emphasis is on high net worth clients, Chubb says that its program is open to all customers regardless of their homes’ value. Chartis and Chubb employ trained firefighters who work in a different capacity. 30

Instead of hosing down the flames, they work on education and mitigation. Specially trained and using state-ofthe-art equipment, they are making a difference. Chartis Private Client Group Senior Vice President, Risk Management Services Dorothy Sarna says the private firefighting force is helping to save homes before and after fires start. Wildfires in the US are becoming more common and more severe because of drought and climate change. Forests are burning more easily. More homes are built on the wildfire-prone urban fringes of cities, so more customers are in harm’s way. So far this year more than 42,000 wildfires have burned more than 6.8 million acres across the country. Last year’s US wildfires caused $US855 million in insured losses and $US1.9 billion in total economic losses. Without withdrawing from the market, insurers are working out how to reduce the incidence and cost of claims in an environment where wildfires are increasing in number and intensity. Big claims numbers encourage insurers to devise solutions that would, in less extreme circumstances, seem odd, and that’s where the firefighting service has come from. The insurers’ expert teams can visit homes in fire-prone areas and help the insuranceNEWS

October/November 2012

owner to understand the level of the risk and what can be done to reduce it. “The best defence a homeowner has against wildfire is to reduce fuels and ignition sources around the home, or create defensible space,” Ms Sarna told Insurance News. “‘Defensible space’ is the area between a structure and the wildland area needed to create a buffer to slow or halt the spread of flames. It can protect the home from burning due to direct flame or radiant heat. “Firefighting agencies have stated that if a homeowner doesn’t take responsibility to reduce their risk by removing fuels and making their home ‘defendable’, public resources will drive by that home and focus on others that have a better chance for survival,” Ms Sarna says. “As an insurance carrier, we want to make sure the homes we insure have the best possible chance for survival.” Just like the rural fire brigades of Australia, the US insurers’ mitigation specialists advise clients to remove dead vegetation and dry leaves, trim tree canopies to keep branches away from buildings, clean gutters, remove vegetation near windows and remove combustible goods from decks. They suggest trimming both low tree branches and low-level vegetation to stop fire spreading from the ground to the tree canopy.


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Customers can also buy ember-resistant Phos-Chek, which is sprayed around the Hundreds of homes were destroyed vents for eaves so flying embers can’t get perimeter of a policyholders’ home on in the Colorado wildfires this year, and inside, and “bird-stops” that prevent embers vegetation. Chubb has also had to notify customers from lodging in a tile roof and igniting it. “Once the fire hits the Phos-Chek line their homes didn’t survive. The insurers’ own firefighters are also it will stop,” Ms Sarna says. “This can pre“If you’re the first one in the market on hand when fire approaches, to visit vent flames and radiant heat from getting to be able to try to find a property to live empty houses and fix any vulnerable to the home.” in while yours is rebuilt, it’s going to be an materials. Insurers’ crews also use software that advantage,” Mr Spencer says. Chubb Senior Vice President and maps the fire’s origin and perimeter. All The programs have had a lot of success. Worldwide Appraisal and Loss Prevention Chartis customers’ homes in the area are Chubb says it has saved dozens of houses Manager Scott Spencer says his company marked on the map. This helps crews see through these mitigation efforts. has started deploying its fireChartis says it has never lost fighters to clients’ homes prior a home where crews have been to evacuation. able to access it ahead of the fire “If you see smoke coming and provide mitigation services. over the horizon and the panic But it has lost homes when it was sets in, it’s a comfort to have a too dangerous for crews to get firefighter there saying, ‘Here’s to the house or when the fires what you need to do, here’s moved so quickly crews could where you need to go, here’s not arrive in time. what you need to take, here’s “Our goal is to educate how you need to prepare your homeowners on how to take house,’” he told Insurance News. steps to reduce their wildfire “That’s enormously helpful.” risk, so that if we cannot When a fire gets close, respond during an event, their experts have another trick up home will still have a chance to their sleeves: fire retardants. survive the fire,” Ms Sarna says. Chubb firefighters coat The benefits of the program houses with ThermoGel, a waterextend further. “Our mitigation Reducing risk: a Chubb firefighter mixes up a retardant mixture that based, environmentally safe fire specialists work closely with our extinguishes flying embers retardant that can stick to a underwriters to develop guidebuilding for eight hours. lines for areas with moderate As more houses burn from to high wildfire exposure,” flying embers than the wildfire’s flames, which policyholders are vulnerable and Ms Sarna says. “Through this collaboration, the wet, absorbent oating extinguishes any prioritise which homes to visit. we are able to extend coverage to properembers that land on buildings. Both companies try to co-ordinate their ties that we may not have been able to A Chubb video demonstration posted efforts with public firefighting services. For insure in the past.” on YouTube shows ThermoGel’s effectiveexample, Chartis says its crews try to stay Mr Spencer says the Chubb program ness. Fire-blowing torches are placed in more than 1.6km from the fire to keep safe has a real impact in saving property front of two small buildings. One is coated and stay out of the official firefighters’ way. and preventing the pain associated with in a thick, white layer that looks like fake The Chubb crews provide updates on rebuilding. It’s also a convincing demonsnow. the status of clients’ homes, including stration of the insurer’s commitment to After two minutes, crackling flames lick emailing photos of the property to show it’s customers, he says. the walls and roof of the uncoated building, still there. “From a personal perspective, it’s been but haven’t touched the coated one. “That’s enormously comforting to our one of the most exciting things I’ve had to Chartis uses another retardant, customers,” Mr Spencer says. work on in the insurance industry.”

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Sorry, but I can’t say that

Many doctors are hamstrung in their ability to apologise to patients for medical errors By Ben Oliver

MEDICAL INDEMNITY POLICIES ARE preventing doctors from openly discussing mistakes with their patients until a national legal framework is adopted. One of Australia’s leading insurance experts on medical malpractice says state governments are developing their own local disclosure policies, when streamlining Australia’s diverse and contradictory civil liabilities laws should be the priority. Insurance House director and IBNA Chairman Gary Gribbin, who is the former chief executive of medical indemnity insurer Professional Insurance Australia, says that a national approach to civil liability laws is a precursor to any breakthrough on open disclosure. “Regardless of the situation, the average 32

doctor, I believe, is wanting to acknowledge that something has happened with a patient. But whether that is the liability of the doctor is for others to decide,” he told Insurance News. “Without a national approach and a clear position that an apology doesn’t constitute an admission of liability, I don’t think we will ever get anywhere.” The Federal Government constructed the first national open disclosure policy for Australia in 2003, and the states and territories have been building their own open disclosure frameworks since 2008. However, only Victoria legally compels doctors to discuss adverse events with their patients. The medical profession views open insuranceNEWS

October/November 2012

disclosure as a key benchmark to improve trust, safety and communication with patients, develop better medical systems and reduce liability costs. In the US, the University of Michigan Hospital’s “full disclosure and offer” program is credited with halving the number of pending lawsuits and saving the hospital $US2 million a year in liability claims since it was introduced in 2001. A 2005 report by the Western Australian Department of Health estimated the annual cost of claims from medical liability was $82.5 million. A report released in June by the Australian Commission on Safety and Quality in Health Care finds most doctors and nurses support open disclosure, but


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“The current open disclosure standard creates a “tension” when doctors consult their insurance company before disclosing any medical mistakes.”

Page 33

fear the insurance and legal implications of apologising to patients and their family members. The differing approaches in different Australian jurisdictions do little to ease the confusion. The Northern Territory’s Personal Injuries Act 2003, for example, defines an apology as an admission of guilt, and in Victoria and South Australia an apology can be submitted during a civil case proceeding as evidence of fault or liability. New South Wales, Queensland, Western Australia, Tasmania and the ACT have similar legislative frameworks but don’t consider an apology to be an admission of guilt, or relevant to a finding of guilt. Nor can an apology be used as evidence to prove liability. The commission’s report finds the current open disclosure standard creates a “tension” when doctors consult their insurance company before disclosing any medical mistakes. “The current standard requires [medical] providers to take early advice from their insurer following an adverse event,” the report says. “This can undermine best practice open disclosure, as described by patients, by delaying communication with the patient, family or carer. “Insurers need to be involved in inci-

dent management, but should also be cognisant of patient needs immediately following harm, and the organisational risks if these expectations are not met.” The report also says most medical practitioners misunderstand the legal position they are placed in when offering an apology to a patient. “Case law does not indicate significant risk from providing a full apology,” the commission says. “Indeed, evidence exists for an apology having a neutralising effect on harmed patients seeking redress through the courts. “Misunderstanding among providers and insurers may be a significant barrier to full apology in open disclosure.” Mr Gribbin says insurers have a role to play in educating doctors and nurses about legal frameworks, but state insurance bodies such as the Victorian Managed Insurance Authority must also be involved. “I think there has always been a role for insurers in education,” he told Insurance News. “I have never taken an apology as an admission of guilt, but doctors are fearful themselves. “They want to apologise but they are afraid of what it could lead to.” A final report on open disclosure is due to be released by the Australian Commission on Safety and Quality in Health Care early next year.

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The forgotten insurance tax The Federal Government is reaping big dividends from terrorism levies on commercial property insurance. But does the terrorism insurance scheme have a future? By Justin Coss*

ELEVEN YEARS AFTER THE TERRORIST attacks of September 11, their effects are still being felt in the Australian insurance market. Many commercial property owners probably don’t realise they are paying between 2% and 12% on top of their property insurance premiums as part of the Federal Government’s terrorism insurance scheme, which was established in 2003 in the wake of the September 11 attacks. The Terrorism Insurance Scheme is subject to review every three years, the most recent of which occurred early this year. The comprehensive review of the cover offered to commercial property owners through the Australian Reinsurance Pool Corporation (ARPC) resulted in a detailed report released in May. The principal findings from the review were: • Although there is some commercial terrorism insurance capacity re-entering the market, there is insufficient available capacity to warrant discontinuing the Terrorism Insurance Scheme. • The current contributions and rates are in order and won’t change in the near term. • There have been no terrorism incidents to date which have required the accumulated funds to be used. • The Federal Government will receive a dividend of $400 million in return for the support that it has provided to the scheme to date, to be paid to in the form of an annual amount of $100 million payable from January next year until January 2016. This 34

arrangement is subject to review in 2015. • Part of the review discussed extending the scheme to include mixed-use residential/commercial buildings and strata units which are not otherwise insured for terrorism risks. It’s worth reviewing the factors that led to the formation of the ARPC. Following the terrorist attacks in the US on September 11 2001, insurance companies worldwide (including those in Australia) made a commercial decision to either stop offering cover for terrorist events or offer limited cover at uneconomical pricing. The contraction of available capacity in the terrorism insurance market placed property-owners, banks, superannuation funds and other financiers in an extremely vulnerable position. In order to address this exposure, governments around the world instigated a number of different schemes. In 2003 the Australian Government put in place a reinsurance pool to provide the means for insurance companies to provide terrorism reinsurance protection on an affordable basis. This pool was intended as a temporary measure with the hope and expectation that ultimately insurers would return to the terrorism insurance market with reasonable pricing expectations. In the year after the attacks, risk modelling of hypothetical Australian terrorist events had indicated that an aggregate loss scenario might be in the order of about $10 billion for any one terrorist incident. insuranceNEWS

October/November 2012


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Reuters

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Where it all began: The rise of militant terrorism led to the World Trade Centre attacks on September 11 2001, which caused insurers to drop terrorism cover. Two years later, the Australian Government formed a terrorism insurance pool as a “temporary measure”. Its next review is scheduled for 2015.

Some of the loss scenarios were higher and others were lower, depending on the event and the consequences. However, on the basis of this modelling and discussions with industry experts and other stakeholders, it was felt that a limit of indemnity for the pool of $10 billion was appropriate. To fund this potential exposure the Government enacted the Terrorism Insurance Act 2003 and associated regulations which apply to all “eligible insurance contracts” related to “real” property, including “buildings or other structures or works on, in or under land located in Australia, as well as tangible property in or on such property”. This definition captures contracts taken out by owners or construction project consortiums for buildings and their fixtures and fittings as well as infrastructure like toll roads, dams, power plants and sewerage works. It also covers insurance contracts taken out by owners or lessees of property for such things as equipment and office furniture that are contained within the building. The pool was designed to cover only commercial property, so residential and other properties are not eligible. Whether or not an incident amounts to an act of terrorism depends on the application of the definition of “terrorist act” under the legislation. The definition is not unusual, but it is worth noting that it excludes nuclear incidents and acts of war. “Threatened action” is included, but only if the responsible federal minister is satisfied insuranceNEWS

October/November 2012

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that the threatened act would have occurred in Australia. The Act covers eligible insurance policies for losses relating to property damage, business interruption and public liability. Provided the relevant insurance contract relates to commercial property, and a terrorist act has occurred within the meaning of the legislation, any terrorism exclusion in an eligible insurance policy is effectively void. It is important to note this protection is purely for Australian commercial property assets and those insureds who take out commercial property insurance. The legislation does not apply to residential properties or property where no property insurance exists. Insurers have an option either to buy their own reinsurance for this risk in the private terrorism reinsurance market or to reinsure with the ARPC. The vast majority of insurers take advantage of the arrangements offered by the pool, but some do choose to purchase their own reinsurance for this risk. Insurers do retain some of the risk – currently up to $100 million on an industry basis – before the pool responds to a terrorism loss. However, in the event of a major terrorism incident where the amount of funds available to the pool may be depleted, the minister has the option of declaring a reduction in the amount for which insurers will be liable to policyholders. Accordingly, this may leave policyholders out of pocket to the extent of such a reduction.

Funding The pool is funded by a special levy on all commercial property insurance policies paid by insurers who choose to reinsure with it. This levy is customarily passed on to the insurers’ client base as the cost of providing terrorism cover, although there is no legislative requirement as such for insurers to do so. In the event of a terrorism event that causes loss to the pool, the minister has the power to increase the levy in order to recoup losses. The levy is based on total applicable premium in three tiers: CBD metropolitan 12%; suburban or non-metropolitan areas 4%, and rural and country areas 2%. Furthermore, state government stamp duty, fire services levies and GST are charged in addition to this levy. While the legislation allows the Federal Treasurer to direct the pool to set the amount of the levies to be paid to it by insurers, terrorism risk premiums charged by insurers to policyholders are not set by the Government. The actual cost that insurers pass on to insureds may therefore vary between insurers. However, commercial market pressures ensure that premiums charged to policyholders do not significantly exceed the charges levied on the insurers by the pool. In any event, it could be argued that insurers charging a reasonable uplift is justified, given the administrative burden imposed on the industry for collecting the levies on behalf of the pool and the uninsured retention that insurers retain in respect of terrorism risks that are not covered by it. 36

Page 36

The Structure of the Pool The Australian Reinsurance Pool’s capacity limit has changed over the life of the pool. This table summarises the applicable limits for the period from 2003 to 2008:

$10 billion

$10 billion underwritten by Australian Federal Government

$3 billion

$3 billion underwritten by Australian banks line of credit

$1 billion $1 billion to be funded by levies guaranteed by the Federal Government

In 2008 the layers were amended slightly, with insurers retaining a first loss amount not exceeding $100 million in the aggregate as a maximum. The first excess layer, which was underwritten by a bank guarantee from the Australian commercial banks, was replaced with a combination of retained levies and retrocession cover (reinsurance of reinsurance). The limit of the fund increased from $10 billion to $13.5 billion, with the Federal Government extending its guarantee for the second excess layer amount. The new limits applicable to the pool are:

$13.43 billion

Commonwealth Guarantee $9.725 billion

$3.7 billion

Retrocession program layers 1-5 $2.754 billion

Commonwealth guarantee layers 4-5 $274.32 million

ARPC Co-insurance layers 1-3 $296.5 million

$475 million

ARPC Fund $375 million

$100 million

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October/November 2012


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Despite the September 11 terrorist attacks in the US occurring more than 11 years ago, there is no question that their impact is still being felt in the insurance market. Based on this year’s review it is clear that in the absence of the commercial property insurance market’s ability to offer terrorism cover, this current reinsurance pool must continue into the foreseeable future. However, it has been nine years since the scheme was first established and there has been no material advancement in the domestic private terrorism insurance market. In general, the Government is seeking to prolong an interim measure to address a long-term market failure arising from the inadequate supply of terrorism risk cover. It determined in May 2002 that it should act to ensure the availability of some form of insurance cover, with a mixture of a pool and post-event funded model. Following this decision, the Federal Treasurer announced that the Government would offer remainder insurance for losses above the cover available from individual insurers, possibly after a pooling arrangement. The Government decided that any intervention would need to be consistent with: • The need to maintain, to the greatest extent possible, private sector involvement; • Ensuring that risk transferred to the Commonwealth is appropriately priced and that the Commonwealth is compensated by those benefitting from the assistance; • Allowing the re-emergence of the commercial markets for terrorism risk cover; and • Global solutions. Given that it has been nine years since the scheme was established and there has been no material advancement in the domestic private terrorism insurance market in Australia in that time, it’s possible that while fulfilling a necessary purpose the scheme may be stifling or crowding-out private investment in this area of the market. In order to address this concern, there are a multitude of potential tweaks that could be made to the scheme to encourage the growth of a private terrorism insurance market. For example, in the same way that highvalue insureds can take advantage of an exception in the legislation relating to unauthorised foreign insurers, why shouldn’t large corporate insureds be allowed to opt out of the scheme and/or purchase their own cover for terrorism risks? Such organisations are sophisticated buyers of insurance who have the ability to determine whether they need the cover and negotiate a reasonable premium. From an insurer’s perspective, large corporate programs are attractive as they usually offer a spread of risk and a reasonable premium pool. This scenario would overcome two reasons why individual terrorism policies are not currently attractive – volatility of losses and insufficient premium pool. Whether the current rates and limits are appropriate going forward is a matter for debate. For example, it could be argued with some force that in the absence of any terrorism incidents in Australia since the inception of the scheme in 2003, rates could be reduced. However, the other argument in favour of 38

Page 38

rates staying the same derives some support from the need to ensure that there is a sufficient fund in place for any future events and the possibility that a catastrophic event in a major urban centre has the potential to exhaust the fund completely. The breadth of the scheme is somewhat contentious, in that other countries have included more than just commercial property risks and have also included losses flowing from nuclear incidents. Given the recent breakin to the US nuclear equivalent of Fort Knox by activists and the ongoing fear of terrorist groups acquiring nuclear materials from former Soviet Bloc countries, there is certainly an argument for expanding the scheme to include nuclear risks. While the examination of nuclear risks does not appear to be on the current consultation agenda, there has been considerable discussion as to whether mixed-use residential property and high-value residential property should continue to be excluded from the scheme. Following the recent release by Treasury of a consultation paper calling for submissions to address the mixed residential/commercial properties and high-value residential properties that currently fall outside the scheme, we may see the situation changing. The ongoing consultation appears to focus on mixed-use properties with a residential component of between 20% and 50% of the total floor area, and high-value purely residential buildings, on the basis that terrorism cover appears to be more difficult to procure for these risks. Previous findings in this area indicated that inclusion of these properties in the scheme would have no material impact, although policyholders’ premiums for such risks would of course increase to include this coverage. The time for submissions expired late last month, and it remains to be seen following consultation with industry bodies and other stakeholders whether Treasury will conclude that the scheme should be extended to mixed-use and high-value residential property. But there is ample reason to do so in the absence of sufficient private domestic insurance appetite to underwrite these risks. The scheme is to be reviewed again in 2015, at which time the private insurance market may be in a better position to offer greater levels of terrorism insurance to the market at large. In the interim, policyholders remain exposed to terrorist events that impact non-commercial or mixed commecial/residential use property; involve nuclear elements; and/or may involve losses to the pool that are deemed likely to exceed $10 billion.

What it led to: At airports, docks and major buildings around the world, security checkpoints help to minimise the risk of terrorist attack. As security systems become more sophisticated, so do government attitudes – from next year the pool will pay $100 million a year to the Federal Government in return for its support.

* Justin Coss is the General Counsel and Company Secretary of InterRISK Australia insuranceNEWS

October/November 2012

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Lehane at ease in the state of flux

By Michelle Hannen

IT HAS BEEN A TURBULENT 18 months for Zurich Australia, with the company following a global initiative to split its general insurance and financial services arms. Since March last year the company has seen the departure of two chief executives and the restructuring of the general insurance operation into two divisions, SME and corporate. In a global organisation the size of Zurich, such dramatic change at a local level is unusual but hardly terminal, because, as Group Chief Executive Martin Senn said in August, Zurich can promote from within the ranks because of the “great depth of the talent pool within Zurich”. That was proved again recently with the move by Nigel Whyatt from Zurich’s Asia-Pacific headquarters in Hong Kong to become Executive General Manager Corporate based in Sydney. Another to be plucked from the “talent pool” recently was Bobby Lehane, who has moved across from the Asia-Pacific General Insurance division to become Executive General Manager SME for Australia. 40

He says the extent of change locally and globally within an organisation as big as Zurich is hardly surprising. Change, he says, is the only constant. “Organisations change,” he tells Insurance News. “They are in a continual state of flux.” He says the business realignment into the SME and corporate segments is required to better serve brokers. Mr Lehane was born in Ireland and worked in London and Tokyo before moving to Australia in 2001. He joined Zurich Australia in 2007 as chief information officer, with a background ranging from investment banking to construction. In 2009 he was promoted to chief information officer Asia-Pacific and Middle East and joined the Global IT leadership team. He was promoted to chief operating officer Asia-Pacific GI last year. Something of a turnaround specialist, Mr Lehane says his current remit is growth rather than remedial work. “It’s ensuring that we continue to be relevant and that we grow our market share,” he says. Zurich is seeing “decent growth” in SME business insurance in Australia, with good quote volumes around the country. He describes rates generally as “okay” but singles out property rates as “difficult”. “It’s a good business with good momentum and a good team; there’s lots of optimism around SME,” Mr Lehane says of his job to date, which also includes oversight of Zurich’s insuranceNEWS

October/November 2012

compulsory third party, workers’ compensation, strata and taxi businesses. As chief information officer Mr Lehane was instrumental in turning around Zurich’s Z.streamXpress electronic platform, which was losing market share in 2007 because of under-investment in the project. Since then, he says, management has shown continued commitment to the platform, with renewed funding for the fast-flow proposition made available this year. “To continue to be relevant we’re going to continue to invest.” He says the shift to brokers placing business via electronic platforms will escalate with technology’s ability to provide cost-effective delivery to customers and business efficiencies to brokers and insurers. As volumes increase, “ensuring we are strategically positioned there is important”. But there is more to Zurich’s fast-flow business approach than just technology, he says. Centralisation of SME underwriting through the Xpress Underwriting Centre has allowed it to offer consistent service to brokers across the country. Mr Lehane says despite initial scepticism among brokers, early service issues and negative feedback have been overcome and recent comments from brokers have been “very, very positive”. “The consistency and certainty to deliver the product is appreciated by brokers,” he says. “The product has always been there.” AIB 5301

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lawNEWS

Insurers strike first blow A row over a flooded coal mine starts with a clash over a loss adjuster’s reports THE FEDERAL COURT WILL BE ASKED TO decide on a dispute between Ensham Resources and its Japanese insurers after a Queensland coalmine was flooded in 2008. The case is due to start next March and run for several weeks but arguments have already begun over whether a loss adjuster’s reports are covered by legal professional privilege. The dispute is between Ensham and insurers Aioi, Mitsui Sumitomo Insurance, Sompo Japan Insurance, Tokio Marine & Nichido Fire Insurance and Nissay Dowa General Insurance. Ensham applied to the court for an order for the insurers to produce reports by Crawford & Co loss adjuster Greg Bickle, but Justice Dennis Cowdroy dismissed this, ruling legal professional privilege applied. Ensham has appealed the decision. Justice Cowdroy heard Ensham owns and operates an open-cut coalmine on the floodplain of the Nagoa River, near Emerald, and suffered losses during heavy rain in January 2008, when the river and a creek breached earth levees around the pit. The company claimed under its industrial special risks policy, but no payments were made and in 2010 Ensham started legal proceedings. The company is one of the Bowen Basin’s major coal producers and is owned in a joint venture between Japanese company Idemitsu and Korean conglomerate LG International. Justice Cowdroy says the primary case will consider whether Ensham complied with its duty of disclosure, whether a levee was a risk covered by the policy and whether policy limits apply to prevent the company claiming the full cost of draining the flooded pit. Aioi’s lawyer, King & Wood Mallesons, retained Mr Bickle to write reports on the damage. Justice Cowdroy says Mallesons recognised a significant claim was likely and that there could be a dispute over the policy response, which could lead to litigation. It told Mr Bickle to prepare his report on a privileged and confidential basis and in anticipation of litigation. Mr Bickle wrote 10 reports, and the insurers maintain their claim for privilege over some. Justice Cowdroy says legal professional privilege protects the confidentiality of communications made in connection with giving or obtaining legal advice. Ensham says the reports were prepared when the facts were still unknown and when Aioi could not have a view whether a claim 44

should be paid. The miner says the reports could have been written as part of the normal investigation into the claim. Justice Cowdroy says correspondence between Aioi, Mallesons and Mr Bickle “reveals a deliberate attempt by the solicitors for the insurer to attract legal professional privilege to the Crawford reports”. He says by March 2008 there was a real prospect of litigation. “The consequences of the flood on the mine were catastrophic and entailed massive damage to the applicant’s [Ensham’s] business and property,” he said. “Very costly remedial measures were known to be required to dewater the mine and there

“Justice Cowdroy says legal professional privilege protects the confidentiality of communications made in connection with giving or obtaining legal advice.”

was a very real possibility that the cost of those measures would well exceed the applicable policy limits.” He says a month after the floods the question of whether the levee bank was included as an insurable item was a contentious issue and that alone means there was a reasonable prospect of litigation. “The possibility of litigation was clearly evident at this early stage,” the judge said. He says it is clear the reports were prepared to provide advice in relation to litigation. Dismissing Ensham’s application, Justice Cowdroy said although the information in the reports “would have been of interest to the insurers generally and would have provided them with necessary information to factor in the cost of the potential claim against them, the reports primarily provide the insurer’s solicitors with information relevant to the potential litigation”. insuranceNEWS

October/November 2012


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Building Partnerships...

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You don’t own the place Vero wins in the case of the Government’s Antarctic oil spill

THE ANTARCTIC TREATY and territorial claims on the continent have been cited in a dispute between Vero and the Federal Government’s captive insurer Comcover over the costs of an oil spill. The Federal Court last month ruled Vero is not liable for remediating the large area affected by the oil spill at Casey Station in the Australian Antarctic Territory in 1999. Comcover receives premiums from government departments that use the station, and arranges insurance for property losses. Vero covered some of the Commonwealth’s property losses through an agreement with Comcover be46

tween July 1 1999 and June 30 2000. Vero, then Royal & Sun Alliance, issued the policy on July 13 1999 and the oil spill occurred between July 19 and 20. Kevin Gibbons, a partner at Indemnity Corp’s legal arm Indemnity Legal, says the Commonwealth’s property and buildings at Casey are “managed through a plethora of departments and agencies”. “Risks outside the scope of [Comcover] cover are borne financially by the department or agency concerned. The Commonwealth then organises commercial insurance for the risks borne by Comcover.” He says Vero’s financial liainsuranceNEWS

bility was referrable to Comcover’s financial exposure to a department or agency. The cover offered reimbursement to Comcover for sums it was liable to pay in accordance with the Comcover manual, which indicated it would provide cover “in respect of all property claims”. Comcover agreed to pay equivalent to the actual replacement cost of a single item or building or the repair cost to reinstate it. In a presentation to underwriters in 1999 inviting them to provide cover, Comcover listed Antarctica as its fifth-largest insurable property risk. Although it was first thought just a few litres of oil spilled October/November 2012

from a sump tank near a power generator on July 19 or 20, subsequent investigations revealed the spill to be 700 to 2330 litres. Signs of the spill later emerged beneath the snowline, 40 metres from the source. The Australian Antarctic Division (AAD) cleaned up the spill, but did not notify Comcover for some five years, in 2004. This was possibly because the AAD did not know it could be a claimable event or because it underestimated the cost of remediation. In 2004 the AAD told Comcover it could cost $1 million to $3 million to repair the damage. But a loss adjuster engaged by Comcover said a


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© Michael Loederman/Australian Antarctic Division.

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reser ve of $3 million should be provided. This was later amended to $5 million, then $6 million. Comcover initially told the AAD it would not cover the spill because the land was not AAD property. Comcover told Vero in December 2004 that it was in the process of denying indemnity. It changed its position after representations from the Australian Government Solicitor. Learning of the situation in August 2005, Vero expressed disappointment, and some 11 months later wrote to Comcover denying liability. It stated that “the real property must be owned by the AAD in

order for it to be covered”. By this time Comcover had paid more than $2.8 million. The Commonwealth Government sought a declaration that it was entitled to coverage under an ultimate net loss insurance policy for remediation costs. It also claimed damages for breach of contract and other relief. Vero argued the spill did not damage any Commonwealth property and, besides that, under the Limitation Act the Government’s action last year was too late. Vero also said the policy covered items and buildings but not land, and as the AAD does not own any part of Antarctica, insuranceNEWS

the land is not AAD property under the policy. It said the Commonwealth knew about the claim in 1999 but did not notify Vero until 2005, so did not satisfy the policy requirement to give notice of loss as soon as reasonably practicable. In his judgement, Justice David Yates said he agrees with Vero that the land damage is not covered by its policy. He also dismissed the Government’s argument that the oil spill contaminated land on Australian territory under the control of the AAD. The Antarctic Treaty, signed in 1959, suspends claims to Antarctica, although Justice October/November 2012

Yates said signatories do not renounce claims previously made on the territory. Australia asserted sovereignty over the Australian Antarctic Territory in 1933. In dismissing the Commonwealth’s claim, Justice Yates said he agreed with Vero that the cover was for items or buildings, not land. He says while land is not expressly excluded from the insuring clause, that does not mean it must be covered. Mr Gibbons says Vero and Comcover “pursued every possible permutation of the words in the [Comcover] manual capable of being extracted favourably to their positions”. 47


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Tough times on the road Transport operators want to work with insurers as costs rise and companies go broke By John Wilkinson ON THE SURFACE, THE TRANSPORT industry appears to be doing well. Commodity exports are growing and the rising value of the dollar is promoting imports, with road transport a vital part of the logistics system. But beneath the surface all is not well. The road transport industry is facing rising costs and the difficulty of clawing back these increases from customers. In recent months a number of transport fleets have closed with the companies being put into liquidation. Victorian Transport Association Chief Executive Philip Lovel says the reasons behind the closures cannot be put down to one single cause. “There are a number of issues facing the transport industry and they are leading to operators shutting down their businesses,” he says. “Probably the big issue behind some closures is that customers are squeezing the operators on costs. “The customers are under pressure from cheap imports and global pressures, but they are looking to cut costs – and that includes transport.” There are also some productivity issues in the transport industry, but the new threat looming is the carbon tax. “The transport industry won’t be able to claw back the tax from customers; they won’t pay,” Mr Lovel says. “We are estimating between $16,000 to $20,000 will come off operators’ bottom line – if they are travelling more than 400,000 kilometres a year – due to the tax and there isn’t that sort of margin in the industry.” There are other woes. Registration charges have gone up 10.1% and the road user charge has risen about 16%. which equates to 2.4c a litre of fuel. For some operators the cost of insurance is having an impact on the bottom line, but this is not affecting the entire industry. Austbrokers AEI Transport Managing Director Tim Wedlock says some transport insurance accounts have disappeared due to businesses failing, but the good operators are surviving. “Transport industry lines were not affected by all the natural disasters of last year, so the problems it is facing 48

insuranceNEWS

October/November 2012


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CONTACT US Kevin Corkery 0403 019 277

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David Boothroyd 0419 019 441

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Natalie Lings 08 9420 8010

Megan Sheehan 0409 914 899


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Austra

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“We need understanding and support from the insurance industry to help us get through this crisis.” Austbrokers AEI Transport’s Tim Wedlock: Poor risk management is a problem

[with insurance] are due to poor risk management in individual companies,” he told Insurance News. “Insurers have increased rates for businesses that have poor risk management history, and they are becoming harder to insure.” Mr Wedlock says insurers are working hard to keep the good operators on their books and are willing to work with clients to improve risk management. “Operators that run a bad business will fall over while the good firms adapt to the market conditions,” he says. “If an insurer sees risks unchanged and the loss ratio below target, they will retain the business. “We are seeing a lot of rollover rates maintained to keep the business, and there is more loyalty from operators to stay with their insurer rather than keep moving around.” Mr Wedlock says if an operator’s claims ratios are starting to rise, the insurer will provide the education needed to solve the problem. Mr Lovel says some operators will not address safety issues when times are tough, which will lead to higher rates from insurers, but he wants insurers to help more. “Insurance companies and brokers have got to get on top of this,” he told Insurance News. “We need understanding and support from the insurance industry to help us get through this crisis.” He argues the insurance industry needs to recognise the efforts of “the many good operators spending a lot of time on compliance to achieve safe operations”. “They shouldn’t be lumped into a pool with the bad companies.” A recent survey of VTA members reveals that the transport industry recognises the vital role of insurers. 50

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Some 84% of them think their insurers have the right policies in place, with only 6% disagreeing. Brokers are also favoured, with 82% of transport operators surveyed preferring to use them rather than go direct to the insurer. The operators are also happy with the claims experience, with 23% very satisfied and 68% satisified. Mr Lovel acknowledges the insurance industry has been supportive in the past and says he wants to keep the good relationship between brokers and the transport operators going. “The VTA wants to work with brokers to find solutions in the difficult year ahead,” he says. “We need to start talking now about how the insurance industry will work with the transport industry.” Mr Lovel says the VTA is already working with Zurich to help build the relationship between brokers and their transport industry clients to ensure greater understanding and co-operation. “I am pleased Zurich is now showing some leadership and working with us for better outcomes.” As part of the co-operation with Zurich, an insurance advisory panel has been formed. “I hope some of the other insurers will come and talk with us about how they and the VTA can work more closely to tackle issues facing the transport industry,” he says. He says there is one issue he would like all insurers to look at urgently – premium payments. “Our industry is a cashflow business so we would like flexible payment terms for our policies,” he says. “We think the insurers could do more on this topic and would like to discuss the issue with them.”


Australis INMAG FEB12:reverse 1/2/12 INMAG OCT12:page layouts 1/10/12 6:214:31 PM PM PagePage 51 1

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companyNEWS

Help when you really need it

Kidnap and ransom? Extortion? Global business travellers can call on specialists when things go very wrong

52

INCREASING LEVELS OF CORPORATE travel and companies’ duty of care to employees are pushing kidnap and ransom insurance cover into the mainstream. Insurers are meeting the trend by calling on specialist expertise. Chartis uses London-based crisis management and response consultancy NYA International, whose Managing Director Alex Kemp, a former royal marine, says even companies that are aware of and prepared for the risk of an incident will need specialist help if it occurs. He says a kidnapping will be a terrible shock to the company and victim’s family and they will need experts to steer them through the crisis. Mr Kemp describes his team as the glue within the crisis management team, bringing everyone together to achieve a successful conclusion. “Mystique surrounds our industry and it is often sensationalised,” he says. “Our role is to act as an adviser. “It isn’t rocket science or a black art. It’s about bringing objective experience to the table about handling these types of incidents all over the world.” NYA personnel travel to the organisation’s headquarters or wherever it is managing the crisis from. Mr Kemp says it’s up to the client company to nominate a spokesman or communicator to negotiate with kidnappers, with the communicator being advised on what to say and how to respond. Apart from kidnap and ransom services, NYA also provides expertise in dealing with such threats as product tampering, extortion and emergency evacuations from global trouble spots. “Our role is very much as advisers to the corporation,” Mr Kemp says. Chartis Financial Lines Manager Dan Collinson says that for a long time the kidnap and ransom product was considered an exotic cover, but that is now changing due to increasing travel by business executives and private individuals and as corporations’ duty of care to their employees grows. He says expatriate communities abroad also require protection. As soon as a crisis call like a kidnap or extortion communication is received, NYA sends insuranceNEWS

October/November 2012

a specialist team to the client company. “We will be gathering information and providing immediate advice to the client – advice about actions to take in the immediate aftermath of an incident to get them through that phase,” Mr Kemp says. He says NYA works “100% on behalf of the insured client,” which in the case of kidnap and ransom includes helping the victim’s family through the trauma and advising on dealings with governments and local authorities. He says while time is important, it is essential “not to charge off without understanding what you are dealing with”. Chartis Asia Pacific Kidnap and Ransom Manager Elyse Huynh says key issues for brokers arranging cover for clients include ensuring the underwriter understands where those who are covered will be travelling. She says brokers also need to look at the quality and abilities of the firm the insurer will call on if a situation is triggered. “You need to ask when you purchase kidnap and ransom what other types of valueadded services are attached,” she says. “Does the policy have the capacity to provide assistance for the client to subsidise or contribute to pre-assessment briefings and onsite visits?” Mr Kemp says identifying and mitigating threats are integral to NYA’s work, and his time in the military – which includes service in the Balkans, Central America and the Middle East – showed him that time spent in preparation is never wasted. Although companies that work in high-risk areas may be very well prepared, having devoted time and resources to plans and staff training, “even they may overlook a risk”. “Often the threats are not readily apparent.” NYA has undertaken recent projects on companies’ security arrangements in Asia, Central America and Africa, helping clients put together security plans and also testing them. “This is an extremely effective way to test an organisation’s response to a kidnapping or any form of crisis,” Mr Kemp says. “If you have a plan in place and practise your response, it will become second nature, and becomes much easier if you are subjected to a real incident.


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“We can recommend mitigation strategies for the client to put in place, and testing their crisis management plan is an extremely effective way to test organisations’ response to kidnappings or any other crisis, like a natural disaster or political instability.” NYA has developed a web-based risk management service that enables clients’ employees to lodge their travel plans, gain access to specific country advice and obtain emergency contact numbers and useful travel information. Mr Kemp says issues can range from lost passports to a disturbance outside the traveller’s hotel. In both cases travellers are usually unsure what they should do. The NYA specialists can not only give them advice but also compile the information and provide updates to companies who might have employees in global trouble spots. He says the service helps travellers manage their risk and also enables NYA to alert the company if a staff member is in difficulties. “It is all about fulfilling the duty of care obligations to travellers.”

www.pscunderwriting.com.au Broad Cover & Competitive pricing to reflect the Hire & Rental Industry needs Our Hire & Rental insurance package provides your clients with competitive pricing, broad covers and endorsements specific to the industry for areas of cover that have been traditionally harder to access. Our specific tailored wordings address the increasing complexity of industry specific exposures for a range of clients and benefit businesses within the hire industry including Construction, Earthmoving, Lifting Equipment, Landscaping, Audio Visual, Catering and Party Hire. We include: Theft by Hirer, Transit, Dry Hire, Hired In, Full Accidental Damage, Hire Stock Australia wide Get a Quote: Download application form and email to distribution@pscunderwriting.com.au

insuranceNEWS

October/November 2012

53


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companyNEWS

We’re not getting any younger:

ANSVAR INSURANCE AND AUSTRALIS GROUP Underwriting have recognised the particular needs of Australia’s ageing population, and have developed new insurance products to meet these needs. They have launched two joint binder agreements covering aged care property and home and community care liability. Risks covered in the aged care property policy include low-level care at hostels or hospices, high-level care in nursing homes, adult day care services, retirement villages and disability services. For the home and community care liability policy, risks include community aged care packages, extended aged care at home, and extended aged care at home for people suffering from dementia. Australis is working under a binder agreement with Ansvar on the two products. Australis Chief Executive Gary Marshall says the binders have market-leading policy wordings. “The two new binders will formalise some of our present arrangements as well as create opportunities in the home and community care market,” he says. “We know the care market is changing, as are the needs of Australia’s ageing population. That is creating an increased demand for appropriate services, especially home and community care.” The need for retirement villages is likely to keep increasing the demand for insurance products tailored to older Australians, Mr Marshall says. “Government plans and initiatives are also impacting on the care sector, so there are going to be some big opportunities for us to explore with Ansvar in the near future.”

Ansvar and Australis team up to meet emerging aged-care challenges

insuranceNEWS

October/November 2012

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companyNEWS

Online, anytime: CGU adds PI to its Connect platform

Plenty of professionals to cover: CGU’s PI quoting system has been streamlined

FRESH FROM INTRODUCING A simplified online tool for quoting marine risks, CGU has streamlined its professional indemnity (PI) quotes system. The insurer has added PI to its Connect platform, allowing brokers to source quotes in real time, online. Intermediaries can use the software to

quote and bind new business, complete qualifying renewals and process cancellations. It covers more than 150 professions, from management consultants and real estate agents to yoga instructors and zoologists, with more coming soon. CGU National Commercial Manager

Jarrod Wilson says the new system was developed in consultation with intermediaries to provide the best possible online experience. “We’re confident that through our understanding of our intermediaries’ business, combined with our more than 20 years experience writing professional indemnity, Connect PI will be welcomed by the industry,” he says. “This new way of working will be particularly beneficial for writing SME business, as there is no other system like it in the PI space.” Intuitive questions help brokers determine if a risk needs to be referred to an underwriter for assessment. “CGU has more than 400 professions but has selected those best suited to this form of distribution,” Mr Wilson says. “We recognise that some PI risks do not belong online due to their complexity and are targeting SME risks that suit this type of platform.” The PI policy covers civil liability arising from professional service as well as claims investigation costs. The inquiry costs sub-limit has been increased from $100,000 to $250,000. Public relations cover has been introduced, with a limit of $50,000. Additional covers are available for most professions, including general liability, employment practices liability and fidelity.

Global village: XL takes an international approach to the environment XL GROUP HAS LAUNCHED AN environmental product for multinational companies, XL WorldPass Environmental. The company says the worldwide cover follows increasingly stringent international environmental legislation and increased awareness of the problems of environmental damage. It is supported by the group’s global program capabilities and claims management system. It covers historic pollution found on an insured’s site, as well as new conditions the insured may create. The product covers first and third-party clean-up costs required by government or regulatory authorities; legal liability for pollution and natural resource damage; 56

third-party diminution in property value; lead and asbestos liability; and business interruption. It also covers compliance with legal, regulatory and tax requirements. XL says the product has been designed to cover a broad range of industrial and commercial operators. “Changes to environmental regulations are occurring throughout the world every day,” Sydney-based XL Environmental Underwriter Andrew Hookings says. “As Australian companies expand at home and abroad, it is important that they have access to insurance solutions that ensure they are compliant with relevant legislation wherever they are doing business.” insuranceNEWS

October/November 2012


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peopleNEWS

Changing the world

Insurance professionals discuss what drives them to build a better future for people in need By Elizabeth Redman 58

insuranceNEWS

October/November 2012

FAMED ANTHROPOLOGIST MARGARET Mead said it best: “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.” Many Australian insurance professionals are stretching themselves well past their comfort level by taking time out to help people who are poor or dispossessed or just simply in need of some human comfort. Perhaps they have a sense of gratitude for their own prosperity and want to give something back to the community. Perhaps they acknowledge that while they can’t do much in comparison to the scale of the problem, what they can do can make a big difference. Or perhaps they just believe things should be better and they should do their bit. Whatever motivates the seven insurance industry professionals you will meet on the following pages, what they didn’t expect was the sense of wellbeing and fulfillment that comes from being able to help others. They are among a growing force of Australians who volunteer their time and expertise for the benefit of strangers. The number of volunteers in Australia almost doubled to 6.1 million between 1995 and 2010, according to a report by peak body Volunteering Australia. In 2010, 36% of the adult population involved themselves in some form of voluntary work. Research shows the volunteering rate is higher for professionals and managers compared with blue-collar workers, and people from outside the cities are more likely to put their hand up to help. And interestingly, many volunteers involve themselves in projects that have little to do with their professional training. Volunteering Victoria Acting Chief Executive Katherine Koesasi says volunteers find helping others is good for their physical and mental health. “There is also increasing interest by large corporate employers to support their employees in their volunteering efforts,” she says. “Many employers see this as a smart move. “It can help make employees happier about where they work and want to stay there, and it also helps the corporation give back to the community.” Some, like the QBE Foundation featured in the June edition of Insurance News, donate to charities picked by the staff, while providing the ability to become involved in community projects. Employee volunteer programs, where organisations create an ongoing partnership with a charity, are becoming more common, Ms Koesasi says. International volunteering is very popular, and the need for volunteers at home and abroad is growing. The variety of approaches and the motivations of the industry volunteers featured in this report illustrate yet again that each of us can, in some small way, help to change the lives of others for the better.


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John George Chairman, MGA Insurance Brokers The first time John George went to Cambodia about 12 years ago, he was shocked to see children living on rubbish dumps. “Children are living with parents that have no money or hope of sending kids to school,” he says. “This feeling of hopelessness that families have because they couldn’t care for their children – that was the thing that struck me. These families have been totally disempowered.” Mr George says such helplessness is “something we don’t understand in Australia”. “We’re trying to build that empowerment into these kids so they understand they’ve got a place in the world.” When he first visited, Mr George had been involved with the Australia Cambodia Foundation for six months. The foundation’s president, Geraldine Cox, had a brother-in-law working in the insurance industry who knew Mr George and had been his first boss around 40 years ago. She needed some assistance in running the Australia Cambodia Foundation and Mr George became the secretary and treasurer. The shock of that first trip to Cambodia motivated him to continue his involvement. Now the chairman, he oversees the group’s operations and helps with fundraising. The foundation provides

residential care and education for underprivileged children through the Sunrise Children’s Villages, as well as other projects. The students attend school and have the opportunity to do tertiary study. The foundation also runs outreach programs with local organisations to support local hospitals and provide medical care for HIV-positive children. It relies on about 2500 regular donors, corporate sponsors and the back-office support provided by MGA. Mr George is still in contact with some of the children he first met 12 years ago. “They become part of your family,” he says. “I wasn't really prepared for that. “It's a long-term thing, not something you just do for five years and walk away from.” Mr George is also involved with the Royal Flying Doctor Service and Variety, but says he’s never done anything like his work with the foundation before. Although many of his friends are supporters of the charity, others are confused by his involvement. “Cambodia was greatly affected during and after the Vietnam war,” Mr George explains. Although he is not a war veteran, he has friends who are. “I think we’ve got a duty to these people in Cambodia to do what we can to assist them.”

Caring for youngsters in Southeast Asia insuranceNEWS

Walking the Great Wall of China

Chris McHugh Executive General Manager Statutory Portfolio, Suncorp Chris McHugh walked the Great Wall of China for charity, but it wasn’t the Great Wall you’ve seen on postcards or in documentaries. “It's an overgrown dirt track on top of a mountain range,” Mr McHugh told Insurance News. “The wall is an awe-inspiring structure.” He trained in advance for a 90,000-step trek that covered about 80km over five days. Sometimes he and other members of the group he was with were walking at 900 metres above sea level in temperatures reaching 38 degrees. His charity of choice was Youngcare, an organisation that Suncorp is deeply involved with. It helps provide care and accommodation for high-care young people, many of whom live in aged-care facilities because there is nowhere else available. He completed the trek with 10 others who had some personal connection to the charity, including those who have relatives with high-care needs or who work as nurses. There’s a good fit between Youngcare and Mr McHugh’s work in personal injury insurance. “Anybody who has been in this industry for a long time has a close association with people who have severe, disabling injuries,” he says. “It becomes core to what we do on a day-to-day basis. “More than just operating as a commercial insurer, it’s important we’re there to get the best outcomes for people who need our support.” Despite the rigorous demands of the Great Wall trek, Mr McHugh says he felt “quite energised”. “I didn't feel drained, and I never got tired of the scenery. It was a pleasure.” Each day his group completed a section of the wall and was bussed to accommodation in local villages. In the morning they returned to the wall, avoiding parts that were restricted for military reasons or danger. Suncorp’s association with Youngcare started about six years ago and the company has raised around $3 million in that time. Mr McHugh says it’s the first time he's ever fundraised as an individual. So far he has raised $40,000 for the charity, mainly from business partners and “very generous” brokers. “As a corporate, we can raise more money than that. But it was more important to put your face to something and stand up for something. “We like to raise the profile and visibility of charities that are truly effective and we think this one is.”

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Andrew Price Chief Operating Officer, Wotton + Kearney

Hiking the Kokoda trail

Adrian Kitchin Managing Director, Insurance Advisernet Australia There were about two metres of flat ground at the start of Adrian Kitchin’s Kokoda trek last year. Then he didn’t see flat ground again for seven days, walking either downhill or uphill along the 96km track through rainforest and over mountains. When it rained he was knee-deep in mud. “At least no-one’s shooting at us, so you don’t complain,” he says. Insurance Advisernet Australia (IAA) and the Returned Services League were the main sponsors of the trek. Their funds enabled soldiers wounded in the war in Afghanistan to join the walk as a rehabilitation exercise. For the returned soldiers, walking with corporate staff from IAA and other insurance companies including QBE and Lumley has also proved to be a positive step in the transition into civilian life, Mr Kitchin says. Many of the servicemen are sappers from bomb detection units in Afghanistan – soldiers who were among the most likely to suffer terrible injuries. Returned soldier Damien Thomlinson, who had lost both legs in an explosion, walked the track on two prosthetic limbs last year. “He sometimes pulled himself up by his upper body strength,” Mr Kitchin says. “It was pretty gripping to watch him do it. “If we’ve got a sprained ankle or things are a bit tough going, you've only got to look at Damien.” Mr Kitchin spent some time read60

ing about the history of the track, where 625 Australians were killed and more than 1000 wounded during a vital campaign that prevented Japanese forces from capturing Port Moresby and isolating Australia. He also understands the realities of the war in Afghanistan. “It’s a dirty war and one that people would prefer to ignore,” he says. “I’m not from a military background. But these young boys are putting their lives at risk and that needs to be recognised.” IAA supports a number of charities including Reach, Variety and Beyond Blue. But Mr Kitchin found at the end of last year’s trek with wounded Australian soldiers that he didn’t want to tick off the Kokoda experience and move on to something else. Although he admits walk ing the track is “grueling”, he did it again this year with wounded soldiers and family members of some soldiers killed in action in Afghanistan. Fundraising has already started to make sure the rehabilitation walks can continue without having to rely on IAA sponsorship. “We want to make sure the walk becomes bigger than us,” Mr Kitchin says. He finds insurance professionals are generous with their time and money. “Most of us in the insurance industry – and most Australians – we’re very fortunate. We all have a social conscience and you like to give a bit back.” insuranceNEWS

Instead of going on Schoolies week last year, 30 students from a Sydney high school went to Cambodia to build houses. One of their chaperones was Karen Pritchard, the human resources adviser at boutique insurance law firm Wotton + Kearney. The firm appointed its first pro bono co-ordinator this year, so bringing the two concepts together was the logical next step. Chief Operating Officer Andrew Price is one of a six-person team from the firm heading to Cambodia later this year to build houses for local families. They will also visit an orphanage and are taking stationery with them to give to the students. The building program is run by the Tabitha Foundation, which works to improve the poorest Cambodians’ lives and often hosts Australian housebuilding teams. After an orientation briefing, teams nail thin sheets of corrugated iron onto frames already constructed by Cambodian builders, adding walls and floors to the foundations. The lawyers have to pay for the building materials and have so far raised $21,500, which will enable them to build 13 houses. “Seven of us ran the Sydney half-marathon, which was a battle for people like me who don't run,” Mr Price told Insurance News. The event raised around $9000. A fundraising dinner and charity auction in Sydney raised a similar amount, and a cocktail party in Melbourne was being planned when Mr Price spoke to Insurance News. “Twenty thousand dollars struck me as being ambitious at the start of the year but everyone’s got on board,” he says. “If we can raise more money, we can build more houses.”

Improving lives in Cambo

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Anne Salvador IT test analyst, Lumley Insurance Network Heaven also supports scholarships and local business initiatives in Sri Lanka, based on the philosophy of “giving a hand up, not a handout”. The group has set up a mushroom farm, a cardmaking business, a barbershop and a compost business. They have also arranged for widows to grow vegetables in a convent garden. “But that’s come undone because we’ve got a monkey problem,” says Ms Salvador, who admits her charity work takes up a lot of her spare time in Sydney. “Initially my friends and family are positive, but over time some of them might think I’m crazy.” Ms Salvador visited Sri Lanka after the 2004 Boxing Day tsunami and saw its far-reaching effects. “People were still living in tents a year later,” she says. “People who have become poorer as a result have still not been able to recover.” The crèche is in a flood zone, and Ms Salvador is looking for help to rebuild it. She also needs sponsors, a web designer and enthusiastic fundraisers. “I feel really helpless at times,” she says. “I recognise that we really are a privileged nation and I’m a billionaire compared to the pain and suffering that many people in the Third World experience. “Mother Teresa has a saying: ‘I cannot do big things but I can do small things with great love’. “What motivates me is my personal faith that tells me that it’s the least I can do. I am blessed and that motivates me to help others in need.”

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to learn Giving children a chance

Daniel Fogarty Chief Executive, Zurich General Insurance, Australia and New Zealand Daniel Fogarty is blunt about the harsh realities for children living in poverty. “Children are an economic unit,” he says. “They could be going to school, but a child earning one or two dollars a week makes a huge difference to a family.” Cambodia has one of the lowest school retention rates in Asia. Only 54% of children who start Grade 1 will reach Grade 6, according to research by the Asian Development Bank. In Bangladesh and Laos, the rate is 67%. In Sri Lanka and Hong Kong, the figure is over 98%. But in Cambodia, children start after-school work early and are frequently forced to drop out of study to help support their families. In light of this, Mr Fogarty’s focus is on making a difference through education. He is on the advisory committee of See Beyond Borders, a charity that helps improve access to and the quality of education in Cambodia. He helps with strategy and fundraising, often in the form of corporate lunches. Mr Fogarty says See Beyond Borders provides “rice scholarships” to supplement the income children would have made at work. It also provides bicycles for transport, school uniforms and runs school nutrition programs because students learn better on a full stomach. The program improves the quality of education in schools by sending Australian teachers during school holidays to help train local staff and by pairing younger teachers with experienced local mentors. The charity also builds schools. “When I was there in May one of the schools I saw was just like a barn you keep farm animals in in Australia,” Mr Fogarty told Insurance News. The school of 58 children had a dirt floor and tin roof. It gets muddy during the frequent downpours of rain. “That had a big impression on me because that school can be rebuilt for $45,000,” he says. “When you go there you realise that a little bit [of money] can go a long way.”

October/November 2012

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Poverty is common in Sri Lanka, but the culture shock doesn’t faze Anne Salvador on her frequent visits. It helps that she was born there and moved to Australia as a teenager. But she also hears stories of poverty and hopelessness all the time through her work with charity Network Heaven. Ms Salvador’s cousin runs a crèche in a slum for children of all religious backgrounds aged under five. For many of them, the only hot meal they get is lunch at the crèche. Many of their mothers earn less than $3 a day and have lost or been abandoned by their husbands. Twelve years ago Ms Salvador and her late husband agreed to send a Christmas parcel for each of the children, containing a set of new clothes and underwear, school stationery, a small toy and a lolly bag. “That was the least we could do to bring some relief,” she told Insurance News. “I couldn’t feed them every day but we could do something that would help.” Network Heaven has grown and now includes a team of volunteers sourcing and packing 1000 Christmas parcels every year. Ms Salvador takes leave from work for the annual packing week, held at her church after the September long weekend. Parcels are also sent to children affected by the country’s war, HIVpositive children who even orphanages won’t take, and the children of farmers who can’t afford schoolbooks. Volunteers in Australia sew clothing and collect obsolete corporate items such as caps, bags, mugs and pens.

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Insurance celebrates its brightest and best The Australian Insurance Industry Awards drew a record crowd to the Sydney Convention and Exhibition Centre this year. Some 840 guests celebrated the individuals and companies judged to be the industryâ&#x20AC;&#x2122;s outstanding achievers. Allianz had special cause for celebration, taking home the Large General Insurance Company of the Year award. Itâ&#x20AC;&#x2122;s the first year the awards have been split into Australian and New Zealand sections, with the Sydney event being organised by the Australian and New Zealand Institute of Insurance and Finance. This year the Institute introduced a Hall of Fame for individuals or organisations that have won a given category five times. For a full list of the winners, see Newsmakers page 7.

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SRS and the Wilsons wrap up ‘the best Games ever’ Sydney residents like to remember the 2000 Olympics as “the best games ever”. But top sports journalists Jim and Rebecca Wilson disagree. London, they say, outstripped Sydney with a sporting extravaganza that was perfectly planned and executed, and “the public transport was much better than Sydney 2000”. The brother and sister duo, who write and report on sport for major national news organisations and certainly don’t agree on everything, put aside their professional rivalry to share their London Olympics experiences with brokers at a lunch organised by SRS Underwriting. The SRS “Olympic Wash-up Lunch” at the Orient Hotel in The Rocks was entertaining and colourful as the siblings gave their audience a behind-the-scenes view of the achievements, personalities, issues and incidents of the 2012 Games. Hosted by SRS Managing Director Paul Lynam, the company’s Sydney lunch has become a popular event, and the Wilsons and their encyclopaedic sports knowledge made it unforgettable.

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A day at the races with UIG United Insurance Group (UIG) knows how to celebrate the first week of spring: with a country race day, a hearty lunch and good company. More than 100 authorised representatives and insurance company representatives made the train trip from Melbourne to Seymour Race Club, accompanied by UIGâ&#x20AC;&#x2122;s two enthusiastic principals, Trevor Howard and Anthony Zambelli. The journey was sponsored by Centrepoint Alliance. The main race was named in honour of principal sponsor Zurich, while other races were named after UIG and its clients. With eight races, there were plenty of chances to back a winner.

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All smiles as Ausure heads north Ausure Insurance Brokers authorised representatives and industry guests enjoyed a sunny spring break when they travelled to Cairns for three days of listening, learning, networking and celebrating excellence at the group’s conference. Keynote speakers included National Insurance Brokers Association Chief Executive Dallas Booth, Steadfast Marketing & Relationship Manager Graham Cassidy, marketing expert John Lees and adventurers Justin Jones and James Castrission. Business presentations covered such areas as cross-selling, professional indemnity, the future of insurance and surviving a challenging market. Nearly 40 representatives from insurers, funders and underwriting agencies took part in the trade show. The Sebel Hotel’s Grand Ballroom hosted the final-evening Ausure Awards gala dinner, which is centred around recognising the achievements of Ausure staff and offices. The awards included largest branch (Newcastle), fastest-growing branch (Mount Isa) and the Chairman’s award (Foster Brown from Ausure Insurance and Finance Kurri Kurri, NSW). Dan Ramien from the Gunnedah branch won best young achiever, Arthur Payne from High Street Underwriting Agency won supplier of the year and MMA Insurance Brokers in Brisbane won the Jim McIlveen Award of Excellence for an outstanding branch.

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Calliden’s style secrets More than 50 female insurance brokers were treated to an afternoon of talking shop – in both senses of the phrase – at Calliden’s latest women’s event in Sydney in August. Held in the Settlers Hall room at Waterfront Restaurant in The Rocks, “Calliden Does Fashion” featured a fashion show with advice from expert personal stylist Wendy Mak. It also included information about four Calliden products: Commercial, Mansions, events and entertainment product Arena and farm product Argis, presented by NSW Development Managers Paula Serwach, Mark Wilson and Con Anasta. This is the second Calliden’s women’s event held in Sydney. Four events are held across Australia every year. Calliden Group Executive Customers Mike Hooton (below) says these events are important because women make up a significant part of the insurance industry, particularly in broking. “We recognise and value the contribution they make to the industry.”

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AILA bridges the generations The Sydney Harbour Bridge formed the backdrop to the fourth annual Australian Insurance Law Association (AILA) “Meet the Maestros” luminaries dinner. Some 54 “luminaries”, including chief executives, managing directors, company partners and executive claims managers, attended the event in the Bennelong Restaurant inside the Sydney Opera House. They were seated at tables with 51 young professionals, with guests moving seats twice during the three-course meal. The format allowed younger insurers, reinsurers, brokers, actuaries and other insurance professionals to find out more about the paths to senior management, while building contacts with senior members of the industry. Pre-dinner drinks in the Opera House forecourt also enabled the guests to mingle, with the stunning harbour view and passing ships adding to the occasion.

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Allianz trains brokers to be their best If you’ve ever wanted to take control of your body chemistry and use it to perform at your best, you should have been at Allianz’s Gold Coast training day. Motivational speaker Matt Church’s presentation on the “drivers of peak performance” entertained the more than 100 brokers who attended as guests of the insurer. Other presentations at the Watermark Hotel covered Allianz Marine and Transit’s specialist products and services, Allianz’s risk appetite and changes to workers’ compensation legislation. Hunter Premium Funding’s Queensland State Manager Peter Laydon outlined current economic conditions and their impact on Australian businesses. National Underwriting Manager Rob Price led a practical property workshop covering the issues affecting property portfolios and how clients can benefit from investing in risk management. The day included plenty of chances for networking and closed with a prize draw.

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Welcome, Resilium! A captive audience of more than 200 authorised representatives, plenty to learn and something to celebrate. Put them together and you have a very positive event at Melbourne’s Crown Palladium, where Suncorp unveiled its new authorised representative brand, Resilium. The new brand renames the AMP general insurance distribution business Suncorp acquired earlier this year. AMP allowed the use of its brand until the end of this year. Resilium was chosen by Suncorp to imply resilience and the “stickiness” and “lasting confidence” of its customers. It was also a great reason for the new Resilium team to celebrate their first national conference and their new name under the Suncorp banner.

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Windsor

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Queensland brokers get together Queensland brokers are a far-flung bunch, and the annual Council of Queensland Insurance Brokers (CQIB) Convention gives them an opportunity to get together to share experiences and learn. Some 350 brokers, insurance executives and guests attended the 20th convention last month, which was held at the Marriott Resort and Spa at Surfers Paradise. There were plenty of networking opportunities including conference dinners, dancing and a golf day. Sessions covered goal-setting, claims, sales, legal and HR issues, social media and industrial special risks. Macquarie Premium Funding Chief Executive Gary Seymour spoke on changing patterns in the local insurance market, while CGU General Manager Broker & Agent Mark Searles spoke on improving the industryâ&#x20AC;&#x2122;s public image and customer relationships. Christchurch-based broker Alan Daly discussed his personal and professional experiences after the earthquakes, sharing valuable lessons learned with the Queensland audience. The CQIB Young Professional of the Year award was presented to Linda Burnett of AR Insurance Brokers. Delegates raised $35,000 for the Childrenâ&#x20AC;&#x2122;s Health Foundation Queensland, which funds research and supports sick children.

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Big day out for APIG delegates The Australian Professional Indemnity Group’s (APIG) annual conference is always a big day and this year’s event was no exception. Nearly 300 insurers, underwriters, reinsurers, brokers, lawyers and claims experts attended the conference at The Establishment Hotel in Sydney. Peter Nickerson, Chief Executive (Australia and New Zealand) of Berkley Re Australia, gave the keynote address examining the global state of the directors’ and officers’ and professional indemnity liability markets. Panel sessions covered the Insurance Contracts Act, issues for insureds with worldwide operations, risks for executives under the nationally harmonised OH&S regime, the duty of utmost good faith, crime exposures and risks posed by social media. Nearly 450 delegates and other guests finished the evening on a high note at the conference gala dinner at The Ivy.

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from traditional to renewable, ACE insures progress It takes the right people to address the evolving and complex risks of the energy industry. Our experienced underwriters work collaboratively to provide tailored solutions for energy companies of all sizes across Asia Pacific and internationally. We take on the responsibility of your risks, so that you can take on the responsibility of making things happen. We call this insuring progress. Visit aceinsurance.com.au and find out how the energy team can work for you.

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maglog » An insurance version of Millionaire Hot Seat would make for riveting viewing, if only to see Robert Kelly slide effortlessly into Eddie McGuire’s chair as the show’s anchor. Failing that, surely LMI Managing Director and insurance industry thought leader Allan Manning would be a feisty replacement? Until the programming boffins at Channel 9 hand over question-and-answer development to the insurance community, sit back and take a shot at the (completely imaginary) big prize.

Axl Vu le Veu Contributor

For $100: A former military tank commander renowned for his no-nonsense leadership style, who is the current chief executive of Suncorp? A. Patrick Dangerfield B. Patrick Snowball C. Patrick Star D. Snowball the Cat For $200: The three links that comprise the QBE logo represent what? A. Broker, insurer, client B. Intermediary, underwriter, government C. Government, client, insurer D. Death, taxes, insurance For $300: Lloyd’s of London, known as the “Old Lady of Lime Street”, was established as a corporate body under the Lloyd’s Act of 1871 with the motto Uberrimae fidei. What does this mean? A. “The good of a market, the good of a nation” B. “Fortune favours the prepared” C. “Of the utmost good faith” D. “Insured under God” For $400: Which company was the lead insurer of the World Trade Centre in the aftermath of the 9/11 terrorist attacks? A. Munich Re B. Ace C. Swiss Re D. QBE For $500: Marine insurance is believed to be the oldest form of insurance in the world. Which civilisation is said to have created this efficient form of risk transfer? A. The Dutch B. The English C. The Phoenicians D. The Greeks For $1000: Who said this: “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?” A. Jerry Seinfeld B. Rodney Dangerfield C. Woody Allen D. Ernest Hemingway For $1500: Earthquakes caused millions of dollars of insured

losses in 2011. As a general rule, the shallower the earthquake: A. The greater the damage B. The lesser the damage C. The easier the subsequent repairs D. The greater the difficulty in measuring For $2500: Which former Third World military dictatorship has decided to open its markets to the insurance industry? A. Zimbabwe B. Burma/Myanmar C. Wadiya D. Libya For $4000: The Australian general insurance industry’s combined gross written premium in 2011 was: A. $15.6 billion B. $25.6 billion C. $40.6 billion D. $60.6 billion For $6000: Which single natural catastrophe was the costliest event in the history of Australia’s insurance industry, adjusted for inflation? A. Cyclone Yasi (2011) B. Cyclone Tracy (1974) C. Newcastle Earthquake (1989) D. Sydney Hailstorms (1999) For $10,000: Which UK company recently launched the word’s first insurance policy to cover risks caused through the use of social media sites such as Twitter and Facebook? A. iAllow B. iDeny C. iAccept D. iSuppose For $20,000: What failed Australian enterprise formed the basis for the emergence of insurance company Calliden? A. Reinsurance Australia Corporation B. HIH C. CALLer IDENtity Ltd D. FAI For $50,000: New powers proposed by Treasury will grant the Australian Prudential Regulation Authority widespread powers to investigate, prosecute and terminate troubled insurance companies. Among these proposed powers are:

A. The power to sack the chief executive and board without cause B. The power to suspend all payments to policyholders C. The power to take preemptive action against a company’s directors or trustees D. The power of flight For $100,000: At its peak, the marine kidnap and ransom insurance market for risks involving Somali pirates was worth how much? A. $US5 million B. $US20 million C. $US100 million D. $US250 million For $250,000: Complete this quote by a senior reinsurance executive: “The New Zealand regulator is going to have to…” A. “Be tough if they want to be taken seriously internationally” B. “Be bold if they want to be seen as an innovative body” C. “Be aggressive if they want to be treated with respect” D. “Adopt a more cooperative manner if they want to succeed” For $500,000: Besides both having degrees from Harvard University, what do former QBE chief executive Frank O’Halloran and US statesman and inventor Benjamin Franklin have in common? A. Both were fascinated by lightning B. Both were accountants C. Both shared a love of chess D. Both are members of the Insurance Hall of Fame For $1 million: What curious order did incoming Willis Chief Executive Joe Plumeri give during his first week in charge of the Chicago-based brokerage? A. Instituted “Pyjama Wednesdays” for all executive staff B. Turned off all email to encourage intercompany communication C. Took his executives’ office doors off D. Tattooed the Willis logo on his shoulder

ANSWERS: $100 B; $200 A; $300 C; $400 C; $500 D; $1000 C; $1500 A; $2500 B; $4000 B; $6000 D; $10,000 A; $20,000 A; $50,000 C; $100,000 D; $250,000 A; $500,000 D; $1 million B and C.

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Some people just like to lead When it comes to quality insurance solutions, LIU has the global With experience, appetite and capacity to be the lead choice. W ith a parent Fortune 100 par ent established in 1912, LIU has the financial firepower, fir epower,, strength epower strength and stability to meet your claims as the primary lead insur er. insurer. W ant an insurance partner who sees you to a Want strong str ong finish? Call LIU.

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LIGHTEN YOUR LOAD WITH MARINE INSURANCE FROM THE EXPERTS. When it comes to transporting cargo by sea, you can trust the Marine Insurance experts at CGU to protect your goods. Developed by Marine Insurance specialists, CGU’s MyMarine online quoting and binding tool makes navigating risks in rough waters easier and faster. With limit alerts and no manual intervention, it’s just another way CGU suits whoever you are, whatever you do. Talk to your CGU Business Development Manager or visit cgu.com.au today for more information on CGU MyMarine.

CGU Insurance Limited ABN 27 004 478 371 AFSL 238291. This is general advice only and does not take into account your customers’ individual objectives, financial situation or needs. When making decisions about the product your customer should consider their personal circumstances and the product disclosure statement available at www.cgu.com.au

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Profile for Insurance News (the magazine)

OCT/NOV 2012 - Insurance News (the magazine)  

The relaxed atmosphere at the annual Reinsurance Rendezvous in Monte Carlo belies the serious business dealings and massive amounts of money...

OCT/NOV 2012 - Insurance News (the magazine)  

The relaxed atmosphere at the annual Reinsurance Rendezvous in Monte Carlo belies the serious business dealings and massive amounts of money...