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Climate change: Stop arguing – it’s here
Surprise! Government’s Christmas law shocker
Mergers: Is bigger always better?
Moving on, reaching out ICA President Mark Milliner is leading the industry into a new era of engagement
February/March 2013
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Wla.org O Nfice@aic
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ASIAN CLAIMS CONVENTION
Australasian Institute of Chartered Loss Adjusters
Hear global claims leaders Expand your professional network
A Global Claims Perspective – From Twin Towers to Crops
21-22 March 2013 MEDIA SPONSOR:
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Contents 6 Newsmakers » 10 Say hello to climate change » As Australia swelters, the debate moves on to how to deal with extreme weather.
18 The Christmas present Santa didn’t bring » Once it’s unwrapped, the Government’s unfair contract terms legislation may well cause headaches.
20 Moving on and reaching out »
New ICA President Mark Milliner outlines his agenda for an industry body more focused on consumers, communities and other stakeholders.
26 Bridgecorp: one more twist »
A New Zealand court restores some certainty to D&O policies but that’s not the end of it.
30 Big. But not necessarily better or best »
Mergers and acquitisions are less likely at the top end, but there’s still plenty of consolidation possible further down the distribution chain.
36 See you in court »
Legal actions from the Christchurch earthquakes are reaching the endgame.
40 The game-changer »
An insurer in its infancy has plans to revolutionise the way large hard-to-place business is written in Australia.
43 Turning up the heat on insurers »
companyNEWS
56 Meet the competition » Zurich saves time, offers discounts, puts marine risks online.
56 On the farm »
CGU takes its regional and rural offerings online.
peopleNEWS
64 Leaving their mark » Industry awards recognise some outstanding professionals.
68 Keith Till signs off » 70 72 74 76 78 81
His career has been a straight line for 50 years, all the way from recruitment to retirement.
Reaching out with McLardy McShane » Blue Eagles swoop on roos » After 27 years, it’s goodbye Lach » Brokers dive deep for Catlin » QBE eQuips the next generation » Insight’s big night for networking »
82 maglog »
Allan Fels talks tough as he monitors Victoria’s FSL transition.
46 Bring in the real experts »
The story of a large commercial fire claim that ran so smoothly it surprised everyone – except the project manager.
50 Ansvar resurrected »
The quake-hit insurer is “a very different organisation” as it slims down and shifts its focus.
54 The analytics advantage »
How insurers can learn more about their customers and increase customer retention.
58 So much to learn, so little time to act »
Two brokers visit the Great Barrier Reef and discover the unlikely union of an insurer, a search engine and marine researchers.
February/March 2013
Cover: Mark Milliner, President, Insurance Council of Australia; Chief Executive, Suncorp Personal Insurance Image: Kym Thomson
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Rates climbing, says report: The insurance industry expects rate increases across all lines this year, according to the latest JP Morgan/Taylor Fry General Insurance Barometer. But insurers face competition from overseas companies, while the internet gives consumers opportunities to shop around, the report says. Staff issues are brokers’ main worry, with 100% of survey respondents concerned about employee retention and a lack of new blood in the industry. Fewer catastrophes last year reduced the industry’s combined ratio for domestic lines to 89% from 98%, and for commercial to 98% from 106%. Respondents forecast the overall ratio will improve to 90% this year from 98%, although they were questioned before January’s disasters.
JP Morgan Insurance Analyst Siddharth Parameswaran says the industry expects it will still have a reasonable year. Household premiums are predicted to rise 12% this year and domestic motor will increase by 4%. Compulsory third party (CTP) is expected to rise 6% in NSW and 7% in Queensland. In commercial lines, they expect fire and industrial special risk (ISR) to rise by 7%, commercial motor by 4%, public and product liability by 3%, professional indemnity by 3% and directors’ and officers’ cover by 4%. Workers’ compensation in WA is expected to rise by 4% and rates for Tasmania and NT could increase 6%. Mr Parameswaran says last year’s improved ratios mark a deterioration in long-tail
Code sharpens up: The development of a new draft guideline outlining how insurers should deal with hardship cases is imminent, according to the independent reviewer of the General Insurance Code of Practice. Ian Enright, who is conducting the review, says he is hoping to have a draft guideline on hardship agreed to by both consumer and insurer representatives “very soon”. The draft guideline is currently being reviewed by the Code Advisory Panel, which consists of one insurer and one consumer representative. Mr Enright says a roundtable forum featuring consumer and insurer representatives on the subject of hardship produced “a great deal of consensus”. He hopes that consensus can be reached on some of the other recommendations in his final report – on track to be released in May – but admits that some issues will remain contentious.
lines, where low interest rates can make a substantial difference to returns if premiums are not increased. Brokers reported public and product liability as their most profitable class last year, followed by CTP and fire/ISR. Workers’ compensation and domestic motor vehicles were the least profitable classes. The report says the internet is growing as a distribution channel at a faster rate than insurers expected and presents a challenge because consumers can compare quotes. It says although improved data collection offers scope for significant improvements in underwriting, it can also undermine insurers’ edge. “Other institutions may know more about their customers than they do.” Price increases expected on all lines, February 4
“I’m looking forward to not having to contend with this issue ever again from July 1.” – And so say all of us. Shepparton broker Ben Goodall on the confused final months of the Victorian fire services levy
Scott moves on:
Code review close to hardship breakthrough, February 11
IAG quits UK motor: New York’s solution: Properties hit by Superstorm Sandy could be purchased by the state and the land turned into open space or floodplains under a $US400 million proposal from New York Governor Andrew Cuomo. Owners of homes substantially damaged by the storm would be offered the pre-storm full market value of their houses, the New York Times reported. Those who relocate within their home county would receive a 5% bonus. Residents in more vulnerable areas could 6
sell their homes for market value plus 10%, even if they suffered little storm damage. For a few dozen blocks in extreme-risk areas, an additional 10% bonus would be available if every homeowner on the block agreed to sell. The land may be used for wetlands, dunes or other natural buffers, or turned into public parks, but would not be available for future development. Buybacks proposed in New York flood zones, February 11
IAG is finally free of its troubled UK operations, which it sold in December – albeit at a loss to the group. The company sold motor underwriter Equity Red Star to private equity firm Aquiline Capital Partners for £87 million, while its UK broking business, Independent Commercial Brokers, went to a consortium led by the existing management team for about £10 million. In the current financial year IAG expects to incur a net loss after tax of about $240 million relating to the sale of the operations it bought for $1.4 billion in 2006 – on top of the hundreds of millions of dollars in writedowns and losses incurred in recent years. IAG Chief Executive Mike Wilkins said that, following a review of all options for the UK business, a sale “delivers the best available outcome for IAG shareholders”. Shortly after the sale announcement Equity Red Star revealed it had struck a deal for the renewal rights of Ansvar’s intermediated private car, van and minibus motor portfolios in the UK, following Ansvar parent company Ecclesiastical Insurance’s decision to exit the British motor market. IAG breaks free from UK motor shackles, February 4
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Wesfarmers Insurance Managing Director Rob Scott will leave his position later this month after being promoted to Finance Director at Wesfarmers stablemate Coles Supermarkets. Wesfarmers Insurance Finance Director Anthony Gianotti will become Acting Managing Director pending a permanent replacement. Mr Scott has run the insurance division since 2007 and completed a twoyear term as president of the Insurance Council of Australia at the end of last year. He has “significantly improved” the operational performance of the insurance arm during “what was an extremely challenging period for the entire insurance industry”, Wesfarmers MD Richard Goyder said. Scott leaves Wesfarmers Insurance, February 4
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FIGURE THIS
9.11 BILLION
Amount in Australian dollars that Thai group Charoen Pokphand paid for a 15.5% stake in Chinese insurer Ping An
1182
Number of disputed claims from the 2011 Queensland floods that went to the Financial Ombudsman Service
Light snow limits damage: There have been no reports of substantial structural damage from the wild winter storm that hit the US and Canada in early February. Catastrophe modelling firm AIR Worldwide says winter storm Nemo, which hit on February 8 and 9, brought deep snow, high winds and a “significant” storm surge along the New England coast, affecting around 40 million people. AIR Worldwide Principal Scientist Tim Doggett says added the impact of the surge “was heightened by the fact that it coincided with the monthly high tides”.
The storm hit the entire eastern US seaboard from New York City to Portland, Maine, while also bringing heavy snow and high winds inland across Connecticut and Rhode Island and into Massachusetts, Vermont and New Hampshire. AIR Worldwide says structural damage was limited by a number of factors, including a lack of previous snowfall and the “low density” of the snow, which minimised the weight of the snow pack. The sustained winds were also lower than forecast. Damage from US snowstorm minimal, February 18
Welcome back, AIG: American International Group has signalled the dark days of the global financial crisis are behind it by rebranding to AIG Australia, dropping the Chartis Australia brand and adopting a new global slogan. “It feels good because we’re going back to what we’ve been for 80 years,” Chief Executive Noel Condon told insuranceNEWS.com.au. “It marks a return, but not a return to the old AIG. I think we’ll stand for different things in the future.”
The AIG brand was changed to Chartis in 2009 following the US Government bailout of the parent company in the global financial crisis. The move was made because of fears the AIG name was “toxic” to consumers, but AIG says the company found brokers and customers preferred the former name. “The message is that we’re back, we’re ambitious, we’re keen to get on with it, but also that we have changed as a result of the ‘near death
experience’,” Mr Condon said. “I’d like to think we’re going to be a more compassionate AIG in the future.” The new group global tag line is “Bring on tomorrow”, which he says signals a sense of optimism in the future. The old-new AIG brand has been gradually reintroduced around the world since November. The company employs 400 people in Australia, and Mr Condon says the business survived not only because of the US Government’s relief package but also due to the support of brokers and customers in Australia, which gave staff the confidence to stay with the business. He says that internally there is excitement about the new name, and externally the response from brokers and clients has been “very encouraging – we’ll never forget it”. The updated logo shows the traditional white capital letters in a dark-blue box replaced by light-blue capital letters on a white background in a framed, light-blue box. AIG President and Chief Executive Robert Benmosche, who led the move back to the old brand, says the new logo “reflects a rebuilt and forwardlooking AIG – contemporary, dynamic, transparent and revitalised”. Chartis Australia rebrands to AIG today, February 18
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13
Percentage drop in the number of crashes involving trucks over the past five years
12
Expected percentage rise in household premiums this year predicted by JP Morgan/Taylor Fry in their annual industry barometer report
1.39 BILLION
Amount in dollars that IAG spent to buy UK firm Equity Red Star in December 2006
Peiris steps up: New Allianz Australia Managing Director Niran Peiris has joined the board of the Insurance Council of Australia. He filled a vacancy left by his predecessor, Terry Towell, who retired on December 31. Mr Peiris was formerly Chief General Manager, Retail Distribution, and Chief Executive of Allianz Australia Life Insurance. He joined Allianz Australia in 2000 and was appointed Chief Financial Officer in 2002, a position he held until 2009. Prior to joining Allianz, Mr Peiris had more than 15 years’ experience in insurance and finance. Peiris joins ICA board, February 11
February/March 2013
133 MILLION
Amount in dollars that IAG sold Equity Red Star for in December 2012
6500 Number of Christchurch propertyowners who have accepted a buyout offer from the NZ Government
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Dealing with the big risks:
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Prevention is better than claim: stark support of the insurance industry’s assertion that flood mitigation projects make good economic sense is provided by these pictures of the main street of the small southeast Queensland town of Laidley. The picture above was taken on January 11 2011, while the one below was taken on January 28 this year.
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Government-subsidised flood cover debate resurfaces, February 4
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A Government-backed flood insurance scheme for householders in high-risk areas is again being raised following the latest Queensland and northern New South Wales floods. Rather than availability being at the centre of controversy, it is now the affordability of flood insurance that is being attacked – and in particular the cost of cover for those most at risk of flooding. John Berrill, a panel member of the Government’s Natural Disaster Insurance Review (NDIR), which was conducted after the 2011 Queensland floods, says that despite the increase in the number of insurers offering flood cover, a lot of people still do not have flood insurance because they can't afford it. Mr Berrill, who is head of Maurice Blackburn’s insurance litigation practice, says the NDIR’s recommendation of a system of mitigation-linked premium discounts for high-risk properties funded by a Government reinsurance facility should be reconsidered. Independent senator Nick Xenophon has joined Mr Berrill in calling for the introduction of a federal natural disaster insurance scheme. Senator Xenophon plans to push for a Senate inquiry into the establishment of a scheme similar to the National Flood Insurance Program in the US, which provides governmentunderwritten flood cover at discount premiums for those in high-risk areas, providing local communities invest in flood mitigation. He has described the US scheme as “successful”, despite it being nearly $US18 billion in debt. “Given that potentially hundreds of thousands of Australians can’t obtain affordable flood insurance, there is no reason why a similar approach shouldn’t be adopted here,” Senator Xenophon said. Meanwhile both the Insurance Council of Australia (ICA) and the National Insurance Brokers Association (NIBA) have welcomed comments by Queensland Premier Campbell Newman that governments must direct more funding to mitigation measures to help protect communities from the next disaster.
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Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion. Printed on FSC® paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.
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We’re the new AIG. We have learnt that tomorrow is what you make of it. Our focus is on the future, for our customers and partners in Australia and across the world.
AIG is located in more places, with more offerings and together we can unlock a world of opportunity.
www.aig.com.au All products are written by AIG Australia Limited (AIG), ABN 93 004 727 753 AFSL 381686.For additional information on AIG’s products and services, please visit our website www.aig.com.au
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BU S H FI R E S , F L O O DS ,
Say hello to As Australia swelters, the debate moves on to how to deal with extreme weather By Terry McMullan and Elizabeth Redman RECORD TEMPERATURES, A CYCLONE, DEVASTATING FLOODS, storm damage and bushfires across the country – a January of catastrophes that has again stretched the insurance industry’s resources. Insurers are busy tending to more than 72,000 natural catastrophe claims, with insured losses estimated at around $832 million, although this is likely to rise. Four catastrophes were declared by the Insurance Council of Australia (ICA) in three states during the summer, adding fuel to the discussion over global warming and climate change. The Insurance Council, which was heavily criticised following the Queensland floods of 2011 for its lack of coherent action, has been in the forefront of this year’s catastrophe recovery, with managers moving around the country to address public forums and maintaining close contact with stakeholders. January was a month of temperature extremes. It was the hottest month ever recorded for Australia, surpassing figures which had stood since January 1932. All states and territories reported above-average temperatures for the month, with eight days of national average maximums above 39 degrees, seven of them consecutive. The Bureau of Meteorology says many of its stations recorded alltime record high temperatures during the January heatwave, with Sydney registering 45.8 degrees on January 18. On January 12 the South Australian town of Moomba registered the highest temperature recorded during the heatwave – 49.6 degrees. Then came Tropical Cyclone Oswald, a nondescript storm which formed in the Gulf of Carpentaria and made landfall in southern Cape York on January 22. Its winds were only about 68kmh and it soon dissipated, but its remnants combined with a low pressure system and tracked south-southeast through Queensland and along the New South Wales coast, accompanied by extremely high rainfall. Catchment areas broke records and population centres, most notably the Queensland cities of Rockhampton and Bundaberg, were devastated. The trail of damage brought home once again the need for floodprone towns to be provided with protection, with Queensland homes and infrastructure damaged by the 2011 floods again being damaged or destroyed in these latest catastrophes. Coming so soon after the 2010/11 floods, the latest event was seized on by Insurance Council Chief Executive Rob Whelan, who told media that each $15 million levee around unprotected towns could spare about $100 million in damage when floods occur. “Flood mitigation in places such as [the NSW city of] Grafton has done its job and protected many communities,” he said. “Without mitigation, Grafton could easily have been as severely affected as Bundaberg. “This again highlights the importance of investing in physical mitigation measures, such as levees, dams, barrages and drainage work.” (The area around Grafton did in fact sustain some damage, as did 10
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other towns in the Tweed and Northern Rivers region.) Governments have previously been reluctant to acknowledge the need for a greater mitigation effort, but this time Queensland Premier Campbell Newman agreed there is a need for more levees. But he says the Federal Government – which is spending $9 billion to fund repairs for the 2010/11 floods – isn’t providing sufficient funding for mitigation projects. The Queensland Government will spend $41.9 million on four programs over the next year, while the Federal Government has allocated $104.4 million over four years. At least the insurance industry now has its act together on flood cover, with ICA saying nearly 80% of homes in Australia are covered. But only 61% of homes in Queensland have flood cover – the lowest level of take-up in Australia. Critics blame high premiums and insurers’ alleged refusal to offer cover in high-risk areas. At much the same time as Queensland and NSW were soaking, the rest of Australia was baking under record temperatures, with bushfires in Tasmania destroying as many as 150 homes and burning February/March 2013
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A RECORD HEAT WAV E‌
News Ltd
climate change
Above: Iconic Bondi Beach is crowded on January 18 as Sydney experiences its hottest day since 1939 – 45.8 degrees
Tim Holmes
Right: Children with their grandmother shelter under a jetty at Dunalley, southeastern Tasmania, as a bushfire destroys their homes and most of the town (see maglog, page 82, for the story behind the picture)
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110,000 hectares of land. The Tasmanian fires were the worst since the $1 billion-plus Black Saturday bushfires in Victoria in 2009, raising claims worth around $90 million. Bushfires also affected parts of NSW, Victoria and Western Australia. January’s record temperatures point to a continuous trend for higher temperatures in Australia – a phenomenon which is splitting opinion in the country as climate change begins to claim headlines. While some politicians and conservative commentators are still batting away the science and noting localised weather anomalies, the case for accepting that human activity is causing the planet’s climate to change is overwhelming – and the implications for the insurance industry are alarming. The new hazards that people face in a much warmer world are not yet well understood. But the claims that climate change is caused by a regular planetary variance rather than human activity are simply too far out of line with thorough research and findings to be rational. Our understanding of climate change isn’t based on an observed rise in world temperatures. It’s based on physics. Scientists have known for more than 115 years that higher concentrations of greenhouse gases in an atmosphere will make that atmosphere warmer. Venus, the planet most similar to Earth in the solar system, has surface temperatures of almost 500°C because of the high proportion of greenhouse gases in its atmosphere. Back here on Earth, humans have dramatically increased the amount of greenhouse gases we pump into the atmosphere since we learned how to derive energy from burning fossil fuels including coal, petroleum and natural gas for energy. It’s not surprising that as a result, temperatures have started to increase. In the decade 2001-2010, the global average temperature was 0.46°C above the 1961-1990 average, which until then was the warmest decade on record. Over the past three decades, the rate of warming has been around 0.17°C per decade. It’s also clear that the temperature increase is a result of human activity and not changes in solar radiation. Scientists have observed a warming in surface temperature and a cooling in the stratosphere, located around 10- 50km above the Earth, consistent with greenhouse effect models. If the sun was getting hotter and warming the Earth, the stratosphere would get warmer too. Apart from that, there has not been any change in solar radiation in the past three decades, while the temperature has increased. The debate about whether human-induced climate change is real has been confined to elements in the media, and a few in politics. There’s no significant debate in the scientific community. The Intergovernmental Panel on Climate Change (IPCC) illustrates this consensus. The panel was established by the United Nations in 1988 to provide reports about the state of scientific knowledge on the subject. It releases one report about every six years. The IPCC’s most recent report, released in 2007, was written by some 1250 expert authors and double-peer-reviewed by 2500 expert reviewers, who produced about 90,000 comments on drafts. Each of these comments was explicitly addressed by the authors. The total report is around 2.5 million words. It has in turn been reviewed by expert research bodies, who all agree its conclusions are sound. Those conclusions are that “most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations”. The phrase “very likely” isn’t a let-out clause. It means “with greater than 90% certainty”, and research since has further strengthened scientists’ confidence in the conclusion. While reinsurers have been in the forefront of the climate change debate for more than 20 years, not all insurers are convinced. A survey by two actuaries late last year found only 65% of Australian insurers have adopted the formal position that climate change is a reality. While the global reinsurance industry has been a leader in the drive to build awareness of the consequences of climate change, new ICA President Mark Milliner says the council will concentrate more on the short-term weather issues than research and make predictions about long-term weather conditions. In an interview with Insurance News [this issue, page 20] he says the council “would be involved to a point in the debate, but it’s probably more for the scientists and the Government in terms of how that will play out”. 12
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Stranded: a home in the Lockyer Valley town of Laidley is surrounded by mud after the latest Queensland flood
“Losses caused by extreme weather events are likely to rise significantly. We have to act now.” – Ernst Rauch, Munich Re The logic of this view is that insurers have to pay claims after natural catastrophes and are therefore more concerned with the immediate risks and all that results from them. From insurers’ perspective, the issues are more cut and dried. European reinsurers, however, are well to the fore in calling for meaningful action to combat climate change-related behaviours. Munich Re says the industry has a vested interest in ensuring premiums remain affordable. Its Head of Corporate Climate Centre, Ernst Rauch, says the average annual increase in insured losses from weather-related natural catastrophes has been around 10%. “In our view, although much of this increase is due to socioeconomic factors, it can already be attributed in part to climate change brought about by human activity,” he says. “Losses caused by extreme weather events are likely to rise significantly in the future. We have to act now. “Most scientific studies confirm the effects of climate change and the fact that it makes economic sense to take action to deal with it.” Like its German counterpart, Swiss Re has been raising awareness of climate change among governments, society and its own staff February/March 2013
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Fairfax
Worried about ut a high cyc clone cyclone ex cess? excess?
for the past 20 years. Mark Senkevics, Swiss Re’s Managing Director for Australia and New Zealand, says mitigation is one way to ensure sustainable premiums in a more volatile climate. “This means making certain we’ve mitigated against the likelihood of flood with levees, and have the right building codes to support communities in terms of cyclone risk,” he told Insurance News. “And it means we’re not building houses in bushland where it’s bushfire-exposed.” Good data is also key to pricing decisions, he says. “We build models based on historical data and then try to overlay a view of where the concentration of risk is likely to be.” But Mr Senkevics warns it’s necessary to consider a longer time period than just the past few years, although the frequency and severity of catastrophes appears to be increasing. “In a global sense this curves up in a pronounced way since the 1970s,” he says. “Every new disaster and loss we face as an industry is a new data point in terms of how we adapt and how we price risk.” Swiss Re is in regular contact with governments, pushing the need for mitigation. It also contributes to the World Economic Forum’s Global Risks report, a global survey of opinion-leaders. The most recent report identifies rising greenhouse gas emissions and failure of climate change adaptation as among the most likely and high-impact risks. The reinsurer has also developed products to insure renewable energy businesses, including windfarms, hydroelectric stations and solar power stations. While the industry’s varied stance is understandable, confusion reigns elsewhere in the Australian community. Federal Opposition Leader Tony Abbott said in 2009 that “I just think that the science is highly contentious, to say the least”, although in 2011 he changed tack and acknowledged it as a real threat. The Australian newspaper’s coverage of the issue can raise eyebrows, most recently for publishing two versions of the same story about sea level rise. insuranceNEWS
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One by its Environment Editor Graham Lloyd was headlined “Sea rise ‘not linked to warming’, says report”. Hours later, the newspaper’s online edition ran a wire agency article headlined “Sea level rise linked to climate change”. US President Barack Obama is unequivocal in his view. “Some may still deny the overwhelming judgement of science,” he said in his inauguration speech in Washington DC in January. “But none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.” In Australia, extreme weather has always been part of life. Scientists hesitate to blame any one hot day, or heatwave, or bushfire on climate change. But consider the recent January heatwave. The Federal Government’s independent Climate Commission called it “unusual”, noting that 45 temperature records had been broken by January 9. The country’s average maximum temperature from January 2-8 was over 39°C – the longest period ever for such high temperatures, the commission says. Imagine a bell curve. At the top of the curve is the average temperature. At either end of the curve lie small amounts of hot weather and cold weather.
Now imagine the bell curve shifts towards the warm end of the scale. The long tail of hot weather now takes in a larger part of the curve, meaning more hot weather, and the very top temperatures slide from hot to record heat. But just how far that bell curve slides towards the hot end of the scale, and just how damaging climate change proves to be, depends on greenhouse gas emissions now. This variability can make it difficult to develop precise predictions about the impacts of climate change. For example, although it is uncertain how much global sea levels will rise, Climate Commissioner and Australian National University researcher Professor Will Steffen considers 0.5 to 1.0 metres above 1990 levels by 2100 plausible. Although half a metre may not seem high, the researchers say it would have a significant impact on the incidence of inundation events associated with high tides and storm surges, which are sensitive to small sea level increases. For coastal areas around Sydney and Melbourne, a half-metre rise would increase the incidence of these events by 1000 times or more. This means one-in-100-year flood events would have a probability of occurring 10 times a year. More intense rainfall events, in many parts of the world including tropical Australia, are also projected as the climate warms. Higher ocean surface temperatures lead to more evaporation, leading to more water vapour in a warmer atmosphere, leading to more rainfall. This makes it tempting to blame the 2011 Queensland floods on climate change, but while such a link is considered plausible it’s not yet discernible. Research reveals the ocean is getting more acidic – a trend most apparent in places with the highest level of atmospheric carbon dioxide. This makes it harder for coral to build, resulting in weaker coral struc14
insuranceNEWS
Australia’s climate is changing Australia and the globe are experiencing rapid climate change. Since the middle of the 20th century, Australian temperatures have, on average, risen by about 1°C with an increase in the frequency of heatwaves and a decrease in the numbers of frosts and cold days. Rainfall patterns have also changed – the northwest has seen an increase in rainfall over the past 50 years while much of eastern Australia and the far southwest have experienced a decline. – Bureau of Meteorology
tures that are less able to withstand disturbances from storms. The Climate Commission says the intensity of large bushfires in southeast Australia appears to be changing, and delicately calls climate change “a possible contributing factor”. Climate change makes extreme fire weather days more likely and higher temperatures dry the fuel load, making it more likely to burn. The apparent result for the insurance industry is higher claims costs and premium increases. In October 2011, less than a year after the Queensland floods, Canstar Cannex research found that the average home and contents premium increased 12% in Queensland that year, higher than any other state. Some 31% of Queensland policies increased by more than 20%. In flood-affected regional areas, premiums increased by up to 41%, while in Brisbane premiums rose by up to 36%. Canstar Cannex obtains quotes from insurers to compile the ratings, and the figures don’t include the reported 600-1000% premium increases imposed on some high-risk properties. But Sydney-based natural hazard research centre Risk Frontiers points out there are more reasons for increasing economic losses from natural disasters than just the weather. “Natural disaster losses are going up because of increasing exposure,” Director John McAneney told Insurance News. “Floods and fires aren’t new. The real issue is poor land use planning. “In Marysville and Kinglake in Victoria, 60% of homes destroyed [in the Black Saturday bushfires of February 2009] were within 10 metres of bushland, and 25% were within one metre. Within the first 10 metres, the probability of burning is 90%.” Focusing on land use is the best way to make the nation more resilient to natural disasters, he says. The 2006 Stern Review, compiled for the British Government by former World Bank chief economist Sir Nicholas Stern, made the economic case for action on climate change. He said the costs of reducing greenhouse gas emissions to avoid the worst impacts of climate change can be limited to 1% of global GDP a year. The costs of not acting will be equivalent to losing at least 5% of global GDP each year. While the insurance industry locally is officially taking a back seat in the climate change debate to focus on the drive for flood levees and better building standards, reinsurers have tended to spend much more on research and lobbying on the issue. The Insurance Council of Australia lobbies governments for mitigation works and has called for public education campaigns and mandatory risk information disclosure for property sales. It wants building codes to ensure new structures are suitable for risks predicted over the life of a property. As a TV interviewer recently observed, it’s time for “a bit of burden-shifting” from insurers and the Federal Government to local and state governments. And time for climate change-deniers to understand the economic, social and environmental consequences of doing nothing. February/March 2013
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The Christmas present Santa didn’t bring Once it’s unwrapped, the Government’s unfair contract terms legislation may well cause headaches By John Wilkinson
EVERYONE AT SOME TIME RECEIVES an unwanted Christmas present. For the general insurance industry, the Federal Government delivered the legislative equivalent of a pair of bright green braces with the extension of unfair terms to be inserted in the Insurance Contracts Act. Assistant Treasurer David Bradbury announced the change four days before Christmas, just as everybody was dashing around doing their last-minute shopping. To be exact, it was on the Thursday of the last working week before Christmas, when everyone except (obviously) the Government was winding down for the year. Insurers will now join such groups as mobile phone suppliers, credit card providers and mortgage brokers who now and again are punished for an unfair term. Mr Bradbury was obviously not hoping for a Christmas card from the insurance industry when he announced the change. “Consumers should not have to fight insurance claims with one hand tied behind their back because of unfair contract terms,” Mr Bradbury said. “These new protections will allow consumers, or the Australian Securities and Investments Commission (ASIC) as the regulator, to challenge a term in the courts.” So even if the consumer feels a condition is unfair, but can’t afford a court case, ASIC will have the power to step in and take up the fight. It might also decide to take issue with a term even if a consumer has not complained. Mr Bradbury made it clear in his announcement which side of the fence he’s on, saying: “Consumers have long had concerns that some terms in insurance contracts are simply unfair and are used to dismiss otherwise valid claims.” He says the worst nightmare for 18
many people facing a traumatic moment in their lives is finding out they will not have their insurance claims paid because the “fine print” in a contract unfairly favours the insurer. “Consumers deserve to know that insurance companies won’t simply take their premiums and hide behind unfair terms to leave them high and dry when it comes time to pay out a claim,” he said. So the Government has brought out the big stick to deal with those wayward insurance companies who won’t pay claims. That big stick in this case will be ASIC, with even more powers. Insurers might have spent their Christmas wishing for a good team of lawyers, because Mr Bradbury says the courts “may also order other remedies to help consumers”. However, in the true Christmas spirit of receiving being better than giving, the Insurance Council of Australia (ICA) has welcomed the proposal, saying its own hard work with the Assistant Treasurer, Treasury and consumer organisations has developed a set of principles that solve the problem of unfair terms. ICA Chief Executive Rob Whelan says consumers already enjoy strong protections under the Insurance Contracts Act, Corporations Act and the General Insurance Code of Practice, which is at present facing major surgery after an unscheduled review. “The insurance industry has been concerned about how a review for unfairness could be applied to insurance contracts without undermining the commercial basis on which insurance is provided,” Mr Whelan says. “Under the Government’s proposal, existing unfair contract terms provisions in the ASIC Act will be adapted to provide a remedy within the Insurance Contracts Act which is better suited to general insurance. insuranceNEWS
February/March 2013
“This represents a better outcome for both consumers and insurers.” Mr Bradbury says there will be a transition period, with the changes applying to both new and renewed contracts. So there will be no “grandfathering” rights for insurers. The next step will be draft legislation that will be open to consultation. But as the financial services industry has already found out, there is sometimes a big difference between what has been proposed and what turns up in the draft legislation. What had been proposed in the Ripoll inquiry on the collapse of Storm Financial and the Future of Financial Advice (FOFA) legislation seemed innocuous enough, but when it re-emerged from the legislative process a number of new proposals had been slipped in. The financial services industry found itself one day welcoming the Ripoll proposals and the next day joining forces to fight the Government over legislation it didn’t want. The outcome was the Government won most of the battles and the financial services industry was forced to accept it. After that ASIC came up with its ideas of how the legislation would work. Again this contained a few surprises that are going to prove to be expensive for the financial services industry to implement. Those debates are still going on, but the FOFA legislation comes into force on July 1. General insurance industry professionals might like to talk to their financial services counterparts so they can learn how a government press announcement wrapped in Christmas paper is probably something they don’t want to open. John Wilkinson is Editor of Life+Health insuranceNEWS.com.au
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Moving on and reaching out New ICA President Mark Milliner outlines his agenda for an industry body more focused on consumers, communities and other stakeholders By Michelle Hannen MARK MILLINER DOESN’T HAVE A CRYSTAL BALL. AND IF he were in possession of one, he says he’d probably be doing something very different to his current role as Chief Executive of Personal Insurance at Suncorp. But despite an inability to see into the future and a wry comment on the way his career has worked out so far, the new President of the Insurance Council of Australia (ICA) has a very clear vision for the future of the industry he loves and is in a unique position to lead for the next two years. Improving stakeholder relationships, strengthening community protection and a renewed focus on the consumer are the central planks he plans to focus on in his presidential term. But rather than reinventing the wheel, he says it’s all really about a continuation of work that has already begun. First, however, Mr Milliner intends to listen. “The first thing I want to do is get out and talk to the industry, both in terms of members of ICA and across the board, and other stakeholders including politicians and consumer groups, before we make any big decisions,” he told Insurance News. The historic Queensland floods of summer 2011 are a reference point for much of the conversation, and Mr Milliner is no different from other senior insurance executives in acknowledging that the industry’s – and ICA’s – response to that disaster was not as good as it should have been. But he flags that moment as a turning point for the industry, and says it has since lifted its game across many areas, describing its response to one of the latest natural catastrophes – the recent Tasmanian bushfires – as “fantastic”. “The industry’s been much more proactive around that event and pretty much led the way,” he says. “We’ve had all parties involved, and ICA’s led community conversations, it’s led conversations with the Premier of Tasmania and they’ve been more than satisfied with the results of what is always a difficult situation. “That was based on experiences where it hasn’t gone quite so well. I think that was recognised. ICA has gone through that journey of asking, if we didn’t do that well how can we fix it or do it differently so we achieve a better result?” Bushfire is a relatively straightforward peril, with few grey areas for interpretation when it comes to claims. Flood is an altogether different beast. Mr Milliner argues the industry has responded to feedback from the community, government and consumer groups and made great leaps forward in covering flood. Progress includes the introduction of the standard flood definition and key facts statement, a renewed debate over mitigation and building standards, and an increase in the availability of flood cover with more than 80% of home and contents policies issued in Australia now including cover for flood damage. “From a politician’s perspective, when we talk with them about natural disasters they’re very positive about what we as an industry have achieved.” 20
But he concedes: “It’s unfortunate that it took a big event in Queensland to bring some of that along.” Fast-forward two years from the Queensland floods debacle and the industry’s work has been put to the test with another flood event this summer. The report card for its response to the latest flood disaster in Queensland and northern New South Wales over the Australia Day weekend would have to read “much improved, but could still do better”. This time, community angst has centred on the affordability of flood cover rather than its availability, with some more radical politicians jumping on the bandwagon and slinging the usual mud at insurers over alleged profiteering. Mr Milliner says he believes the initial response from the industry has been positive, but that it’s “probably a bit early to sit back and judge the industry’s performance, because we have only just entered the recovery phases”. With the debate now centered on the affordability of flood cover, a recommendation from the Natural Disaster Insurance Review, which followed the 2011 floods, has re-emerged – that of the need for a mitigation-linked, Government-subsidised pool to reduce premiums for those Australians at very high risk of flood. Mr Milliner agrees that affordability “is an issue for a number of people living in the high flood risk zones”, but warns that government-run schemes can become inefficient. “Flood pools don’t solve the underlying problem. To have more affordable insurance, the inherent risk must be reduced. That’s why we continue to advocate for proper investment in disaster mitigation.” He says that since 2011, individual insurers and ICA are now more aligned when it comes to communication and that much progress has been made on the industry’s relationships with regulators, various levels of government and consumer groups. He describes such relationships as “solid”. “We’re continually working towards making sure the industry is seen in a better light,” says Mr Milliner, who wants further improvement in these key stakeholder relationships to be a focus of his time as ICA president. He outlines a plan to “put a framework in place to make sure that we’re working together for the insurance consumer”. “It’s about getting a clear understanding of where we’re trying to go and working within that system so that we can unlock what I suspect is common ground in most cases,” he tells Insurance News. As for how to stop stakeholders from reverting to their standard scripts and playing the blame game for political gain in the aftermath of a disaster event, Mr Milliner advocates ensuring a “cultural shift around the debate” that should help to insulate the insurance industry from such attacks in future. “I think the criticisms [following the most recent floods] show that we as an industry need to do an even better job of
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“When we talk with [politicians] now they’re very positive about what we as an industry have achieved with natural disasters. It took a big event in Queensland to bring some of that along.” engaging with stakeholders and educating them about how insurance works,” he says. “People will always have opinions about insurance companies following natural disasters, and we need to help ensure those opinions are as informed as possible.” He accepts that ICA can only do so much. “It’s ultimately up to the actions of individual insurance companies that will change the debate and change people’s perception of the industry.” Mr Milliner dismisses suggestions doing the rounds that ICA could benefit from informal or formal co-operation with other financial services industry groups to better represent its interests among key stakeholders. “It’s more about how effective we are than how many people we have or how big we are. I haven’t seen any business case saying [ICA] should be three times the size that makes any sense. “It’s about getting the right frameworks in place, having the right conversations and dealing with issues that come up from an industry perspective in a constructive way. “Where we sit broadly at the moment is delivering improvements to the industry, and I think we’ve got lots of good work to do over the next couple of years in ICA. So I would rather stick with that.” One of the final pieces of work still outstanding following the 2011 floods is the current review of the General Insurance Code of Practice. Mr Milliner points out that the regular threeyearly review process was expedited by a year at ICA’s behest. “We brought it forward based on feedback. As an industry body we thought it was the right thing to do, given where we were at the time.” The review is being conducted by insurance lawyer Ian Enright, whose recommended changes will be put to the ICA board in May. The board has the final decision on whether the code should be amended in the ways Mr Enright recommends. In previous years the board has been blamed for watering down reviewers’ recommendations. Much of the Enright review is focused on consumer rights in relation to claims and complaints-handling, and in light of his promised re-focusing on the consumer, Mr Milliner is philosophical on whether the board will agree to sweeping changes to the code. “We’ll certainly be keen as a board to understand what the recommendations from Ian are, and we’ll obviously consider 22
them very seriously. But I think trying to pre-empt his review is probably not the right thing to do. “If there are tough decisions to be made on anything, I’m comfortable that the board we’ve got now would be prepared to look at them.” He adds that when the time comes to consider code changes there will be “a good, robust debate”. Encouraging investment in risk mitigation to protect communities – and ultimately lower the risk for insurance companies – is another item high on the new president’s agenda for ICA. Following the 2011 Queensland floods, Mr Milliner was a central figure in Suncorp’s controversial decision to cease writing new policies in Roma and Emerald – two of the most frequently flooded localities in Queensland – until steps were taken to improve the areas’ risk profiles. That decision was vindicated recently with the announcement of $5 million in flood mitigation funding for Emerald by the Queensland Government. “There’s lot of examples where spending money on mitigation ultimately saves governments a significant amount of money down the track in terms of rebuilding infrastructure,” he says. “The industry needs to continue to make a stand on mitigation and I’m certainly, as part of ICA, going to be very passionate about that in terms of collecting the right information and then encouraging governments to protect communities. “The industry needs to keep encouraging governments to make some of those decisions, even if it means we have to make some hard calls,” Mr Milliner says. “It’s not all about insurance – it’s about making sure lives aren’t lost, making sure kids can continue to go to school, that people feel safe in their communities. Australia is good at coming together and looking after each other.” He says collecting good data is key to being able to demonstrate the case for flood mitigation, as well as for pricing risk accurately and assisting ICA in being able to provide strong representation for its members with stakeholders. Enhanced research can be expected to feature in a Milliner-led ICA. “As an organisation, ICA will continue to invest in data or work with people who help provide it. I think historically there’s been a bit too much of an ‘our data/your data’ game. Data should be shared, and if we work with the stakeholders on that then everybody ultimately benefits.”
insuranceNEWS
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“ICA will continue to invest in data or work with people who help provide it. I think historically there’s been a bit too much of an ‘our data/your data’ game. Data should be shared.”
A CHARTERED ACCOUNTANT WITH extensive strategic change management experience gained while working in Europe, Mark Milliner didn’t plan on a career in insurance management when he was recruited by Suncorp in 1994 to plan and implement a major computer project. Seventeen years later he’s still working for Suncorp – these days a very much larger and more complex group – having worked in many areas and still making great use of his organisational management skills and enthusiasm for innovation. In December 1996 the Queensland
Government-owned Suncorp and Queensland Industrial Development Corporation were merged with the publicly listed Metway Bank to create Suncorp-Metway. Mr Milliner was part of the team that planned and managed the complex three-year merger process. In an interview with Insurance News Publisher Terry McMullan in 2008, he recalled the lessons he learned from that merger, particularly “the value in building relationships within the company and how to make things happen”. After a stint managing a major overhaul of Suncorp-Metway’s motor claims processing systems, he was involved in merging the GIO operation into the company after AMP sold it in 2001.
Mr Milliner says that ensuring that insurance products are affordable and continue to represent value in the eyes of consumers is central to the industry’s continued success. On that note, ICA will continue its efforts to have taxes on insurance abolished, with the NSW emergency services levy – the funding of which is currently the subject of a State Government review – next on the agenda following the abolition of Victoria’s fire services levy from insurance policies. Reinsurance rates are another factor currently weighing heavily on local premiums, but Mr Milliner is confident that what goes up will come down. “There’s an efficient market that works from a reinsurance perspective globally,” he told Insurance News. “If reinsurance companies see a profitable and efficient market, they’ll enter it and the price will be adjusted accordingly. “So I do think there’ll be changes up and down in the future of reinsurance premiums and that will then flow back to Australians in terms of their insurance premiums. How much and when are much more difficult questions to answer.” He emphasises that mitigation and risk minimisation measures will also improve affordability by lowering reinsurance, and in turn, primary insurance, premiums. Regulatory creep is another factor that layers costs on insurance companies – costs which ultimately get passed on to policyholders. Mr Milliner is circumspect about the regulatory approach to insurers in Australia, acknowledging that the “slightly conservative” approach of our regulators “stood us in good stead” during the global financial crisis. He warns that the international push for increased insurance regulation will inevitably flow back to Australia. “It’s that delicate balance of ensuring the consumer is protected but also making sure that the cost of that doesn’t outweigh the value,” he says. “Hopefully common sense will ultimately prevail and we will get the balance right. But again it’s up to ICA as an industry body to stay well involved in that debate and be a valued partner of politicians and regulators in terms of informing the decision.” 24
In 2003 Mr Milliner moved to Sydney to overhaul and manage the GIO workers’ compensation business, before returning to his Brisbane hometown two years later to head up the claims division and work on ways to improve Suncorp-Metway’s financial performance. In July 2006 he became Group Executive Commercial Insurance at Suncorp, and set out to build a new business based around brokers working mainly in the SME space. The scope of that job changed dramatically in 2007 when Suncorp paid $7.9 billion for Promina, which included Vero among its brands He was appointed to run the group’s personal insurance arm and its large variety of brands in October 2009.
While sectors of the global insurance industry have been leaders in the drive to build awareness of the consequences of climate change, Mr Milliner says that’s one area ICA will not weigh in on. He says looking at what might happen in the short term is more important than researching and making predictions about long-term weather conditions. “Climate change more broadly is a longer-term issue. We need to watch what’s occurring, but for us to try and crystal ball it would be very dangerous. ICA would be involved to a point in the debate, but it’s probably more for the scientists and the Government in terms of how that will play out.” Despite running one of the country’s most successful and increasingly innovative personal lines insurance operations, Mr Milliner says he’s “honoured” to be ICA president and is looking forward to adding his leadership skills to the council’s endeavours. “There’s no doubt I’m pretty passionate about the industry.” He says he has great faith in the strength and ability of the board supporting him. The ICA board has gone through something of a generational change in the past few years, with fewer major company chief executives and “elder statesmen” being replaced by younger leaders and more up-and-coming divisional chief executives. Mr Milliner sees this as a positive, in terms of addressing the issues the industry faces. “The industry, and how we’re perceived more broadly, really does come back to how individual insurance companies act. “So if the industry’s going to continue to improve in terms of how we’re thought of, then I think it’s a good thing to have people who are involved in what goes on on a day-to day basis,” he says. “We’ve still got a very experienced board with members who are well connected in the industry.” Mr Milliner may not have that elusive crystal ball but, thankfully, he is in possession of a strategic mind, a deep understanding of insurance and a plain, direct way of speaking which should hold ICA in good stead over what will certainly be a challenging road ahead.
insuranceNEWS
February/March 2013
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Bridgecorp: one more twist A New Zealand court restores some certainty to D&O policies but that’s not the end of it By Jan McCallum COMPANY EXECUTIVES AND DIRECTORS, and their insurers, breathed a sigh of relief in December when the New Zealand Court of Appeal overturned the Bridgecorp decision on directors’ and officers’ liability (D&O) cover. But the legal brouhaha continues, with the Bridgecorp receiver this month going to the Supreme Court, New Zealand’s highest court, seeking leave to appeal. New Zealand legal circles widely expected the challenge. They say the original “Bridgecorp decision” delivered by the High Court of New Zealand in 2011 was made on a strict interpretation of the law, while the Court of Appeal took a practical approach; a Supreme Court decision would confirm which interpretation is correct. The Court of Appeal’s decision to quash the Bridgecorp decision gave directors and officers some comfort that their D&O policies will cover legal costs if they are sued. The High Court decision had effectively stripped directors and executives of access to defence costs if they faced a third-party claim that exceeded the sum insured. That decision was immediately taken up by receivers and shareholders running class actions against the directors of failed companies, in which the insurance can be one of the few substantial assets and third-party claims can easily exceed the D&O sum insured. Developments have been watched closely in Australia because New South Wales, the Northern Territory and the Australian Capital Territory have similar legislation to the New Zealand law. It was cited last year in the Centro legal action, which eventually settled out of court, and in action involving the failed plantation company Great Southern. In quashing the High Court decision, the Court of Appeal upheld an insured’s contractual right to reimbursement of defence costs. It says the High Court’s ruling was inconsistent with section nine of the New Zealand Law Reform Act, on which that decision was based. It finds no relevance in the fact directors reduce the amount available to other claimants 26
by using policy funds to pay defence costs. The Bridgecorp companies, which are in receivership and liquidation, were ordered to pay the costs of the finance group’s former director, Peter Steigrad. A similar case involving the failed Feltex carpet company was heard at the same time. The court ruled Eric Houghton, who is leading a shareholder class action against Feltex, had no entitlement to money payable by AIG to the Feltex directors. Mr Houghton was ordered to pay costs. Australian courts are not obliged to follow the New Zealand decision, but are not likely to ignore it. AIG Regional Manager Financial Lines Mike Pryce says the Court of Appeal’s decision should help persuade Australian courts that D&O and professional indemnity policies should not be subject to a charge by third parties. insuranceNEWS
February/March 2013
He says AIG went to appeal over the Feltex case because it believed the decision could stop directors and officers adequately defending themselves. It was an example of how the ruling penalised innocent directors. The Securities Commission investigated the Feltex collapse in 2006 and found no fault in a 2004 initial public offering prospectus. Company directors then faced claims from former shareholders who alleged the prospectus was misleading. AIG funded the Feltex directors’ defence costs and continues to do so, despite the Bridgecorp ruling, according to Mr Pryce. He says without the funding, the directors could not have afforded the legal expertise needed to defend their case against the shareholders, leaving them significantly disadvantaged. The Bridgecorp action started after the
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company’s collapse in 2006, which led to the conviction of Steigrad and other directors under the New Zealand Securities Act. The receiver is suing the directors for breach of duty and claiming $NZ450 million, which is well in excess of their D&O cover. The directors held a $NZ20 million D&O policy with QBE, plus a $NZ2 million policy providing cover to defend claims of breach of their statutory obligations. The $NZ2 million policy was exhausted when the directors defended charges under the Securities Act; they then claimed under the D&O policy for both civil and criminal actions. By June 2009 Bridgecorp had notified QBE of a charge under the policy, citing section nine. The Court of Appeal judgement says QBE told the directors it would not pay for defence costs until they reached agreement with Bridgecorp about the allocation of funds under the policy. When the directors and receiver could not reach agreement, the directors went to the High Court for a declaration that the insurer should pay their defence costs. But the court ruled against them in what became known as the Bridgecorp, or Steigrad, decision. Following the High Court case Mr Houghton – representing 3100 shareholders claiming $NZ150 million damages against Feltex directors – gave Chartis a notice of a charge over its policy with the directors. The Court of Appeal’s judgement focuses on the QBE policy, but the decision also applies to the Feltex claim. In examining the Law Reform Act, the judges say section nine was enacted to remedy two problems: • To prevent instances where someone with a valid claim against a person with liability insurance cannot ensure the insurance is paid to them directly. Previously, if the insured became insolvent, the insurance would go into their estate and be available to all creditors, and the third party would become one of many. This was considered unfair on people who had been injured at work and had a valid claim against their employer. • To prevent insurance being reduced, or diverted, by changing the policy. But Court of Appeal President Mark O’Regan and judges Terence Arnold and Rhys Harrison say section nine does not apply to insurance money payable for defence costs, even when a single limit covers both D&O and third-party liability. “Section nine has limited effect and is not intended to rewrite or interfere with contractual rights as to cover and reimbursement,” they said. While QBE has refused to make any insuranceNEWS
February/March 2013
defence cost payments to Mr Steigrad, it has not declined his claim for liability cover, the judgement says. “At the very least, then, QBE is liable to pay Mr Steigrad’s reasonable defence costs as required by the policy where cover has not been confirmed in writing.” The judgement says Mr Steigrad faces two types of loss: Bridgecorp’s damages claim; and his costs in defending the claim. It says the insurance contract distinguishes between the two liabilities. “While the two losses might arise from one claim on account of the same wrongful act, Mr Steigrad is independently entitled to indemnity for his defence costs immediately after they are incurred,” the judges said. Mr Steigrad’s liability to pay the defence costs, and QBE’s liability to reimburse him, are independent of and precede QBE’s liability to indemnify him for the claim. “Plainly these provisions are included for the parties’ mutual benefit because, as a result of incurring defence costs, Mr Steigrad may never incur a liability to Bridgecorp. “In those circumstances, QBE will have no liability to Bridgecorp but will still be liable in respect of Mr Steigrad’s defence costs.” At the hearing the court was told that, although the “Bridgecorp decision” was tough on directors, if they used policy proceeds for defence costs, the money available for civil claims could be significantly depleted. But the court says this is irrelevant. It says QBE has made a contractual promise to pay Mr Steigrad’s defence costs and his appeal must succeed on this ground alone. The initial High Court ruling denied Mr Steigrad his contractual right, and was “inconsistent with the text, purpose and policy of section nine”. Although the law grants a third party a charge over all insurance money, it cannot interfere with mutual contractual rights relating to another liability. AIG, the Insurance Council of Australia and the NSW Government are in talks about how the law may be changed to stop the original New Zealand High Court judgement flowing into Australia. Some Australian legal experts have questioned the likelihood of this, saying although the two countries’ laws are similar, Australian law has developed differently. But AIG’s Mr Pryce says a number of class-action lawyers are pursuing charges in a similar manner to the original Bridgecorp decision. “While we believe the New Zealand decision has provided a sensible and pragmatic approach, it is for the relevant state governments to determine what action is required,” he told Insurance News.
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Big. But not necessarily better or best Mergers and acquisitions are less likely at the top end, but there’s still plenty of consolidation possible further down the distribution chain By Ben Oliver 30
insuranceNEWS
JUDGED AGAINST MEGA-MERGERS IN RECENT HISTORY, last year was no watershed for insurance industry consolidation. There was no seismic 2007-style reshaping of the insurance sector when Promina was swallowed by Suncorp, but even without an announcement of QBE finally acquiring IAG (the evergreen of insurance merger rumours), it was nevertheless an interesting and important 12 months in merger and acquisition (M&A) activity. Consolidation touched nearly every nook and niche of insurance last year, and with some frequency; a cursory scan of the Insurance News archives reveals no less than 14 significant mergers and acquisitions were brokered last year, not to mention the myriad deals taking place between smaller brokers which escaped attention. But the regularity of consolidation wasn’t a defining characteristic. What is striking about last year’s M&A activity is the extent of cross-pollination taking place across insurance boroughs and international boundaries. 2012 saw international underwriters buy local underwriters. Brokers bought underwriters. Premium funders consolidated. Brokers bought financial services groups. Brokers bought brokers. And major insurers finalised their strategies based around large wholly owned intermediated distribution networks. To recap some of the more important M&A moves of the past few months: Suncorp finalised its January acquisition of AMP’s General Insurance Distribution business and its 700 authorised representatives, later naming the new sales arm Resilium. Austbrokers continued its acquisition drive by purchasing Film Insurance Underwriting Agencies for $4.5 million in cash. Brisbane-based SRS Underwriting, formerly Australia’s largest independent Lloyd’s underwriting agency, was acquired by global intermediary Arthur J Gallagher & Co in November. The year ended with Macquarie Premium Funding – owned 50/50 by Macquarie Bank and broker group Steadfast – finalising its purchase of GE-owned Pacific Premium Funding, bringing together two of the industry’s leading premium funders. When it comes to insurance and its ancillaries, bigger, better, best appears to be the default axiom. While consolidation often delivers greater economies of scale, geographic reach and back-office savings, is bigger always better? University of Melbourne associate professor Catherine de Fontenay, who holds a PhD in Economics from Stanford University, warns against such rationalist thinking. “One of the things that people are not always aware of is that it’s not such a bad thing if your competition merges, because often bigger is not always better or more competitive,” she told Insurance News. “It can be quite nice to sit on the sidelines and let others go through consolidation and the costs involved. “I think that it’s wrong in some industries to think, ‘wow, there is February/March 2013
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a wave of consolidation, we need to get on the bandwagon’.” One of the biggest issues when folding one business into another is that forecast cost savings often fail to materialise. Professor de Fontenay also says larger companies often lose that “local touch” – a point of key difference in insurance broking where personal relationships are so vital in retaining business. “There are also some costs that can go up as you become a bigger organisation as overheads and inefficiencies come up,” she says. At a certain point consolidation also begins to impinge on consumer choice, although exactly when market forces become too powerful is impossible to define. “There is a lot of research on when markets become too consolidated,” Professor de Fontenay says. “The unspoken rule is two or three is too little, four or more and the [Australian Competition and Consumer Commission] or other regulatory bodies are not going to hassle you. “It’s important to remember that the ACCC is primarily worried about price when deciding on a merger – not so much about choice.” Choice is certainly one thing on the slide in the insurance and broking sectors. According to the Australian Prudential Regulation Authority (APRA), from a peak of 186 general insurers in June 1997, it now only regulates 122. Between 2000 and 2005, the number of players in the general insurance industry shrank by 18%. In the past seven years another 8% have been swallowed up, mainly by competitors seeking that elusive growth. While the general cut and thrust of business, failing companies or those exiting the market may explain some of these numbers, they nevertheless demonstrate just how much the industry has concentrated since the largely regulation-free highs of the ’90s. While market research group Ibisworld disagrees slightly with APRA’s numbers, it agrees on the general trend. The market researcher’s November 2012 report notes the fall in insurer numbers, but describes the insurance industry as only “moderately concentrated”. The top four insurers now control more than half the total market and 80% of personal lines. Suncorp and IAG alone hold 34.4% of the entire market. Ibisworld says the insurance market is now in a mature phase, marked by company consolidation and a “stable level of economic importance”. “Increased M&A activity is a trait of a mature industry, with major players attempting to build scale and share in a low growth environment,” the report says. “The gap between the big six insurance groups and the rest is growing. “Operators are expanding underwriting capacities and entering into strategic alliances with existing underwriters to reduce unit costs.” Ibisworld predicts this consolidation trend can only continue. “Also evident over the next five years will be continued consolidation among industry players, with the likes of IAG, Suncorp and QBE expected to acquire many of the industry’s minor players,” the report says. insuranceNEWS
“QBE has already made one attempt to acquire IAG, and should that ever come to fruition QBE will become a dominant force in the industry, meaning smaller players will find it harder than ever to compete.” But not all observers agree 2013 will be one of continued consolidation. Insurance analyst Andrew Adams, for example, says it’s an issue he “hasn’t put too much thought into, because I don’t think there is going to be a lot of major activity”. In contrast with the Ibisworld predictions, Mr Adams believes the Australian insurance market is already unusually concentrated by international standards, and the greatest activity is more likely to come from emerging “challenger” brands, particularly in commercial lines. “You’ve got IAG and Suncorp controlling close to 70% of the personal lines market,” he says. “I don’t expect consolidation; I expect the question to be more around challengers picking up market share. “I don’t really see, for example, an IAG buying Youi. I just don’t see any advantage in that. Part of the reason people are insuring with these new companies is because they don’t want to insure with the big insurers.” However, like other analysts Mr Adams agrees M&A activity in the broking space will continue, albeit at the level of brokerages dealing with SME business. That’s supported by the fact that the number of broking businesses has been falling for at least seven or eight years, usually as a result of M&A activity. According to Ibisworld the number of broking businesses has fallen from 3103 to 2988 since June 2005. In its 2012 end-of-year report on insurance broking, Ibisworld says the market is far more diluted and regionally based than general insurance, with Marsh, Aon, JLT, Austbrokers and Willis controlling just 15% of the market. “The industry is comprised of hundreds of small or even individual brokers, and industry conditions have led to many of these minor players joining forces to centralise administration and regulation duties,” it says. “M&A activity is expected to continue into the future as brokers seek to drive margin gains through economies of scale.” Broking groups, Ibisworld says, will “look to mergers and acquisitions to achieve savings in centralised administration and other overheads”. High levels of competition and historically low profitability will drive further consolidation, which will force many smaller brokers into the ground – or the arms of a willing buyer, the Ibisworld report says. “Industry profitability and value added have been more volatile, reflecting compromises industry players have had to make to prop up earnings. Industry profit margins, historically between 18% and 22% of revenue, were below 15% for each of the three years to 2009/10. “This shift towards a more streamlined format will make it more difficult for smaller players to stay profitable.” Global market research and consulting company Finaccord February/March 2013
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likewise views the broking space as ripe for further consolidation. In its December 2012 report, Finaccord says Australia has a lower level of market consolidation than most European markets; the top ten brokers in Australia control just 63% of broking revenues. However, the “traditionally fragmented structure” of insurance broking is changing quickly. The consulting firm points to Austbrokers as a company that has been “particularly active” in expanding via acquisition in recent years. Austbrokers’ success in integrating businesses at a rapid pace – the QBE of the broking sphere if you will – has also earned praise from Roger Montgomery, an analyst at Montgomery Investment Management. Writing for the Eureka Report in December last year, he says
Austbrokers has been the most astute player in a buyer’s market. “Austbrokers is one of those rare small-cap companies that kick higher each year with admirable consistency, and is a remarkable entrepreneurial story in its own right,” Mr Montgomery says. “Austbrokers’ strategy, business model and vision seems as valid today as it was in 2005. “The opportunity to consolidate a fragmented market of insurance brokers that mostly service small and medium-size enterprises is far from exhausted.” 2012 was certainly not a big year in consolidation, but an interesting one. As new business pressures emerge to test companies, M&A activity could get even more interesting.
Unity is power John Brogden says there are too many industry bodies in financial services WHILE THE PROCESS OF INDUSTRY CONSOLIDATION IS WELL underway across the financial services sector, the organisations that represent the interests of their constituents to politicians, regulators, the media and the public otherwise remain, some argue, unnecessarily siloed. Insurance, banking, superannuation, life insurance, financial planning and funds management all fall under the broader banner of financial services. Many fall under the banner of the Financial Services Council (FSC), but in general insurance in particular, the various sectors appear set on representing their members’ views from an individual position. While most of the major general insurers also have life insurance and even wealth management arms – one, Suncorp, even has a bank – it’s unusual for the various branches of the financial services industry to work closely together. By contrast, the mining industry has one representative body, the Minerals Council of Australia. The miners can and do push a united view of the world to the legislators and regulators, who in return see the Minerals Council as the “go-to” organisation. Although the mining industry is smaller than financial services and just as diverse, its influence with politicians is far greater. While the legislators and regulators recognise the differences between the various branches of financial services, they nevertheless show an increasing tendency to standardise legislation across traditional “borders”. No less than seven major bodies represent the individual wings of financial services. While most of them are members of the Finance Industry Council of Australia (FICA) – a group with no website, no profile and little apparent power or influence – they otherwise operate in their own distinct silos. For at least one member of the industry, the number
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of voices in the financial services sector is too often discordant. John Brogden, Chief Executive of the powerful Financial Services Council, which represents the nation’s retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks, trustee companies and Public Trustees and $1.3 trillion in funds under management, says the time has come to discuss how the sector should be represented. “There are an enormous number of voices within the sector,” Mr Brogden told Insurance News. “The Financial Planning Association, the Australian Bankers Association, the Australian Finance Conference, the Australian Financial Markets Association, the Insurance Council of Australia… the list goes on and on.” Mr Brogden says while all bodies report into FICA, the lack of a strong, unified voice works against everyone’s interests. “The only winners from there being different views in the finance sector are governments, which can then pick and choose what they want to implement,” he says. “The golden rule in advocacy is that the more voices you have talking to Canberra, the greater opportunity the Federal Government has to pick and choose which position they want. “The industry doesn’t benefit when there are separate voices.” Mr Brogden says consolidation between industry bodies is happening, albeit in a piecemeal fashion. For example, the Trustee Corporations Association of Australia formally disbanded in March last year, with its members joining the FSC. In making a case for the sector’s various specialties to come together, Mr Brogden argues that differences in policy and regulation could be a unifying force rather than a divisive one. February/March 2013
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“Life insurance and general insurance are very different products,” he concedes. “The policy issues and the business models are very different. “Because of the nature of regulation of life insurance, we deal with the Federal Government exclusively, whereas general insurance has very heavy dealings with state governments. “But the flipside of this argument is while there aren’t many areas of commonality there are also no areas of conflict. That’s a benefit.” Mr Brogden says he takes no position on merging industry bodies, describing it as a decision for individual groups’ members. But, he adds, it’s a conversation worth having. While the FSC is open to discussing the pros and cons of greater collaboration or even merging, the Insurance Council of Australia (ICA) is standing firm on what it believes is the best way forward. “The financial services sector is extremely diverse,” a spokesman told Insurance News. “Within the sector as a whole it is advantageous to have specialist organisations representing these different areas and providing their expertise. “Life insurance and superannuation are distinctly different to general insurance, in terms of policy, regulation and operation, and each sector requires its own policy focus. “This approach allows ICA and other bodies to focus their specialist capabilities on their core areas of responsibility to the maximum benefit of their respective memberships.” Mr Brogden says internal focus is important, but not at the expense of external relations. “One strong voice is always going to be better than several voices,” he says.
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Premium players Pacific Premium Funding merges with major competitor Macquarie. Is the resulting duopoly the natural order of things? A PANEL DISCUSSION WAS TAKING PLACE AT STEADFAST’S 2007 convention, and Pacific Premium Funding founder and managing director Grant Burley was not happy.The topic for discussion was Steadfast’s decision to form a premium funding joint venture with Macquarie Bank. Mr Burley, a trailblazer in premium funding, was angry at the lack of consultation with parties already providing the service. Obviously the entry of a significant player with a strategic edge made all premium funders edgy. But Steadfast Chairman Robert Kelly was unmoved, asking why the entry of a new premium funder needed to be seen as a threat. The following year GE acquired Mr Burley’s company and he became non-executive chairman. He had already left the company when GE announced in December it is selling the company to the Macquarie/Steadfast joint venture. Macquarie and Pacific are the second and third-largest players in the $5 billion premium funding market, behind only Allianz subsidiary Hunter Premium Funding. The new company will be the biggest in the industry. While the sector has more than a dozen players, the top three (and soon to be two) already control most of it. Contacted by Insurance News for comment, Mr Burley says the deal leaves only a handful of premium funders in the market, and he expects more consolidation to take place. “You’re going to have only two big players in this market,” he says. “Even when I started Pacific Premium Funding in 2001 we had HIH, Opus Capital and Pacific, CGU and GE. Most of those have gone.” Macquarie Premium Funding says the Pacific acquisition “will bring together two of the industry’s market-leading premium funders, providing scope for further product and service innovation for insurance intermediaries, brokers and their clients”. The premium funding market in Australia is estimated to have doubled in size the past 12 years. With premiums rising, their prospects are very positive. While the deal is subject to regulatory approval and was being examined by the Australian Competition and Consumer Commission when this edition went to press, neither company would comment on the substance of the deal, including the impact on staff. One of the few details to be revealed is the decision by Macquarie Premium Funding Chief Executive Gary Seymour to step down in favour of his Pacific Premium Funding counterpart, Stuart White. Mr Burley – who was not involved in the negotiations with Macquarie and says he had been out of the day-to-day business since Pacific was sold to GE – resigned before the deal was on the table. He is now involved in a non-insurance business and says he would have stepped down as chairman even if GE had decided to keep Pacific. His only concern is the welfare of the Pacific staff. “What I can say is that if it was a bad deal, GE wouldn’t have done it,” he told Insurance News. “I don’t know what the industry will end up looking like. It remains to be seen.”
insurance February/March 2013 2/7/13NEWS 2:34 PM
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See you in court Legal actions from the Christchurch earthquakes are reaching the endgame
THE LONG-AWAITED AVALANCHE OF LITIGATION FROM the Canterbury earthquakes is landing in the courtroom, with a number of precedent-setting cases listed over coming months. The complexity of the events and the money involved meant a substantial amount of litigation was always expected, and the New Zealand High Court has established a special “earthquake list” to deal with cases against insurers and the state-owned Earthquake Commission. The court is giving priority to matters likely to set precedents that can be used in other cases. Key issues include what constitutes replacement and insurer liability where a building is repairable but on land zoned uninhabitable. The number of earthquakes and aftershocks has led to cases concerning apportionment of damage between tremors and the ability of insureds to recover for multiple events that occur in different policy periods. The court will be asked to decide whether depopulation can be factored into a business interruption claim and whether exclusions for faulty workmanship and design defects are applicable. One key decision has already been handed down, after the court ruled Christchurch City Council did not have the power to use building regulations to force building owners to strengthen existing properties to 67% of the new standards. The Insurance Council of New Zealand had brought the action, which could have added millions of dollars to insurers’ costs if owners had to strengthen beyond the current 34% of new building standards. There are about 60 cases on the list but not all will reach the courtroom. The case management system involves a judicial 36
settlement conference, and most matters are settled via a form of mediation. The process is operating at a startling speed for litigation, with conferences usually held about a month after documents are filed. Wynn Williams partner Emily Walton says the legal firm lodged a statement of claim one day and was called to a conference the following day. The list was established to help the people of Christchurch get on with their lives after an event that left many consumers disillusioned with insurance due to delays in settlements. Ms Walton believes the mood among many insureds is starting to change and they are ready to litigate. “People have been fairly patient but have come to the end of their tether,” she said. “I’ve had a number of clients giving new instructions reflecting that.” She says this applies to commercial building owners and homeowners. Barrister Grant Shand has hearings scheduled from March to May, representing insureds. One of his first hearings concerns a red-zoned house the insurer has deemed repairable – but the repairs will never be made because the land is so badly damaged. Another involves a house that is undamaged but is at risk of rockfall. The owners have been served with a notice that it is a dangerous building and cannot be occupied. Other cases feature disputes over the cost of rebuilding and arguments about policy definitions. Mr Shand says the earthquake list is working well by bringing the parties together to keep the process moving. “It is very hands-on and it works.” He finds US cases are the most useful when researching previous legal decisions, noting the country has more hurricanes,
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“People have been fairly patient but have come to the end of their tether... I’ve had a number of clients giving new instructions reflecting that.” fires and floods to provide legal judgements on. Wynn Williams also has cases involving whether red-zone properties are repairs or rebuilds. Although the Government has made offers to red-zone homeowners to buy their land and house outright or their land only – leaving the owner to negotiate with their insurer over the home – the offers are based on 2007 rateable values. Ms Walton says the offers may not reflect true values, meaning some homeowners decide to take the Crown offer for their land and later find themselves in a dispute with their insurer over the building.
New house, old design In one of the first cases involving a homeowner to reach the courts, the High Court ruled that Southern Response – the organisation set up to handle the claims of local insurer AMI after it was sold to IAG – must meet the cost of building a new house of the same style and quality as an Edwardian home destroyed on February 22 2011. But Justice Robert Dobson says this is subject to the relevant materials and building methods currently being in common use, and he calls for consideration of substitutes if they do not affect the functionality or character of the new house. He says any house of a significant age would have design and construction elements that no longer comply with current building standards; the double-brick construction of the old home would no longer be allowed. Justice Dobson says the insurer is liable to compensate for the extra costs of rebuilding to meet the Building Act, with reference to the actual costs incurred on the new building site. Southern Response was in dispute with Turvey Trust, owner of the Edwardian style villa in Christchurch. The property was insured for repair or rebuild “as new”. Justice Dobson says the policy allowed the owner to choose where to rebuild, and the insurer had accepted the choice. He says the case may differ from other earthquake disputes where owners want to rebuild on an existing site. Turvey Trust claimed the insurer had to replicate the house with all its early 20th-century features, including detailed timber gables, bay windows and verandah balustrading, solid internal doors and woodwork of native timber. Southern Response argued it was obliged to rebuild using materials and methods in common use in 2012. The insurer’s and the trust’s estimates of building material costs might vary by up to 20%, the court was told. Australian and New Zealand cases were cited in the hearing and the court considered the uniqueness of the original house and whether elements such as plasterwork could be replicated.
Which quake did what damage? The Southern Response-Turvey Trust case is being appealed along with a major commercial case, after the High Court found in IAG’s favour in a dispute with Ridgecrest, owner of a commercial building in central Christchurch. 38
There were four major earthquakes in the policy period, leading to issues around when the building became irreparable and whether the insured could claim up to the limit of the sum insured for each quake. IAG began repairs to the building after the September 4 and Boxing Day 2010 earthquakes, incurring an $NZ125,000 bill. After further quakes it decided the building was irreparable and paid out $NZ1.984 million, the policy limit for any one event. The court found the insurer was not liable for any further payment, rejecting Ridgecrest’s claim that it be paid for each of four events, up to the limit of the sum insured in each instance. The February 22 2011 quake that devastated Christchurch added another $NZ1.924 million to the repair bill. IAG said the building was damaged beyond fixing – or the cost of repairs exceeded the sum insured. More damage was caused by the June 30 2011 tremor. Ridgecrest said this was “further and distinct damage” and the building was then irreparable. IAG contended the building was beyond repair before June 30 and, having paid the limit of its liability, it had met its obligations. Ridgecrest said it was entitled to the cost of all repairs needed to restore the building to its pre-earthquake condition up to the $NZ1.984 million sum insured for each of the four quakes. The policy did not have automatic reinstatement. Justice Dobson notes that “the timing of the respective earthquakes and their severity have ironically created a windfall for one party or the other”. Ridgecrest stood to recover more than the insured loss if it was paid for repairs that were not undertaken and that would not have restored value to a building that became irreparable within the insurance period. If IAG succeeded, the timing of the later earthquakes meant it would not have to pay for repairs it would have undertaken, even if they were in vain due to the later quakes. Justice Dobson notes the potential downside of imposing greater liabilities on insurers than those required to indemnify insureds for actual losses. “A decision entitling insureds to more than their ultimate net insured loss may have important consequences in exacerbating the restoration of a reasonable market for insurance services in the post-earthquake environment in Christchurch.” But he says he must interpret the insurance contract. Justice Dobson says Ridgecrest was entitled to claim every time it suffered a loss. An insurer could be liable for successive losses even though the total amount exceeded the sum insured. But he says IAG was frustrated in fulfilling the contract by events beyond its control. It was not obliged to pay more than necessary for repairs before the building became irreparable, plus the limit of its liability under the policy. Ridgecrest was not fully compensated for its loss because the building was underinsured, but that does not justify increasing the insurer’s liability beyond that required for the damage incurred, the judgement says.
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The game-changer An insurer in its infancy has plans to revolutionise the way large hard-to-place business is written in Australia By Michelle Hannen HAVING JUST CELEBRATED THE FIRST year of its Australian operations, Bermudian specialty insurer Ironshore is moving into 2013 with a bold offering destined to shake up risk placement in the top end of town. Established in 2007, Ironshore has an impressive pedigree. Founded by former Marsh executive Bob Clements, a founding father of the Bermudian market who was instrumental in the creation of (re)insurers Ace, XL and Arch, Ironshore operates from offices in Bermuda, the US, the UK, Ireland, Canada, Australia and Singapore. Unlike many of its Bermudian counterparts, it is singularly an insurer and does not operate in the reinsurance market. Signalling its intentions to grow by attracting the best people, the company appointed as its Group Chief Executive Kevin Kelley, the former chairman and chief executive of AIG-owned US excess and surplus lines insurer Lexington. That 2008 coup was followed in 2009 with the acquisition of Lloyd’s insurer Pembroke, a company founded in 2003 by former underwriter at Lloyd’s insurer SVB (now Novae) Mark Wheeler, who subsequently became chief executive of Ironshore International, under which the Australian division sits. The local operations are run by Managing Director David Rogers, an American with an Australian wife whose background includes stints at Marsh, Chubb and Endurance. Mr Rogers has worked for Ironshore since 2007, most recently as Mid-West Regional Executive, founding the company’s Chicago office. Unquestionably a niche-within-a-niche operation, the specialty insurer is focused on a small number of product lines where it believes it can provide innovative solutions and build a competitive advantage. It is even more particularly focused on servicing the inter national expansion of companies in developed economies, with the mining, oil and gas industries a key sector currently. “We want to be the go-to people to sort out cross-border exposures,” Mr Wheeler told Insurance News. Since its beginnings, Ironshore has grown strongly, following the few money trails in today’s global economy. “If we want to grow our business we have to 40
Marathon man: Mark Wheeler, Chief Executive of Ironshore International
be in the places where GDP is growing,” Mr Wheeler says. He also laughingly explains that being a destination on the international marathon map is also a consideration in the equation for office openings. Along with Ironshore’s entire Sydney staff he is in training for this year’s Sydney Marathon. Joking aside, the company is taking advantage of those booming regions to post growth that is more akin to a sprint than a marathon. From gross written premium (GWP) of $US317 million in its first year of operations in 2007, the group recorded GWP of $US1.65 billion last year and is forecasting $US2 billion for 2013. Local GWP sits at around $US50 million currently, but Mr Wheeler has ambitious growth plans for the local business with a GWP target of $US150 million by 2016 and a 2-3% market share in each of its specialised business classes. In Australia those specialised business classes include mergers and acquisitions insuranceNEWS
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(M&A) insurance, professional covers, political risk, structured trade credit, global property and environmental covers for very large corporate clients. “If brokers don’t need to pick up the phone and call outside Sydney they don’t need us,” is how Mr Rogers describes the type of business Ironshore writes. Its Australian risks are predominantly placed into Pembroke, its 100%-owned syndicate at Lloyd’s, a market which is frequently the final destination for such top-end-of-town business. Due to the size of this business it is often syndicated, underwritten by several different carriers to spread the risk. In what they believe to be a first by a global insurer for the Australian market, Ironshore plans to introduce local syndication early this year, offering “pre-syndicated blocks of capacity” across all of its local business lines. Mr Wheeler says this will provide the local market with larger limits than those Ironshore can currently provide. Ironshore will take the top layers on such locally syndi-
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“ This is a unique niche within the transactional liability area and there are only a few companies globally that have the in-house expertise that Ironshore has created in Australia.”
Australia Managing Director David Rogers
cated risks, placing them into its Lloyd’s syndicate, and will bring in “non-aligned” underwriters to join in on the risk further down the slip. But the business will be serviced locally and claims response will be local, effectively keeping the risks in the Australian marketplace. Such local syndication is not new to Ironshore, with Mr Kelley identifying an increased appetite for syndication among multinational clients in 2009, in response to growing concerns among companies about counterparty risk and continuity risk following the global financial crisis. “[Clients] don’t want big blocks of capacity with one, two or three carriers,” he said in 2009. “I think they want options and alternatives, and that’s the niche I think we’ll fit in the marketplace.” The concept has already been piloted by Ironshore in Canada to what Mr Wheeler describes as an “excellent reaction” and he says discussions to date have garnered “a lot” of interest from carriers in taking on the lower layers.
Mr Rogers describes the initiative as a potential “game-changer”. It is a fit with the company’s local strategy of identifying business that is under-served in the Australian market, examining the opportunities offered and the potential for innovation and then hiring local expertise and expanding infrastructure to support the development of those product lines. That formula was followed to a tee last year as the company grew its M&A division, which fuelled Ironshore’s growth in Australia during its first year. Providing warranty and indemnity cover – protection for both buyers and sellers should issues like debts, pension or tax liabilities or environmental issues emerge in the future – for large local deals is indeed a specialist area. AIG is the only other market for comparable cover in Australasia, and Mr Wheeler says in its first year of business Ironshore has taken an impressive 50% market share. Demand for the products, which he says “unlock difficulties in the transaction”, were primarily driven last year by private equity deals, and Ironshore’s success in the marketplace stemmed from the appointment last January of former Chartis Australian M&A practice leader and senior M&A lawyer Katherine Simmonds. Apart from overseeing the growth of the M&A division, she is Executive Director of Ironshore Australia, serving on the company’s local board. Keen to expand on its strong foothold in this area, Ironshore subsequently hired tax accountant and lawyer William Lewis to expand its offering focusing on tax policies. “This is a unique niche within the transactional liability area and there are only a few companies globally that have the in-house expertise that Ironshore has created in Australia,” Mr Rogers says. In line with its strategy to hire marketleading experts, Ironshore appointed former Marsh and QBE political risk specialist Ian Rouse in December to lead its Australian political risk, political violence, war and terrorism business lines. Mr Rogers says that with Mr Rouse on board the area has been earmarked as its new avenue insuranceNEWS
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for local growth and will enable Ironshore to expand its offering for Australian-domiciled businesses with international exposure to political and terrorism perils. Locally, political risk meets the Ironshore niche criteria of having a high technical barrier to entry and few competitors, with only two other markets in Australia for these types of covers. The company is hoping to impose its presence on the market quickly. One of Ironshore’s largest international business lines is directors’ and officers’ cover, but Mr Rogers says they only write a “handful” of large policies in Australia, primarily due to the competitiveness of rates in the local market. He says that despite taking a “wait-and-see” approach to the professional lines market – which also includes professional indemnity – the company “will continue to stay close to this business and be ready to move when the market needs capacity”. Other Ironshore Group lines that the local operation will continue to monitor are surety, aviation and marine, Mr Rogers says. Globally, Ironshore also writes specialty liability, energy, medical malpractice, personal accident, residual value and excess liability covers, all of which can be provided to its Australian clients by leveraging off the company’s wider expertise. Mr Wheeler says that is becoming increasingly common among global insurance businesses; the company is not arranged in “silos” but around solutions, and business is shared across the group. The fact that Ironshore reports its figures outside the US as a combined international entity helps facilitate this collaboration. Growth in Australia – and throughout Asia – could also come through acquisition, with Mr Wheeler specifying local managing general agencies (MGAs) that specialise in professional lines as his key targets. He says the Ironshore approach to any deal would be to test the waters with a minority stake first before proceeding to full ownership. MGAs are a key source of business for Ironshore, and Mr Wheeler says they represent a good fit culturally as well; they are often run by innovative entrepreneurs, which fits the Ironshore mould. 41
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Plan yo Plan y your our 2013 w workers orkers c ompensation tr aining compensation training offers a range range o off ttraining have been developed help employers and effectively QBE offers QBE raining ccourses ourses tthat hat h ave b een d eveloped tto oh elp e mployers a nd iintermediaries ntermediaries e ffectively a dminister and an d m a na g e W orkers C ompensation w ithin ttheir heir b usiness a ell a chieve a h ealthy w orkplace culture. culture. administer manage Workers Compensation within business ass w well ass a achieve healthy workplace To view 2013 Training Calendar, please visit our website: T ov iew tthe he ffull ull 2 013 T raining C alendar, p l ea s e v isit o ur w ebsite: www.qbe.com.au/Workers-Compensation/Training/index.htm w ww.qbe.com.au/Workers-Compensation/Training/index.htm
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Bookings are essential A refreshed 2013 calendar includes eight additional topics, visit the QBE website to find out more. Register online at: www.qbe.com.au/workerscompensation/training or email: training@qbe.com
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Turning up the heat on insurers Allan Fels talks tough as he monitors Victoria’s FSL transition By Jan McCallum INTERESTING TIMES ARE PROMISED UNDER VICTORIA’S Fire Services Levy (FSL) Monitor Allan Fels, who warns insurers he will be scrutinising them to ensure policyholders get the full benefits when the FSL is abolished. Professor Fels has already started investigating 100 complaints from Victorian householders and business owners who he says have seen price increases of 250-300% with barely any increase in their base premium. He will oversee the transition from the FSL on insurance to a tax levied by councils on ratepayers, taking effect from July 1. But his powers have been backdated to July 1 last year, when many insurers imposed an FSL of 95% on rural business owners and 54% on householders. Professor Fels told Insurance News he will be looking at complaints of overcharging from that period. “The complainants generally point out that the actual payment of the fire services levy this year by the industry to the [State] Government is less than for last year, so there is surprise and concern when they find what they say are jumps in premium.” The Victorian Government budgeted to collect $641.9 million in FSL in the year to June 30 last year, falling to $580.5 million this financial year. It has signalled it is taking last year’s levy rises seriously, giving courts powers to fine insurance companies up to $10 million for price exploitation and backdating the monitor’s powers. Professor Fels’ appointment alone makes a statement. He is familiar to consumers nationally as the former head of the Australian Competition and Consumer Commission (ACCC) who took on oil companies over petrol pricing. More recently, Victorians have seen the controversial figure’s report on the state’s taxi industry, with recommendations that prompted street protests from taxi licence owners. Professor Fels has held talks with insurers and says his office recognises it must increase its understanding of how the industry operates and discuss practical solutions to some of the issues around the levy’s removal. He also expects to talk to brokers. The Office of the FSL Monitor was established just this year and launched to the public last month, when Professor Fels
held a media conference putting insurers on notice that they will be under close scrutiny to remove the FSL from premiums. Victoria’s Department of Consumer Affairs had been taking and holding complaints until the monitor was established. Professor Fels says he is now hearing directly from householders and businesses reporting significant increases in their FSL. He says it is common to see a doubling in levy with no change in the base premium. He likens many of the issues around the abolition of the FSL to the introduction of GST in 2000, when there were concerns business would use the new tax as an excuse to slip through price increases. Professor Fels says the problem did not eventuate because of the intense public scrutiny and strong action by the ACCC,
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which gave close attention to cost claims. “When the GST was introduced there was huge public interest in what was happening to prices, with voices in the community calling on business to act reasonably and the ACCC to protect consumers and small business interest, and I expect it will be the same this time.” He says there will be suspicion about insurers trying to reinstate an element of the FSL by invoking cost inflation. “The Victorian Parliament went out of its way to include not only price exploitation law but a law about misleading and deceptive conduct with fines of $10 million per offence for misleading and deceptive conduct – which is a record amount, higher than the federal amount,” he says. “If an insurer claims to be removing the fire services levy from its prices and is not in reality doing that, it will be liable under the misleading and deceptive conduct law.” Professor Fels says several insurers’ names crop up regularly in the complaints being investigated, “some more than others”, but it is premature to name them. He has the power to “name and shame” offenders, investigate and prosecute breaches and apply to the Supreme Court for orders. The courts will be able to award compensation for consumers and to order corrective advertising. Professor Fels says his office wants to understand how insurers communicate with policyholders about the change in the FSL. “We will be asking them to explain how they are dealing with eliminating the fire services levy to customers, whether they are consumers or business. “It is important that anyone who has an insurance policy understands how the levy is changing and exactly what it means for them. I am also seeking data from insurers that will allow me to assess changes to premiums as levy arrangements change on 1 July.” Insurers cannot complain they were not warned that the monitor carries a big stick and is prepared to use it. “I believe the strength of the law has only recently sunk in and the fact the Government is taking the matter so seriously that it has such a substantial team at work,” Professor Fels says. He expects to have an office of 12-15 staff and says the team has considerable experience in comparable issues, such as the introduction of the GST. His deputy is David Cousins, a former ACCC commissioner and Victorian director of consumer affairs. The Director of the office is Rod Overall, a senior Victorian public servant whose roles have included director of price monitoring at the ACCC. 44
Although the industry has welcomed the end of a tax on insurance, brokers in particular have criticised the State Government for mishandling the transition, believing it should have allowed more time for a gradual phase-out of the levy and a simultaneous raising of the council property charge. But Professor Fels told Insurance News he doubts insurers would really want a longer transition, given the substantial advantages from removal of the FSL. “The insurance industry gets a very, very big benefit from the change in the tax law,” he says, explaining that the drop in the cost of insurance should trigger an increase in demand for cover. In early discussions with insurers, Professor Fels says, companies have pointed out that they are required to pay the levy and entitled to collect it from policyholders. “They are well accustomed to the idea they can’t overcollect and they emphasise they do not want to under-collect, so that is their anxiety – that the new laws don’t stop them from collecting the full amount.” He says there are challenges for insurers, who have a set figure to pay the Government and have to apportion it to policyholders who pay at different times throughout the year. Insurers began reducing their FSL impositions on policyholders a few months ago, and have ratcheted up a price war in the final months, announcing dates when they will drop the levy altogether. Until recently the Insurance Council of Australia (ICA) helped companies calculate the levy by commissioning an actuary to provide advisory rates for each company’s share, but this was abandoned in the lead-up to the removal of the FSL following fears it breached competition laws. While the withdrawal of the service caused chaos for insurers, Professor Fels says his “off-the-cuff impression” is there would be no legal issues with ICA recommending an allocation for its members because they would not be collaborating on prices. But that would be a matter for the ACCC. He will report to the Victorian Consumer Affairs Minister every quarter and his office will cease operations on December 31 2014, when a sunset clause repeals the FSL transition law. The monitor will not be responsible for scrutinising how local government implements the new charge, which the Victorian Government expects will save business and households $100 million a year. The monitor has established a consumer hotline, and Professor Fels says consumer awareness will be a significant issue as July 1 approaches. “It is going to build up from here,” he says.
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Allianz Young Eagle participants: Anna Heyligers (L), Milne Alexander; Drew Ferns (R) , OAMPS and Stefan Versluis (C), Allianz Sales and Distribution Manager - Metro.
Allianz Young Eagle Program: today’s talent, tomorrow’s leaders. As one of Australia’s largest general insurers, Allianz is committed to enhancing the potential of today’s young insurance professionals. Now in its third year, the Allianz Young Eagle Program continues to identify and develop our industry’s most promising young intermediaries. We offer high achievers an exclusive series of educational forums, events and networking opportunities. The Young Eagle Program is an intensive initiative where participants undergo advanced development to help them attain both personal and business goals. We will continue in our efforts to provide the educational and networking platform that inspires tomorrow’s industry leaders. Contact your local Allianz representative for further information.
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Allianz Australia Insurance Limited ABN 15 000 122 850 AFS Licence No. 234708 MKT 041IN 01/13
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Bring in the real experts The story of a large commercial fire claim that ran so smoothly it surprised everyone – except the project manager By Ben Oliver
News Ltd
A b ig c la i m o n t he w a y: t h e N o r t hm e a d in d u st r i a l b ui l d in g o n f i re i n F e b ru a r y la s t y e a r
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News Ltd
WRI INSURANCE BROKERS MANAGING DIRECTOR ROBERT MOIR has worked in the industry a long time and seen a lot of things go wrong. He sardonically observes he’s probably only got 100 weekends of golf left in him, and he bets 80 of those will be rained out. You get the picture. After more than three decades placing insurance on behalf of his clients, Mr Moir has experienced the full gamut of claim problems, and he doesn’t expect an easy time from a big claim. From insurers unwilling to bend on cost of works to third-party contractor issues and everything in between, he says the vast majority of claims that hit road bumps can be attributed to one thing: underinsurance. So he expected a fire that destroyed a commercial complex in Northmead, west of Sydney, in February last year to be a bit of a nightmare. But now he says he’s never in his career as a broker seen a claim run so smoothly – beginning with claim lodgement in February to the handover of the reconstructed building nine months later. “It was done so well that prior to the building being rebuilt, we had already lined up new tenants,” Mr Moir tells Insurance News. “From the experience I’ve had before with claims of this size, my involvement in this claim was 80% less than it normally would be.” The claim, lodged by building owner The JRP Partnership, was triggered when fire destroyed a 5000 square metre commercial complex comprising five separate buildings. While loss adjuster Wendy Reid of Crawford & Company believed an ex-tenant deliberately lit the fire, it was never proved beyond doubt. The insurer, Vero, approved the $4 million claim promptly and representatives from the insurer and brokerage were on site the following day. From that point, Mr Moir says, the claim was handled very differently from any other commercial claim he has ever been involved in. Firstly, the client had taken out adequate insurance, allowing additional works – including improved disability access mandated under updated council regulations – to be approved without issue. Secondly, the involvement of Vero Senior Claims Specialist Cameron McInnes “was critical”. “Insurers can, from a claims point of view, be a bit negative, but this claim was the opposite,” Mr Moir says. “The best part of this for me was that I always had direct access to Cameron.” Perhaps the most crucial point at which the claim diverged from others was the involvement of a professional project manager – an emerging trend in the commercial space and one being led by Suncorp. Since 2008, Suncorp and Lend Lease have worked together on commercial claims of more than $100,000. The results have been striking, with reconstruction times cut – in some cases by more than half. Vero says costs are down and customer satisfaction has “never been higher”. While commercial claims have typically been managed at some level, be it by the loss adjuster or a builder, Lend Lease’s role is cut and dried. It’s a project manager that is just that; the individual overseeing the entire project with no hands-on involvement. Lend Lease Senior Project Manager David Hanley says the insurance industry has only recently understood the project manager’s role in a major claim. “It was a bit of a surprise to me when we first became involved as it was a bit of an unwieldy beast,” Mr Hanley said. “I don’t believe the insurance industry has really come to terms with what project management is. “There are a lot of insurance builders that call themselves project managers, but often they are builders acting in their own interests.” Mr Hanley says claims taking up to two years from claim lodgement to completion are not uncommon. insuranceNEWS
Start of the challenge: twisted metal and rubble indicated the claim would be “a bit of a nightmare”, says broker Robert Moir
“Insurers weren’t very good at benchmark reporting,” he tells Insurance News. “What we brought to the table was a clear record of how these projects track.” The business relationship between Lend Lease and Suncorp blossomed out of the devastation caused by Cyclone Larry in 2007. After contracting Lend Lease to manage several commercial projects in the wake of the catastrophe, Suncorp conducted several trial projects of commercial rebuilds using Lend Lease in Sydney, beginning in 2008. Mr Hanley says the “blinding success” of those pilots cemented the relationship. “We wouldn’t be interested in working in insurance if we couldn’t make a difference, that was the driver for me in the first place,” he said. The insurance industry was quite different from previous project management work Mr Hanley had undertaken. “It was a massive learning curve from day one,” he says. “Insurance can be quite complex, the way they handle claims and the
A new approach: Vero says Lend Lease’s project management skills have cut costs and raised customer satisfaction levels February/March 2013
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number of stakeholders involved. “But they hadn’t been exposed to true project management and that was a challenge for us. “In the commercial building space a lot of builders work solely in insurance but we came in from a commercial, ‘wide world’ approach, and our way of doing things rattled the industry considerably.” In addition to managing Suncorp’s larger commercial claims, Lend Lease is also responsible for overseeing the insurer’s disaster recovery work. Following the Queensland floods in early 2011, the company managed 3500 claims worth $300 million. After Cyclone Yasi made landfall barely a month later, Lend Lease was again called on, this time to oversee 3250 projects worth $200 million. Mr Hanley estimates his company’s involvement has saved Suncorp at least 20% on reconstruction costs since it became involved. The most recent floods in Queensland have again thrust the company into the breach, being given responsibility for the project management of claims in Maryborough through to Bundaberg, Gladstone, Rockhampton and the western regions. Mr Hanley says while the introduction of a project manager into the claims mix has been vital in realising time and cost savings, Lend Lease’s involvement would make no difference without clear communication between all parties. “The broker did a great job with the relationship and equally the Suncorp case manager was there from day one and always available. “The model works because of the close relationship between different parties.” The importance of the collaborative approach is a sentiment shared by Suncorp Commercial Insurance Executive General Manager Claims Matt Pearson. “I saw how things didn’t always go swimmingly with insurance claims and we started to talk about how Lend Lease could add value to this part of our project,” he told Insurance News. “In the past, loss adjusters would do a lot of the project management work, but they don’t generally have a high level of experience in construction and building management. “The goal is to deliver a consistently high level of performance. “We were always getting a different level of expertise from loss adjusters, which sometimes flowed into a bad experience for the customer.
Back in action: less than 10 months after the fire, a new 5000 square metre building is ready for work
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All smiles now: from left, Alan and Stephen Hare, whose company Hare & Forbes owns the building, get set to cut a symbolic ribbon. With them are Suncorp Commercial Insurance Manager Supplier Performance Trevor Bettenay, Chief Executive Anthony Day and Sharon Rowlands, the NSW State Manager of Lanskey Constructions, who built the new premises
“Lend Lease really brings that professional project management experience to the claim.” Mr Pearson says that the involvement of Lend Lease came about because “Suncorp wanted to be more than just a bank for commercial claims”. “Often the response from insurance companies is just to cut a cheque,” he said. “But we want to be a market leader, and that requires us providing customers with a solution that really helps their business.” One of the benefits of appointing a project manager for Suncorp has been its newfound ability to complete projects within the indemnity period stipulated in business interruption contracts. “We rarely delivered a project within the indemnity period and they often became total constructive losses,” Mr Pearson said. “We can challenge that timeframe now. “Another advantage for the insured is that they are businessowners who don’t have the time or expertise to get highly involved in the process. We can speed things up without them getting dragged into the process.” Mr Moir agrees. “What would happen normally in a case like the Northmead claim is that our client would have to make all the decisions. “But with this case, there was never a question about money. If we needed to put extra stairs in, we did.” In the end, the proof is in the pudding. For Crawford & Company’s Wendy Reid, who has spent 30 years handling commercial claims, the turnaround on the Northmead fire claim was “almost unprecedented”. “The fact they were able to reach completion in nine months is quite extraordinary,” she told Insurance News. The involvement of project managers in commercial claims is a trend likely to grow in coming years – and one that will certainly give brokers like Robert Moir more time to focus on their clients and leisure pursuits like golf. Weather permitting. February/March 2013
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Ansvar resurrected The quake-hit insurer is ‘a very different organisation’ as it slims down and shifts its focus By Jan McCallum
Ansvar’s Andrew Moon: forced to stratify the business
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IT HAS BEEN A TORRID COUPLE OF YEARS for Ansvar. The company was undergoing an internal transformation when the Canterbury earthquakes hit, and New Zealand losses as well as staff departures have fuelled rumours about its stability. Few companies would downscale their operations to the extent of Ansvar when it decided to focus on its core businesses of faith, not-for-profit, care, education and heritage. The company lost around 80% of its policies after it decided four years ago to quit household and motor insurance. Chief Executive Andrew Moon acknowledges the reform has unnerved the market. “I think we have been misunderstood,” he says. Ansvar offered household and motor from its formation 51 years ago, “but the market grew much bigger and better than we were and Ansvar did not have the scale to compete”, Mr Moon told Insurance News. “We discovered three or four years ago that we were in danger of being swamped by the fact that we were just not big enough to compete effectively in that market.” In quitting the high-volume sectors, Ansvar has shrunk its corporate operations. It has centralised some functions to its Melbourne head office and in the next month or so will cut 10% of its 124 staff. “If you reduce your policy count by 80%, the structure of your organisation and the number of people you employ becomes very different,” Mr Moon says. Staff departures have fuelled negative rumours about what is happening at the company, but Mr Moon says he has also been hiring. Mr Moon came to Ansvar from a software company, but has also worked in financial services, with stints at Colonial and Tower Life. He believes outsiders can bring fresh thinking to the business and has hired executives who do not have an insurance background. insuranceNEWS
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He says the result of the transformation is “a very different organisation” that can offer brokers and their clients a much more tailored service. “Moving from high volume is allowing us to do a bespoke approach. We can be far more hands-on and far more attentive to brokers – to each and every risk they want us to look at.” The exit from household and motor is more or less complete, the bespoke model will be finished by the end of this quarter and the full transition is scheduled to be in place by mid-year. Mr Moon says Ansvar has worked to improve its service, and after conversations with brokers and customers realised it could not be all things to all people and needed to divide its market into sectors. “Our bigger, better and more profitable brokers and customers should get bigger and better and more attentive response from staff,” he says. “We have had to stratify our own business.” This has in turn led to reform of the company’s offices. “Our regional offices will stay but will concentrate far more on service to our brokers, and through them to our customers. “Previously we had full-service state offices outside Melbourne, with full underwriting and claims capabilities. With the volume of business we write, we can’t justify a full-service office in each state, so a number of these functions will be, or have been, brought back to Melbourne.” Although Mr Moon wants the company to offer what he calls a “business class” service, some of the customers are non-profit organisations that travel economy. He says the company can help them with risk management and so reduce their costs and the chance of a claim. He says it is a model that has worked extremely well in the UK but
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“We got a bad bruise and we’ve recovered from that. 2012 won’t be a loss. It won’t be an outstanding profit, but it won’t be a loss, and that’s as bad as it will get for us.” which has not been implemented fully in Australia. “We are moving to having a more handson approach and doing so in a way that the brokers welcome,” he says. “We are not looking to develop a direct book.” The education sector is dominated by a few big players, but Mr Moon says Ansvar has education and heritage “very much on our radar” and will examine its role in those segments this year to see how it can “attack that in a sensible way”. The Canterbury earthquakes occurred in the middle of Ansvar’s restructure, and Mr Moon says the company found itself transforming in the midst of an unfolding disaster. Ansvar has quit New Zealand and its business there is in run-off, but Mr Moon nevertheless describes the company’s earthquake response as a marked success. “That process has proved to the market generally that we do what we say and we have the evidence to show that.” What it learned from New Zealand led back into improvement in the Australian operation, where an examination of the health of the business was already underway. He brought in outside agencies to work with the sales and claims teams, restructured the offices and the management reporting hierarchy, and is about to embark on a complete review of the company’s IT resources. Three key areas of focus have been assessing data integrity, customer service and “the most critical area” – Ansvar’s customers. “We realised we didn’t know what we had nearly well enough, so went through a data integrity project. We increased the quantity of our data fourfold. “We might have had a client whose site was insured, but now I can tell you there are four buildings on the site and a lot about them.” He says the impact on the reinsurance program can be counted in the millions of dollars, because in selling the program to reinsurers, the company is judged by the quality of its data. “Where the data may not be present, then they will assume the worst.” This has been particularly important for Ansvar, with reinsurers likely to assume historic buildings and churches are built of unreinforced masonry, which proved so 52
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dangerous in Christchurch. Mr Moon says improving the quality of its data has enabled the company to argue its case to reinsurers and prove where high risks do not exist. He says that apart from a significant payback on reinsurance, improving data quality has helped the company analyse its portfolio to a greater degree. Ansvar is a subsidiary of Ecclesiastical Insurance, owned by the Anglican Church of the UK and Mr Moon says the faith sector is its “bread and butter” core business, which it regards very jealously as “our patch”. The connection means the company can tap a huge amount of information from Ecclesiastical. “There is nothing they don’t know about churches and how to minimise risks”. He says Ecclesiastical remains committed to Ansvar, which has returned its parent 10% a year since Ecclesiastical bought the company in 1998. Although the past couple of years have been horrific for the company, Ansvar was not brought to its knees. “We got a bad bruise and we’ve recovered from that. 2012 won’t be a loss. It won’t be an outstanding profit, but it won’t be a loss, and that’s as bad as it will get for us.” Due to the earthquakes, Ansvar began raising its prices earlier than other insurers. He says brokers “thought we were pushing it a bit hard at the time”. But he says it is clear now that the market is hardening and Ansvar has also become very selective about risk. Ansvar has paid more than 80% of its commercial claims in Canterbury and aims to be down to its last 5% by the end of this year. Although there are no plans to resuscitate Ansvar’s New Zealand insurance business, Mr Moon says there may be an opportunity to expand into claims-handling before the claims process is exhausted. “But it is not on today’s agenda.” He sees growth opportunities in the faith segment in Australia and in Asia. While the Ansvar board does examine other sectors, he says there is enough opportunity in the existing businesses without having to look further afield at this point. “There is enough opportunity in the segments we have.”
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The analytics advantage How insurers can learn more about their customers and increase customer retention By Andrew Taggart, Wealth Management Advisory Leader, Australia, Ernst & Young
VOLATILE ECONOMIC CONDITIONS ARE prompting consumers to look for ways to tighten their belts. Many are shopping around for better deals on their insurance, or even deciding that some insurance products are discretionary items they will have to do without. This places Australian insurers under increasing pressure to find ways to keep customers and maximise value in order to maintain profit growth. Customer value can be eroded at multiple points in the insurance lifecycle – from the initial policy sale, pricing and level of cover, right through to policy renewal and claims. But the most fundamental loss of value occurs when a customer discontinues a policy or withdraws their entire multi-policy relationship from an insurer. This also has the most insidious effect on an insurer’s bottom line. The sooner customers leave, the less likely it is that the cost of their original acquisition – from marketing, sales, underwriting, policy administration and customer service activities – will have been recovered. So in many instances, this increasing policy turnover is in fact resulting in negative customer value for the insurer. It’s clear from our conversations across the industry that customer retention is once again a key issue for many Australian insurers. So what are the factors driving these increased levels of attrition? Insurance has traditionally been viewed as a low involvement, “set and forget” product category, but this is being challenged by a number of recent shifts in consumer behaviour and the competitive landscape. The widespread adoption of digital and online channels means the insurance industry is faced with far more active, demanding and better-informed customers 54
than ever before. Consumers are increasingly willing to research their insurance purchases. In fact, Ernst & Young’s recent Global Insurance Customer Survey found that over two-thirds of Australian consumers planned to proactively research options when shopping for their next insurance purchase – more than double the number who researched their last purchase. Long-term demographic shifts towards an ageing population and shorter-term fluctuations in economic conditions are providing the catalyst for increasing levels of customer churn. Coupled with this, a series of recent regulatory changes are creating further impetus to churn. So in this increasingly complex environment, what else can insurers do to ensure they have the best chance of retaining and growing the value of their customer base? Our research found that customers are generally reluctant to change provider, but most Australian consumers who switched insurers felt little or no effort had been made to retain their business. While there are no silver bullets, advances in specialised diagnostics, enabled by advanced analytics, are helping insurers to shine more light onto the issues. Our experience shows that there is a set of 10 key questions that insurers should be asking themselves in order to test their confidence in their customer retention strategies and processes. 1. Do we have clarity and confidence in the management reporting numbers and insights on renewal/lapse rates and their drivers? 2. How good are our predictive analytics models at identifying retention risks, drivers and performance uplift opportunities? 3. Is our management team aligned and equipped to address retention? 4. Is our project activity targeted and prioritised based on analytical insights, does insuranceNEWS
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it have organisational traction and is it driving results to increase retention? 5. Does our sales and distribution strategy align with the retention strategy to ensure risk profiles are appropriately factored into customer and intermediary targeting and incentives? 6. Do we have sufficient insight into our competitive position on product, pricing and where we are losing customers? 7. Is our customer communication sufficient to continually reinforce our value proposition while also targeting churn risks? 8. Do we proactively target customers with retention offers based on their value and propensity to churn? 9. Are our actuarial assumptions accurately reflecting underlying policy lapse patterns? 10. Are our processes optimised to get customers talking to specialised retention staff before they cancel, and have we equipped staff to provide options and advice to help retain customers? The broad scope of these questions highlights the complex cross-functional alignment needed to manage customer retention. Success lies in continually evaluating and tweaking the drivers – from customer contact, processes and pricing through to distribution, policy, training, technology and incentives. Relentlessly pursuing insights from advanced analytics, research and feedback increases performance and customer focus across the entire business. Most people think that extracting the necessary data in the right format to be able to run customer analytics is a long and intensive process. Our experience shows that smart data sourcing and application allows insurers to glean new insights surprisingly quickly. What’s more, acting on these insights can deliver rapid results to the bottom line, often within months.
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companyNEWS
Meet the competition: Zurich saves time, offers discounts, puts marine risks online NO ONE LIKES DOING MORE PAPERWORK than they need to. So Zurich Australia built an intelligent platform that pre-populates data when brokers generate a business insurance quote. The Zurich team analysed historical data to identify the most common risks selected within business insurance. The result of the research is a new “XpressQuote” solution which saves save brokers both time and effort. It also features automatic discounts, which Zurich knows is a competitive offering. “The more business insurance risks written, the larger the discount for the customer,” Executive General Manager SME Bobby Lehane says. This follows the 2010 revamp of Zurich’s online platform Z.streamXpress in response to technological innovation in the market. “We recognised that we couldn’t rest on our laurels after the revamp and turned our attention to creating even more efficiencies and opportunities for brokers,” Mr Lehane says. The quest for greater efficiencies has also led Zurich to develop a new full life-cycle marine solution which is now available on Z.streamXpress. Although other online tools for marine risks are available in the market, Zurich says this is the first full life-cycle solution and the first
available on the Sunrise Exchange platform. Now brokers can quote, bind, process mid-term changes, manage renewals and cancel policies online. Previously Zurich responded manually to brokers’ quote slips for marine risks. Chief Executive Daniel Fogarty says the addition of marine cargo is one more benefit for brokers using its online platform. The system asks brokers a series of simple, user-friendly questions and provides “help text” where specialised terminology is used, keeping the need for specialised marine knowledge to a minimum. This straightforward approach is consistent with other products on the platform, including business packages, commercial motor, residential strata and workers’ compensation. Mr Fogarty says Zurich’s research found a demand from brokers for online processing of marine products, so this is a growth opportunity. The solution also gives brokers the benefits of full policy life-cycle management and connectivity to back-office systems to manage collection of premiums. “This latest extension to Z.streamXpress continues our 30-year commitment to underwriting marine insurance and demonstrates Zurich’s determination to invest in broker solutions that will improve their business operations,” Mr Fogarty says.
On the farm: CGU takes its regional and rural offerings online PEOPLE IN REGIONAL AND RURAL areas are big users of the internet, so CGU Insurance is investing in putting its products online to help brokers more easily access relevant products. Its farm pack and farm motor products are the latest to be added to its online platform, CGU Connect, following the inclusion of professional indemnity from September last year. The launch of CGU Connect Farm Motor and Countrypak allows brokers to transact policies through a web application operating on the Sunrise Exchange platform. It offers full life-cycle functionality, instalment billing and automatic conversion of existing policies to the new platform on renewal. It’s designed to be easy to use, flexible and efficient. CGU General Manager Broker & Agency Ben Bessell says the new development will allow brokers to self-manage their policy portfolio and provide a more thorough and efficient customer experience. “Electronic platforms and web-based systems enable intermediaries and business partners to control how they use CGU products, and at a time that suits their business needs.” He says CGU has received positive feedback after trialling the product with brokers. 56
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So much to learn, so little time to act Two brokers visit the Great Barrier Reef and discover the unlikely union of an insurer, a search engine and marine researchers By Ben Oliver
AS ANY GERMAN BACKPACKER OR LOCAL WILL CONFIRM, the one thing hotter than the weather in the tropical hamlet of Cairns is the party scene. What Lagos is to Portugal and the island of Ios is to Greece, Cairns is Australia’s contribution to the Lonely Planet’s where’s where of hedonistic hot spots. Even the long arm of Australia’s moralistic legal code fails to reach Cairns, allowing many of the excesses found overseas – wet T-shirt Wednesdays, for example – to flourish. It’s the kind of city that backpackers visit with plans to stay four days and leave after four months. In mid-November Cairns heaves with the hot, dense air of southeast Asia; perfect weather for an ice-cold beer and some grilled coral trout. I stroll along Cairns’ Esplanade with my companions, Sydney-based Aon broker Eric Lowenstein, Cranston broker Carol Caldwell from Adelaide and Catlin senior underwriter Cameron Hill. Eric and Carol are the winners of a competition organised by Catlin and hosted by Insurance News. Cameron is our Catlin chaperone and I am the lucky journo who got assigned to report their visit to the Great Barrier Reef and a most intriguing research project. It’s another balmy night in Far North Queensland as we amble past shorts-wearing backpackers and restaurants with names like Rattle ’N Hum and Royal India. We have quickly settled into a comfortable groove unusual for a group who were strangers just a few hours ago. The conversation over dinner purrs along, and on our way back to the hotel – the next two days will be hectic with a visit to the reef, diving and a helicopter ride – we take a detour through the city’s night markets. 58
It’s a colourful medley of Australiana without peer. Kangaroo jerky is on sale next to handmade windchimes, $15 massages and fake Havaianas, coral bracelets, iPhone covers, Akubras and, in case you forgot on your recent visit to Cooper Pedy, an opal shop, all to the soundtrack of the B-52s Love Shack playing through tinny speakers above. I wonder aloud if this is what tourists really think Australia is like. But then maybe Cairns and its in-your-face unabashed Paul Hogan prawn-grilling cliché is closer to the real Australia than the bright lights of Sydney and the European charm of Melbourne. But our interests here are more to do with the coral than the carnal. We’ve travelled here as guests of Catlin to be shown the nuts and bolts of the Catlin Seaview Survey, a project the company has already spent millions of dollars on, and will spend millions more. Once its work finishes in Queensland it will move to the Caribbean this year for more research. Unusually for an insurer, or indeed any company, Catlin’s investment is unlikely to see any sort of positive cashflow return. “Stephen [Catlin] loves the environment; he has a real passion for it,” Cameron says of the company’s founder, deputy chairman and chief executive. “He’s decided it’s important not so much for the company but for the world in general.” The boss’ passion for the environment is funding groundbreaking research with a goal no less important than saving the Great Barrier Reef, one of the seven wonders of the natural world which provides the Australian economy with $6 billion of annual revenue through tourism and fishing
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alone. The Catlin Seaview Survey, a coalition of Catlin, search engine giant Google, researchers Underwater Earth and the University of Queensland and its Global Change Institute, aims to chart a part of the world that despite its renown, remains largely a mystery. Only 10% of the reef had been explored prior to the survey starting in September, with only about half the reef’s estimated 1 million species of sea life known to marine biologists. Coral is incredibly susceptible to change and sadly much of the reef has already been destroyed. A paper published by the National Academy of Sciences in October estimates more than half of the Great Barrier Reef’s coral has disappeared since the 1980s and the rest could be gone in a decade. The reasons behind the reef’s vanishing act are many. According to National Geographic, global water temperatures have risen by 0.1 degrees Celsius in the past century. This may sound trivial, but for coral living happily within a very narrow “goldilocks zone”, it’s potentially catastrophic. Water runoff from mainland farms and industries has also reduced the penetration of light required by hard corals living by photosynthesis, and has led to coral bleaching. Runoff has also resulted in vast amounts of agricultural pesticides being washed into the ocean. This has been a boon for one particular sea creature, the carnivorous crown of thorns starfish, whose destructive appetitive for coral has destroyed large sections of the reef. When added to rising carbon dioxide in the atmosphere, the need for urgent action is obvious. Underwater Earth Communications Manager Ben Glaston
insists the reef can still be saved. “There are things that are preventable, but we need everyone to be aware of these issues and then influence policy makers as best we can,” he says. The project’s primary hook with the public has been the Google underwater work, allowing users sitting in front of their computer to swim with angelfish and pass staghorn coral. The expedition also has an educational purpose. Social media has been crucial in lighting ground-level interest, from the many weird and wonderful photos of exotic fish and dazzling corals to the hosting of virtual classrooms. “We can host a classroom session on the boat through Google Plus with our scientists and oceanographers and we are looking into how we can make use of all those different things we are discovering,” Ben says. “We are also trying to get that into the [national education] syllabus, but it’s a process we are only a month or so into. “So far we’ve had amazing feedback now that we’ve started to engage teachers in the past few weeks that are using the YouTube videos to talk about different things with their students.” While entertaining and informative, the survey is a scientific endeavour at its core. By cataloguing 2300 kilometres of reef system at 20 different locations against a combination of scientific benchmarks, the Catlin Seaview Survey team has built a “baseline” record of the Great Barrier Reef, allowing scientists and enthusiastic amateurs alike to detect future changes. “Everything we are doing is geo-tagged, so anyone can come back to these same spots,” Ben says. “We want to encourage people to become citizen scientists. With technology being the way it is, you can have an iPhone or an
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“The shallow water team dives two or three times a day at depths up to 30 metres. Their colleagues in the deep water team can go down to 100 metres.”
Clockwise from top left – Up and away: Carol Caldwell takes to the skies New wave: the Catlin Seaview Survey vessel patrols the ocean Eric Lowenstein enjoys the nautical experience
underwater tablet with a housing and you can go down to these spots and swim where the SV2 (Sea View 2) has been and you can look exactly at what the SV2 captured. “In two years time, you might go down there and see if it’s better or worse.” Accurately measuring changes to the Great Barrier Reef is a process the Seaview Project hopes to improve. It’s fitting that one of two key instruments helping catalogue the Great Barrier Reef has been named in honour of reef diving pioneer Ron Taylor, who died last September, just a few weeks before the survey got underway. “Big Ron” is a remarkable piece of apparatus known more technically as the Sea View 2, or simply SV2. The other is named after American diving legend and marine scientist Sylvia Earle, whose exploits have earned her nicknames like “Her Deepness” and “The Sturgeon General”. While a variety of equipment is being used to record the reef, the SV2 has the technical wizardry that underpins the entire project. It’s basically a removable bulbous head containing three cameras that is attached to an underwater scooter. Our group was about halfway through our dive at Opal Reef, one of the smaller and more popular dive sites accessible from Port Douglas, when we came across two members of the 60
diving team, marine biologist Anjani Ganase and the head of the shallow diving team, filmmaker and cinematographer Christophe Bailhache. The pair had just completed cataloguing a section of the reef, a task taking about 45 minutes before the onboard battery of the SV2 required recharging. The shallow water team dives two or three times a day at depths up to 30 metres. Their colleagues in the deep water team can go down to 100 metres, but for no longer than 10 minutes at a time. There is a particular interest in the “forgotten zone” below 40 metres. Each of the SV2’s three separate cameras takes a 25MB photo every three seconds. While the comparison with Google Street View is obvious, Christophe Bailhache says the technology is “totally different” although the images are stitched together in a similar fashion to produce the virtual diving experience now possible through the survey’s work. Considering only two of these remarkable recording devices exist anywhere in the world, how much do they cost to manufacture? Christophe smiles. “It’s a secret.” The project was initially supposed to take around 50,000 photos, but when we visited the dive site the fifth expedition was nearing completion and another dive site had yet to be catalogued. At that point more than 75,000 photos had been taken. “Our record was 1500 photos in one day,” Ben says. That’s
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C
S M
Left: Google Street View underwater: not quite, but “Big Ron” boasts technical wizardry
just under 40 gigabytes of data.” The equipment used by the Catlin team, from scuba gear to cameras, batteries and laptops not to mention supplies for each expedition lasting up to three weeks, weighs more than 500 kilograms. “Funnily enough, Catlin doesn’t even insure us,” Ben says. “It’s always an interesting process getting 30 pelican cases on and off flights. The last time we had a three-tonne truck bring everything out for us.” The day-to-day operations on board the base vessel are exhausting. A typical day starts at 6am, with most of the crew sitting down for breakfast between 6.30am and 7am. Dive teams will prep the SV2 camera and usually be in the water by 8am, making several transects before and after lunch. After each diving session, the equipment is cleaned in fresh water before the images are downloaded and multiple backups made. Most days don’t end before 10pm. While leaving little time for recreation, the crew’s days are filled with chance encounters. I asked Ben about his most rewarding moment during his three months on the project. 62
“It was pretty amazing to swim with a turtle yesterday,” he says. “One evening the guys were packing away everything and one of the girls called out, ‘Dolphins!’ “There were about 300 dolphins – a massive pod – and we were still moored up, so half the guys just jumped overboard with their cameras and tried to swim with them.” He says it’s great to be working on a project of such purpose. “I come from an advertising background and it’s nice to use those skills to do something really worthwhile. It’s nice to communicate real problems and real solutions.” Returning later that day to Cairns with Eric and Carol, it occurs to me amid all the plethora of chest-beating Australian merchandise on sale back in town, the only truly real part of the region is the Great Barrier Reef – and pieces of that most precious gift are being lost on a daily basis. Unless we heed the advice coming from research like the Catlin Seaview Survey and take action to save the reef, fake opals, kangaroo jerky and late-night bars could soon be all places like Cairns have to offer.
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Photo courtesy of d’Albora Marinas Akuna Bay
Below: Carol (second from left) and Eric (in striped shirt) with members of the Catlin Seaview Survey team on the Great Barrier Reef
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peopleNEWS
Leaving their mark The insurance industry loves awards, and the dedicated professionals most awards are named after worked hard to deserve such recognition. Over time, their contributions can be – but shouldn’t be – forgotten. Here’s the story behind some of the names you will hear at presentation ceremonies. By Elizabeth Redman
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A highly regarded broker and manager and a key player in the professional indemnity (PI) market, Frank Earl’s contribution to the industry is so highly regarded he has three awards named after him. The National Insurance Brokers Association’s (NIBA) Frank Earl Memorial Scholarship allows brokers to study for a Graduate Diploma of Financial Services. The Australian Professional Indemnity Group’s Frank Earl Award is given every two years for excellence in the professional lines sector of the insurance industry. And the Austbrokers Frank Earl Platinum Award recognises excellence in the insurance broking profession within the Austbrokers group. It covers airfares for two to London, seven nights’
accommodation and $5000 spending money, and also provides introductions to Lloyd’s and other broking houses. In 2007, Mr Earl won an award named after someone else – the Lex McKeown Trophy – in recognition of his service to NIBA as a long-serving director and president. Mr Earl’s career included stints as managing director of Arthur J Gallagher Australia, Minet Australia and Minet Professional Services. He was a keen advocate of professional education for brokers. A non-executive director on the Austbrokers board, he also chaired the AIMS joint venture’s PI committee and served as a director of broking group IBL. Mr Earl died in 2010.
Warren Tickle was Australia’s first insurance commissioner. He oversaw the implementation of the Insurance (Agents & Brokers) Act and the Insurance Contracts Act in 1984. Until it was replaced by the Financial Services Reform Act in 2001, the Agents & Brokers Act was regarded as the best legislation in the world for the regulation of insurance intermediaries. Mr Tickle worked for 20 years at Sun Alliance, the predecessor to Vero, and later was principal lecturer and inaugural head of the Department of Insurance and Risk
Management at Victoria College in Melbourne. Up until his death from cancer in 1988 he was an advocate for continued learning for brokers, and called for the industry to focus on education and the development of its young professionals. NIBA’s Warren Tickle Memorial Award has been presented annually since 1990 to an outstanding young broker. The award has always been sponsored by Sun Alliance or its successor companies, which today is Vero.
In his all too short life – he died suddenly in 2002 at the age of 46 – Peter Corrigan forged a huge reputation in the general insurance industry. He worked for NRMA early in his career and spent time as chief executive of the motoring body’s insurance arm and as Acting Chief Executive of the NRMA group. He was later the chief financial officer of Zurich Australia Insurance, managing director of AMP General Insurance and chief executive of GIO Australia during a particularly difficult period in that company’s history.
Later he returned to working in a hands-on role with customers as managing director of Trowbridge Consulting, which would become part of Deloitte. He also served as a board member and vice-president of the Insurance Council of Australia. The ANZIIF/Deloitte Peter Corrigan International Scholarship allows prizewinners to attend a relevant international conference or seminar of their choice. First awarded in 2004, it is open to insurance professionals with at least five years’ experience and ANZIIF membership.
Lex McKeown was one of the driving forces behind the formation of the National Insurance Brokers Association (NIBA). In 1971 he founded the Insurance Brokers Association (IBA) to represent small Australian-owned brokerages. These businesses had been excluded from the two bodies that represented the interests of large international brokers. He saw the formation of IBA as a chance for
small brokers to promote their businesses and their professionalism. Since 1983, the Lex McKeown Trophy has been awarded annually to any NIBA member for services to broking and the association. It is given at the discretion of the president and chief executive and presented at the annual NIBA Convention. Mr McKeown lives in retirement in country Victoria.
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The Peter Michell Friends of Insight Award commemorates his support of the association that later became Insight, as well as the establishment of Insight itself. It was first presented in 2011. Mr Michell was a former leading broker in Melbourne and later became National Operations
Manager of NIBA. He is credited with contributing a great deal towards the development of the association. Mr Michell was committed to education, professional standards and the organisation’s compliance initiatives. He died in 2005, shortly after retiring.
Brian Gray was a Reserve Bank economist who joined the Australian Prudential Regulation Authority (APRA) at its inception in 1998. He worked on superannuation reform and prudential policies for financial institutions. Even though his background was not in insurance, he was tasked to work on the reforms of APRA’s supervision of insurance companies. He then used his banking background to work on a harmonised approach to risk across the two industries. As executive general manager of APRA’s Policy,
Research and Consulting Division he co-chaired an international conference on supervision of financial groups and also contributed to Basel Committee work on banking supervision. He died in August 2001, and the Brian Gray Scholarship enables honours and postgraduate students to study topics in the financial sector. Where possible, the students also receive access to APRA expertise and data and have the option of working with APRA for a period during their final year of study.
The Peter McCarthy Memorial Award is given to the young professional of the year at the Council of Queensland Insurance Brokers (CQIB) annual convention. The prize goes to young brokers who have made significant contributions to professional service in the broking industry. Mr McCarthy started his career at Transport &
General Insurance in Brisbane, followed by a period at Associated Group Insurance in Victoria and Tasmania before returning to Queensland to work in senior roles at several insurance companies. He was also executive secretary of the CQIB and is credited with building and strengthening the organistion. He died in 2007.
The John Allison Award is presented to the top performer in the Australian and New Zealand Institute of Insurance and Finance’s (ANZIIF) Reinsurance Study Course. It recognises Mr Allison’s 50-year contribution to the reinsurance industry, particularly the course that he helped establish. After Cyclone Tracy in 1974 he created a method
of recovering reinsurance – the loss recovery funding clause – that is now standard in catastrophe cover in Australia. Under the clause, insurers estimate the amount of claims they will have to pay and collect the estimated reinsurance amount in advance, assisting insurers’ cash flow.
Ron Shorter dreamed up the award that now bears his name. The Australian Insurance Law Association’s (AILA) Ron Shorter Memorial Award is a public speaking competition for young insurance lawyers. A loss adjuster, liability claims supervisor and professional indemnity and commercial national
claims manager at FAI, Mr Shorter later worked at Dexta Corporation, LawCover, Marsh and Colin Biggers & Paisley. He died in February 2012, and the inaugural public speaking tournament bearing his name was held in July.
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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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Keith Till signs off His career has been a straight line for 50 years, all the way from recruitment to retirement By Terry McMullan IN JANUARY 1963 AUSTRALIA WAS GOING THROUGH A RECESSION and 14-year-old Keith Till was going through a bit of a personal one. His father had told the lad he couldn’t afford to keep him at school, and Keith had spent weeks writing letters and walking around Sydney searching for work. Then one Friday in January a telegram boy arrived at the door with an offer to join British Traders Insurance. Keith arrived at the office the following Monday in a brand new suit, tie and shiny shoes (all bought on borrowed money) to start working in insurance, and never really left. He retired on February 1, after 50 years. While there is a handful of people who have spent 50 years working in insurance, most if not all have at some stage in their careers stuck a resignation letter or two on the desk of their boss so they could transfer to another company, lost their job in a merger or even got fired. Not Keith Till. His career has been a straight road all the way from recruitment to retirement. He’s never written a resignation letter, and it’s a very, very long time since he thought about updating his CV – if he ever had one. British Traders Insurance merged with Guardian Insurance, which merged with the Union Insurance Company of Canton to form Guardian Union, which merged with Royal Exchange 68
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Insurance to become Guardian Royal Exchange, which after a few more twists and turns became GRE, which was acquired by Zurich Australia in 1992. And that’s how Keith Till got to work at Zurich without ever applying for a job, or ever leaving one. A few weeks after retiring from the key role of National Broker Manager, he tells Insurance News the main things he’s already missing are the people – “Zurich people are special” – and his many friends in broking. Keith says his career has been varied and always enjoyable. It has taken him all over the world, and given him the opportunity to work with “wonderful people” in the industry. His start in the business was ordinary enough. In his first office job he sat on a stool at a long bench. Apart from big black telephones not much had changed in the previous 50 years, perhaps longer. One of the first tasks he had to master was sticking stamps on policies equal to the amount of stamp duty paid, while formal letters – better known as “courtesy notes” – were faithfully typed out with many carbon copies and mailed to everyone involved, informing them of every small alteration to a risk or endorsement on a policy. “Every letter had to be acknowledged with another letter,” says Keith. “It was never-ending.” February/March 2013
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Nor was the Australian insurance industry the uber-competitive leviathan it is now. Until 1973 every insurer charged the same premium and used the same policy wording, with the standards set by the Fire and Accident Association. “The tariff” ruled everything, its regulations and arcane details kept in large leather-bound volumes with neatly typed or even handwritten alterations pasted inside. If an insurer wanted to offer a discount to a large client, it had to apply to the association and then share the risk with all interested insurers. The market changed dramatically when the Insurance Act came into force in 1973, setting minimum levels of solvency and setting off a vast wave of mergers as small insurers combined forces. The following year the Trade Practices Act brought the cosy tariff relationship between insurers to an end. “I’ve seen so much change in 50 years,” Keith says. “The fax was a marvellous innovation, and everything that followed has been a fantastic addition. It’s made us more efficient and took so much of the drudgery out of what we did. “Technology has made Zurich – and I assume the other insurers – a lean and efficient company,” he says. “I’ve also seen a lot of change happen for employees. When I started insurance was a low-paying job, but today it pays well and it’s a terrific industry to work in.” insuranceNEWS
In 1963 people joined companies with the expectation that they’d be there for life. There were retirement benefits to make people stay, Keith says. “People questioned your sanity if you said you were leaving.” Today new recruits expect to have many different employers through their careers. Keith says his career has always had more than enough challenge and reward; he hasn’t felt the need to move on. He says the friendships he has made at all levels of the industry, and the fun he has had working in it, made the decision to finally retire very difficult. “Fifty years might seem like a long time to work, but it’s not, really.” Joined by his wife Judy and their three children, various in-laws and six grandchildren, Keith enjoyed a terrific sendoff from his colleagues and many industry friends at a packed retirement party at Zurich headquarters in North Sydney. Acknowledging the admiring speeches from his managers at Zurich – Global Chief Executive Martin Senn sent his best wishes and thanks from Switzerland – Keith said many people talk about the need for insurance to be regarded as a profession. While he has spent much of his time in recent years mentoring and educating colleagues from his vast storehouse of experience, he sees it another way. “More than anything else insurance is a way of life.” February/March 2013
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peopleNEWS Reaching out with McLardy McShane When MC Kayne Tremills asked guests at the McLardy McShane Reach Christmas lunch to take off their ties and high heels, they knew they were in for a relaxing afternoon. A record 600 brokers, insurers and clients filled Peninsula at Atlantic in Melbourne’s Docklands, where they mingled, dined, learnt more about the Reach Foundation and gave generously. Reach runs workshops and camps for young people, promoting mental and emotional wellbeing. More than 25 guests pledged to help a young person attend next year’s Camp Maasai. Past participants in Reach programs shared their experiences, including Darcy, who said the camp helped him achieve his dream of joining the Australian Army. Olivia said Reach helped set her on the right track to become a police officer. The Voice’s Darren Percival and X Factor’s Emmanuel Kelly entertained the crowd. Although it was the first Christmas lunch without Reach co-founder Jim Stynes, a video montage made a fitting tribute. The event raised $173,000, $20,000 of which will go to Reach-inspired Irish charity Soar.
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y t i l i b a I.T. Li essional I ndemnity
s r e c fi f O & s r o t c Dire
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Blue Eagles swoop on roos Kangaroo was on the menu for the fourth annual Allianz Blue Eagle year-end event, held in the outback. The events reward key business partners and mix strategic planning with state rivalry, as teams compete for the Allianz Blue Eagle Cup. Fifteen Allianz staff joined 25 brokers from the top five Blue Eagle brokerages in each state. An afternoon of workshops was followed by a black-tie dinner in the Ayers Rock Resort restaurant. The brokers watched the sun rise over Uluru and walked around its base. Chartered planes and helicopters took the guests to Kings Canyon, where the group hiked, took part in a camel muster and enjoyed a traditional roast dinner. The teams also visited a remote campsite overlooking the George Gill Range, where they competed in a kangaroo tail cook-off and enjoyed a barbeque. Victoria claimed the cup from last year’s winners, Western Australia.
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After 27 years, it’s goodbye Lach A who’s who of the insurance industry gathered in Sydney earlier this month to farewell retiring Austbrokers Chief Executive Lach McKeough. Some 150 guests filled the Art Gallery of New South Wales for cocktails and fond farewells for Mr McKeough, who has retired from the group after 27 years as chief executive. His original boss and now-director of Austbrokers, Phil Shirriff, new Chief Executive Mark Searles and Chairman Richard Longes noted Mr McKeough’s achievement in taking a plan for a small state-based distribution arm of Mercantile Mutual Insurance in 1985 and turning it into a broking powerhouse that has become a darling of the stockmarket. MGA Group Chairman John George and Peter Brown & Associates Managing Director Peter Brown – whose companies were among the first to join the Austbrokers group – spoke about their relationships with Mr McKeough and the success of the group’s partnership concept. Mr McKeough paid tribute to his wife Jo for her support and encouragement as he spent long periods away from home travelling around Australia and overseas. Before working at Austbrokers, Mr McKeough worked in management roles at Mercantile Mutual. He has been retained as a part-time adviser to Austbrokers to assist in the area of acquisitions.
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Brokers dive deep for Catlin
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QBE eQuips the next generation It was graduation night for the class of 2012 – and an induction for the class of 2013. Celebration dinners for QBE’s eQuip program were held in Sydney, Melbourne, Brisbane, Perth and Adelaide between October and December. Local QBE regional managers were on hand to welcome the students and host the proceedings. The year-long training program trains young professional brokers and QBE staff. They learn leadership skills, sales and relationship management and insurance acumen. Events included panel discussions to give the new class a feel for what to expect and to allow graduates to reflect on their experience.
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Insight’s big night for networking Broker group Insight’s annual cocktail event is always a great chance for its members and suppliers to get together, catch up and network. This year’s event was held at the Lavender Bay Room in North Sydney’s Harbourview Hotel, and attracted members, underwriters, insurers and premium funders. The night followed a day of professional development and was hosted by the Insight board. Chairman David Herlihy, who was appointed in July last year, was on hand to welcome guests. Insight’s next event will be its annual conference – this time in Cairns in April.
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Sam Pentecost Contributor
start the repair job all over again. But he’s wondering what to do about the possum he found living high and dry in a galley cupboard. As one friend pointed out to a grimly philosophical Gerry, floodaffected occupants of Bundaberg who were stranded in their principal place of residence for a period of at least 24 hours or were without essential services for 48 hours are entitled to a government payout of $1000. That little possum could probably afford a very nice tree for itself.
TASMANIA’S CATASTROPHIC JANUARY BUSHFIRES already seem to have faded from public focus, yet the conditions Tasmanians faced on January 4 and 5 in particular were horrific. More than 40 fires were burning on January 5, and 100 properties were destroyed. In the southeastern town of Dunalley 65 homes were destroyed, along with practically every other building that made it a town. There’s no question when a home has been destroyed in a bushfire, so there were few anti-insurance stories as insurers and brokers went to work putting lives and livelihoods back together again – a pleasant change. Our picture on page 11 illustrates better than anything else the sheer terror of the event. The pictures were taken by Dunalley resident Tim Holmes, and they show his wife Tammy and their five grandchildren, aged from 2 to 11, climbing under a jetty as the fire rages around them. As they huddled in the water their homes, next door to each other, were going up in flames. Tim took the pictures on page 11 of this edition and this page using the camera on his mobile phone so his daughter, who was stuck in Hobart, could see her kids were okay. Tim emailed copies of the pictures to Insurance News without fee, noting that they were all thankful to escape with their lives “and we are now dealing with an enormous clean-up of buildings, damaged trees and burned fences”. “The help and kindness that we have received from many people has been humbling. At times like this true friends are there to be counted”.
VETERANS OF THE NIBA CONVENTIONS IN THE ’90s AND THE noughties will remember Gerry Noon, photographer extraordinaire and late night bon vivant. Gerry still owns his sailing schooner named Buffetteer, a magnificent beast designed in the 1920s, which he and his wife Deb built with much devotion and in which they lived for years before settling down on a farm outside Bundaberg. In 2011 “Buffy” was being maintained in a boatyard on the edge of the Burnett River when the floods came through. It ended up in trees downriver. The insurer got it back to the boatyard and Gerry took up a new part-time pursuit doing the repairs. Than came the January flood. Buffetteer stayed put by leaning against a building that withstood the force of the 9.8-metre flood, although its hand-made masts and booms were found in a canefield, 35km from Bundaberg and 3km from the river. Gerry will now move his soggy and battered boat to his farm and 82
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INDUSTRY DOYEN KEITH TILL MIGHT HAVE RETIRED AFTER 50 years in the business, but his passion for all things insurance isn’t something he’s going to give up easily. At his farewell function in North Sydney on February 1 he told how he entered the industry in 1963 without knowing anything at all about working in insurance. He simply needed a job, and like so many people he lucked his way into the industry. Fast-forward 50 years to December 2012, where Keith is asking a bunch of eight new Zurich recruits, six of whom have university degrees: “Did any of you choose to work in this industry, or did you apply because there was a job available here?” Of course, he knows the answer already. “I’ve asked that question countless times, and it’s always the same,” he says. “Nothing has changed in 50 years.” Which leads us to the next question: I’ve been to hundreds (well, dozens) of conferences at which industry leaders have bemoaned the lack of an organised insurance recruitment program. So why hasn’t someone done something to promote our industry as a terrific place to work with wonderful, varied and rewarding global careers? Good questions. Keith says he’ll work for nothing to see the industry shed its shyness and get out there spruiking.
LAST YEAR’S SKIRMISH BETWEEN THE INSURANCE BROKERS Association of New Zealand and the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) over an awards night for the Shaky Isles wasn’t pretty. The brokers liked their well-established awards event, which attracted plenty of industry support, and they didn’t see why ANZIIF should suddenly want to run a competing awards night on their turf. Some behind-the-scenes arm-twisting finally saw a truce of sorts declared and a united awards night held. One understands the already strained goodwill was even more strained on the big night when the Australians allegedly hogged the limelight and over-sold themselves and what they do. Now we can’t accept the argument that all this was just the Kiwis flexing the chips on their shoulders about Australians trampling over them. They do that to us all the time on the rugby field, and the fact that the largest New Zealand population centre is Australia means they’re pretty chilled about Australia these days, eh bro? After the awards night farrago, ANZIIF could have tried walking more softly over Kiwis’ feelings when they published their events calendar announcing a one-day “Introduction to General Insurance Workshop” in Auckland on February 21. Participants are promised the tools to gain “a broad understanding of the key concepts of insurance and the insurance sector within Australia”. Well… that could be useful to a New Zealand recruit with a yen to work across the Tasman, we suppose. And the point is reinforced a couple of paragraphs further on, with the expectation that participants should be able to define and explain five key features at the end of the day, including “the key players in the Australian insurance industry”. February/March 2013
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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