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FLOOD: NOW IT’S ALL ABOUT AFFORDABILITY
BILL BERKLEY’S AUSTRALIA
REGULATORY TSUNAMI: New rules and controls Australia may not need or want, but which it has to have
April/May 2013
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A world of insurance
Risk is an essential characteristic of life and the world we live in. With a focus on intermediary relationships, we will do all we can to find a way of saying ‘yes’ and turning your business opportunities and possibilities into reality. We were proud to be a gold sponsor of the 15th annual Steadfast Convention and to donate $10,000 to the Steadfast Foundation. www.qbe.com.au QBE Australia Proudly the National Insurance Brokers Association General Insurer of the Year 2002-2012* *Awarded to a QBE Group Company QBE Insurance (Australia) Limited ABN 78 003 191 035 AFS Licence No 239545
J3920
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Contents 6 Newsmakers » 10 Invasion of the regulators » Global rules will place new controls on how the Australian insurance industry operates – and resistance is futile.
18 Policy flood swamps insurance »
As the Government turns its attention to mitigation, affordability remains the elephant in the room.
22 My stormy career »
They are the scourge of the US insurance industry, but for forecaster Phil Klotzbach hurricanes are a labour of love.
26 A climate on steroids? »
The Climate Commission’s claim that global warming is making extreme weather events worse doesn’t stir the insurance industry.
31 Bill Berkley’s Australia »
The US company’s local operation has lived up to its potential.
34 Learning from Katrina »
Louisiana’s Jim Donelon has plenty to say about regulation, recovering from disaster, affordability and keeping politicians away from insurance.
38 Same direction, new approaches »
Mark Searles is re-engineering Austbrokers as he builds on the legacy of Lach McKeough.
40 What price your reputation? »
Many professionals are still failing to cover the costs of protecting their good names.
44 Brokers beware »
Two studies by insurers show the market is changing and brokers need to adapt.
46 Running aground »
Bigger ships and the rising cost of salvaging wrecks mean trouble for global marine insurance.
April/May 2013
lawNEWS
50 Pay up now » The owner of a quake-damaged office building should be paid the indemnity value before it rebuilds it, a judge says.
companyNEWS
54 Ironshore’s coup » Political risk innovation popular.
54 The power plant » NTI beefs up CPE.
54 Crashed? Confused? » Lumley has an app for that.
peopleNEWS
56 The Longest Race » Aon executive Greg Donovan is running to find a cure for type 1 diabetes.
60 Brokers become masterchefs as Zenith returns » 62 NSW Young Eagles take home the prize » 64 WR Berkley marks five years in Australia » 66 Ace takes in the view from the top » 68 Marsh’s night at the gallery » 70 UAC’s Hobart expo proves rewarding » 71 AIG gets its name back » 72 NTI celebrates 30 years in Newcastle » 74 Hollard companies move under one roof » 76 CGU’s top reps get together » 78 Vero looks at the bigger picture » 80 Learning at Lumley’s ladies’ lunch » 82 maglog »
Cover image: Bill Wood
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Mitigating circumstances: The Queensland Government has written to the Insurance Council of Australia (ICA) calling on insurers to cut premiums for householders who reduce flood risk. Community Recovery and Resilience Minister David Crisafulli says discounts should be offered to people who raise their houses above flood levels, do not build under stilt homes and use tiles instead of carpets. An ICA spokesman says some insurers already price mitigation into premiums, but it is a commercial decision as to the factors and data they use to calculate prices. Information on flood risk is a critical issue, he told insuranceNEWS.com.au. “Insurers need access to Queensland’s newly developed flood studies, to enable them to improve their assessment of individual property risks. “ICA acknowledges the work completed by the Queensland Reconstruction Authority in this regard and believes this data should be made available to the community so property-owners can understand their own risks.” State calls on insurers to cut premiums for flood mitigation, April 15
Byers steps up at APRA: Australian Prudential Regulation Authority (APRA) Chairman John Laker will step down on June 30 next year, to be replaced by Wayne Byres. Mr Byres previously served as executive general manager at APRA during a 13-year stint with the regulator. He is currently Secretary-General of the Basel Committee on Banking Supervision. He was recommended for the new job by Dr Laker, who has led APRA for almost a decade. APRA Executive Member Ian Laughlin will become Deputy Chairman for two years from July 1, replacing Ross Jones, who will not seek re-appointment after two five-year terms. Mr Laughlin’s replacement has not been announced. Treasurer Wayne Swan has recommended the appointments to the Governor-General. “Mr Byres was central to Australia’s prudential response to the global financial crisis,” he said.
Bank on this: Global reinsurer capital grew 11% last year to about $US505 billion at December 31, according to a report by Aon Benfield. It offsets a small drop following catastrophe losses in 2011, when the figure was $US455 billion, down 3% on the previous year. The increase was driven by “solid earnings” from traditional reinsurers, unrealised investment gains taken directly to equity and a continued flow of new capital, Aon Benfield says. Hedge and pension funds are increasingly attracted to reinsurance because it performs well amid low interest rates, according to the report. The 31 companies in the Aon Benfield Aggregate (ABA) reported funds
Insight Australia Group has appointed Moira Kemp (above) as its new chief executive. Ms Kemp previously held a national role as practice manager at Aon 6
and also worked as a marketing analyst at Steadfast and as a development manager at Insurance House Group. Chairman David Hosking – who was confirmed in the position at a board meeting – says Ms Kemp is “going to be terrific, particularly in the drive for new members”. “It’s a really exciting time at Insight because we are in a period of transition from an incorporated association to a company.” David Herlihy has retired as chairman. Insight announces new CEO, March 25
Reinsurer capital tops $US500 billion, April 15
“There are a lot of ways to lose money in insurance, and the industry never ceases searching for new ones.” – Investor Warren Buffett in his annual letter to Berkshire Hathaway shareholders
Neal outlines new QBE strategy:
APRA makes changes at the top, April 8
Insight hires new CEO
of $US313 billion, up 12% on 2011. The ABA wrote $US192 billion of gross property and casualty premium last year – up 6% – of which $US100 billion was reinsurance. This growth is driven by price rises in loss-affected lines and territories, and higher demand for capital support in the Asia-Pacific region. Pre-tax profit more than doubled to $US35.7 billion on lower insured catastrophe losses. Low interest rates have hit reinsurers’ earnings from invested funds and increased competition, Aon Benfield Head of International Market Analysis Mike Van Slooten says.
QBE aims to strip at least $250 million of costs from the business by 2015, Chief Executive John Neal (above) told shareholders at the annual general meeting. “Much of the cost of the investment in this project takes place during 2013 and 2014, with the majority expensed straight through to the profit and loss,” he said. The benefits will start to show at the end of this year, with net gains from next year, Mr Neal says. “We are expecting additional benefits from rationalising the costs of insuranceNEWS
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procurement of goods and services. “These are difficult to quantify at this stage but are in addition to the $250 million operational excellence benefits.” QBE has not ruled out disposing of underperforming businesses. “We aspire to be leaders in our core businesses, where we are recognised as world-class and can shape the market,” Mr Neal said. “We will prioritise our investment in those businesses, thereby maximising our growth and profit potential. “We will review businesses and portfolios considered to be non-core and determine whether our capital could be better deployed elsewhere.” QBE is aiming for a combined operating ratio of 92% and an insurance profit margin of about 11% this financial year, according to Chairman Belinda Hutchinson. “Our plan strikes a balance between delivering performance in line with our stated short-term targets and progressing our longer-term strategy for value creation,” she said. Neal to drive costs down at QBE, April 8
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Game-changer city:
Wilkins: Focus on the issues
The New Zealand insurance industry will meet in Christchurch in August to discuss how the Canterbury earthquakes have changed broking in the country. The Insurance Brokers Association of New Zealand (IBANZ) is replacing its annual conference with a forum to help brokers adjust to new realities, Chief Executive Gary Young says. “To advise your clients, you really need a deep understanding of what happened and why it has affected the insurance industry in the way it has,” he told insuranceNEWS.com.au. IBANZ will hold the forum from August 22 to 23.
Politicians should focus on the national interest and put the “unbelievable” leadership debacle behind them, according to IAG Chief Executive Mike Wilkins. The announcement of a September election has at least provided certainty, he says. “Lack of certainty has been a significant impediment to Australian business during this hung parliament,” Mr Wilkins told a meeting of the American Chamber of Commerce in Australia. To build a stronger Australia, he says, all sides of politics should focus on three “big-ticket items”: international competitiveness, productivity, and infrastructure. Calling for a national system for workers’ compensation, he said: “I’m unsure how we expect to compete globally when we are busy competing against ourselves when trying to run a national operation.” Resilience against natural disasters should be prioritised, Mr Wilkins says.
NZ brokers focus on insurance changes post-Christchurch, April 15
FIGURE THIS
Wilkins calls on politicians to work for greater good, April 8
Paying up: Housing New Zealand has settled the country’s largest single insurance claim – $NZ320 million for damage to public housing in the Canterbury earthquakes. Four local insurers led by Vero and 23 in Europe are involved in the payment announced by Housing Minister Nick Smith on Friday. The settlement on 5559 damaged houses will shorten the repair program from five to three years, Dr Smith says. “The negotiations were complex and
2.38 MILLION
Number of product liability risks underwritten in 2011
65 Percentage of 1600 recent Lumley Insurance large fleet claims that involved driver error
8 Number of days in the 2012/13 summer with an average maximum temperature across Australia of more than 39ºC
13
challenging. They took several months to complete and involved not only our lead New Zealand insurer Vero but other New Zealand co-insurers, London insurers and Lloyd’s of London and insurance broker Aon.” After the September 2010 earthquake Housing New Zealand could not obtain private insurance for the renewal period from October 2011 to October last year.
Number of days between 1911 and 2012 with an average maximum temperature across Australia of more than 39ºC
247,600
Group settles New Zealand’s largest insurance claim, April 15
Maximum number of Australian buildings at risk of a global sea level rise of 1.1m predicted by the end of the century
22 Percentage of total national household premiums paid by Queenslanders between 2008 and 2012
28 Reuters
Percentage of total national household claims paid to Queenslanders between 2008 and 2012
Catastrophe Costs: Claims from last summer’s catastrophes have reached $1.15 billion, according to figures from the Insurance Council of Australia. The number of claims rose to 106,245 by April 1, up from 91,128 a month earlier. Insured losses from bushfires at Coonabarabran in New South Wales (above) almost tripled to $35 million from $12 million in March. There were 1500 claims, unchanged from the earlier figure.
Storms and flooding in Queensland have caused $908 million in insured losses and 83,449 claims, up from $742 million and 70,693. NSW storms and flooding have led to $122 million in insured losses and 19,511 claims, up from $101 million and 17,150 reported in March. Bushfires in Tasmania caused $88.1 million in insured losses, up $1 million. There were 1785 claims, steady from the previous update. Summer catastrophes top $1 billion, April 8
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20 Percentage of serious workers’ compensation claims involving back injuries
25 Percentage of serious workers’ compensation claims that require 12 or more weeks’ absence 7
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Fitzpatrick moving on: Australian and New Zealand Institute of Insurance and Finance Chief Executive Joan Fitzpatrick will retire at the end of this year. But Ms Fitzpatrick, who has held the position for the past 16 years, will be retained to consult on selected projects. Ms Fitzpatrick is also a director of the Victorian Managed Insurance Authority and is Chairman of the Australian Reinsurance Pool Corporation. Fitzpatrick to step down as ANZIIF CEO, March 25
Enter the challengers: Challenger brands are continuing to gain ground on IAG and Suncorp in the Australian motor insurance market, according to a new report from Merrill Lynch. The two leading companies control about 70% of the market, which in turn accounts for about 24% of total premium revenue nationwide. “The importance of the class to domestic listed insurers can’t be underestimated,” the report says. “It accounts for about a third of IAG and Suncorp’s insurance premiums and is a highly profitable class.” Challenger brands have been attracted to the market by high returns, a relatively stable regulatory backdrop and diminishing barriers – and they are growing faster than the traditional players. “While the major insurers and broader motor insurance market grew at 3-7% [last year], the challenger brands recorded much higher double-digit growth once again,” the report says. “We estimate challenger businesses now underwrite easily more than 8% of the Australian private motor insurance market, versus 6% two to three years ago. IAG and Suncorp are, unquestionably, losing share. “We see the class as a major cash cow that could be threatened over time as the
PUBLISHER/EDITOR: TERRY McMULLAN McMullan Conway Communications Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 Email: publisher@insurancenews.com.au ADVERTISING: NAOMI CONWAY McMullan Conway Communications Pty Ltd Tel: +61 3 9499 5538 Fax: +61 3 9499 5535 Email: naomi@mccmedia.com.au ARTWORK DELIVERY TO: McMullan Conway Communications Pty Ltd PO Box 116, Ivanhoe VIC 3079 Australia or Level 1, 120 Upper Heidelberg Road, Ivanhoe VIC 3079 (COURIERS ONLY) Email: naomi@mccmedia.com.au
challenger brands gain further strength.” However, Suncorp spokesman Chris Newlan says small players have had “no material impact” on the company’s market share. “Challenger brands have tended to focus on price as their core value proposition,” he told insuranceNEWS.com.au. “Going for price over service delivery is a dangerous trade-off.” And IAG has also “seen no noticeable impact on our volumes from newer entrants”, according to a spokesman. “We treat all of our competitors seriously. Our primary focus, however, is on our own business, getting the fundamentals right and delivering for our customers.” The number of cars on Australia’s roads continues to increase, with about 12.7 million passenger vehicles at December 31 last year, the report says. This trend is expected to continue due to population growth. But more efficient and safer vehicles are resulting in fewer accidents. Road fatalities peaked in 1970 at 3798, Australian Bureau of Statistics figures show. The figure more than halved to an annual average of 1641 between 2000 and 2008, and in 2009 it had fallen to 1477. Challengers take larger share of motor ‘cash cow’, April 15
Insurers and brokers must present a clear and united voice on important issues in the run-up to September’s federal election, according to Suncorp Commercial Insurance Chief Executive Anthony Day (above). The industry needs to shape its own destiny, “otherwise it will be shaped by others”, he told the Steadfast Convention in Sydney. Insurers – through the Insurance Council of Australia – have grown better at presenting a united front on issues such as affordability, mitigation and disaster recovery, Mr Day says. The industry must be in regular, consistent dialogue with ministers and bureaucrats to help them understand issues and find solutions. Industry needs one voice as election looms, Suncorp says, April 8
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Invasion of the r Global rules will place new controls on how the Australian insurance industry operates – and resistance is futile By Jan McCallum
10
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regulators REGULATION-WEARY INSURANCE PROFESsionals should brace for an invasion from abroad – a series of new global laws and regulations that will impose further controls on the way they do business, and could affect how insurance is provided, and ultimately how much it costs. The regulatory onslaught will range from revised capital requirements to “social” rules enforcing such things as new approaches to gender-based risk. Ironically, most of these new rules have nothing to do with the behaviour of insurers or other industries within the local financial services sector. But resistance will be impossible if Australia is to retain its credibility in the global economy. While Australia’s banks and insurers sailed through the global financial crisis with little impact on their operations, these rules are being drawn up to prevent a repeat of the GFC chaos. The impact of this globalised regulatory drive will be felt throughout the insurance industry. Experts say much of the change will probably come through “soft” regulation via codes of practice and regulatory guides. And there’s yet another layer of pressure from domestic social influences, such as anti-discrimination measures that are often in conflict with the basic principles of insurance. The extent and volume of regulation concerns many in the industry, who can see it leading to higher capital requirements and moves that interfere with pricing for risk at a time when insurers have built greater capability to price accurately. The roots of much of the regulation coming from abroad can be traced back to the global financial crisis of 2008/09, and the response by governments to prevent a recurrence of the risky behaviour by financial institutions that infected the global economy. This has led regulators to adopt an umbrella system of rules and regulation that will apply across national boundaries – a globalisation of regulation that matches the internationalisation of financial markets. Although insurers are among the world’s largest investors from the premium income they earn, they are also among the most conservative. They are generally not involved in opaque and risky financial deals. That’s why insurers are pushing back against rules they argue are unsuitable and unnecessary. But behind the protest and argument is grudging acceptance that the regulatory onslaught from overseas is unstoppable. Deloitte Access Economics partner Ian Harper told the Insurance Council of Australia (ICA) regulatory update in March that Australia’s insurance insuranceNEWS
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regulator, the Australian Prudential Regulation Authority (APRA), is aware that most of the regulation coming our way is not appropriate to Australia. APRA, along with regulators in such countries as Canada and India, is working to defend Australian industries from regulations that affect countries that were not responsible for the behaviour that led to the GFC. But Professor Harper says that as an importer of capital for its development, Australia needs to comply with global regulation. “You can only play that [resistance] card several times until international players start to hear you saying you do not want to be part of a global system,” he says. “This is coming not necessarily because APRA wants to do this but because they see we have no alternative.” This is also the message coming from APRA. Last year’s annual report notes that prudential frameworks globally are being substantially reinforced to ensure financial institutions will be able to withstand future stresses without needing a government bailout. “Notwithstanding its relative success, Australia cannot stand aloof from these developments, and indeed, APRA’s prudential policy workload in 2011/12 was more intense than at any time since its establishment,” the regulator says. The push for international regulation is coming from the global co-ordinating body, the Financial Stability Board, and the International Association of Insurance Supervisors (IAIS), both based in Switzerland. The IAIS is developing insurance core principles that will govern the global system of regulation and the Common Framework (Comframe), the process to be implemented by national regulators such as APRA [see panel]. ICA Chief Executive Rob Whelan says the IAIS is “all powerful” and that Australia will conform to its will. But he adds: “The system is far from complete and clear.” There is disagreement within the insurance industry about how the global framework should operate, with sharp divisions obvious in the approaches of the United States and Europe. The US wants a principles-based system and the Europeans want black letter law that would, for example, set strict capital requirements. The Europeans believe the financial system must be managed rather than guided. Jim Donelon, President of the US National Association of Insurance Commissioners and State Insurance Commissioner for Louisiana, told the Australasian General Insurance Exchange conference in Sydney in March that the European 11
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Union’s Solvency II capital adequacy regime is “not proven” and he is very concerned about the changes in the regulatory framework being considered globally. The US wants to see international regulation using its risk-based capital approach rather than a strict capital requirement. Under a risk-based capital approach, the assessed capital level would be set at a minimum level rather than a target capital requirement. The US is introducing an Own Risk and Solvency Assessment, called ORSA, from 2015. This is an internal process insurers can use to assess risk management and solvency under a range of scenarios. ORSA is more aligned with the internal capital adequacy assessment process (ICAAP) for insurers, which has been introduced into Australia. APRA’s regulatory system for insurers is principles-based and ICA favours this approach. Mr Whelan told Insurance News that Australia is ahead of some of the international regulation, but the proposed Comframe designed for crossborder regulation will affect larger insurance companies. He says the move to regulate globally important financial organisations started with banks and has moved to insurers, forcing regulators to decide which companies qualify as global systemically important insurers and what this means in terms of capital requirements and supervision. Capital requirements are at the heart of the issue, because they will determine how much more capital insurers must hold. Australia has followed international moves to align the capital requirements for insurers with those of banks under the Life and General Insurance Capital (LAGIC) requirements being introduced by APRA. Several industry commentators believe Australia will not have any global systemically important insurers, but there is nevertheless an impetus to regulate domestic systemically important insurers. “This would see similar criteria applied in the domestic environment to what would be considered domestic systemically important insurers or banks,” Mr Whelan says. The insurance industry globally has found a common cause in pushing back against creeping regulation, and last October formed the Global Federation of Insurance Associations to work as a parallel organisation to the IAIS. Mr Whelan says the federation represents insurers accounting for 86% of the global gross written premium, so it has the strength to present a combined industry view to the regulators – including what their proposals will mean in the insurance marketplace. And the local industry is concerned about an additional regulatory impost on companies in a domestic environment simply because they are large, seeing it as a penalty on businesses for being successful. But, like Professor Harper, Mr Whelan concedes Australia cannot turn its back on the global regulators because this country needs to import capital. 12
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Australia is also drawn in by its membership of the G20 developed nations whose mission is to co-ordinate policy between members to achieve global economic stability and sustainable growth and to promote financial regulations that reduce risks and prevent financial crises. New Zealand is not a G20 member so does not have to adopt the systemically important financial institutions regime. It hasn’t done so for banks and its insurance regulator, the Reserve Bank of New Zealand, has rejected the approach that singles out companies. So New Zealand would be unlikely to accept the notion of domestic systemically important insurers.
Coming our way INTERNATIONAL DEVELOPMENTS Ins ura nce Co re P rinc iples : These have been devised by the International Association of Insurance Supervisors, which represents government regulators and supervisors from over 200 jurisdictions in nearly 140 countries. The IAIS is based in Basel, Switzerland, and aims to bring insurance supervision under a global framework, so regulation is consistent across jurisdictions and prevents financial institutions from taking the sort of risks that led to the global financial crisis. The IAIS’s Insurance Core Principles cover licensing, governance, risk management and powers of supervisors. It has proposed enhanced supervision of global systemically important insurers – organisations whose failure could cause severe disruption to the global economy. It is not clear whether Australia will have any global systemically important insurers – the only possible candidate would be QBE – but it will almost certainly have domestic systemically important insurers. The regulation will be supervised by APRA. C om f ram e : The Common Framework for the supervision of internationally active insurance groups developed by the IAIS builds on the Insurance Core Principles by establishing how supervision will operate. A public consultation on Comframe is due in June, with a testing phase starting in 2014 before the scheme is adopted in 2018. LOCAL DEVELOPMENTS U nfa ir c ont r ac ts t er m s: At the end of last year the Federal Government announced it will add unfair contracts terms to the Insurance Contracts Act, which means a consumer or the Australian Securities and Investments Commission will be able to challenge a term in the courts. Unfair contracts terms are standard in consumer protection laws but have been excluded from the Insurance Contracts Act because the industry had previously successfully argued consumers were well protected by existing laws. Draft legislation will be released this year. A nt i-d isc rim ina t ion le g isla t ion: Financial Services Minister Bill Shorten is pushing this issue because he says workers’ compensation and income protection policies normally cut out at the age of 65, and this discourages people from staying at work. Mr Shorten says age discrimination also applies in travel insurance, where older people find it harder to get cover, although insurers have told Insurance News that the cover is available – but at a price that older people or travellers who enjoy risky sports don’t want to pay. A ffo rdabil ity : Another key area for the industry to watch. Flood cover is available more widely following inquiries into the 2011 disasters, but it has effectively priced insurance beyond the means of many people living in high-risk areas. This has led to a debate on affordability and formation of the National Insurance Affordability Council, announced by Prime Minister Julia Gillard in February. The council’s role will centre around flood mitigation – for the immediate future, at least – and the Government has rejected recommendations from the Natural Disaster Insurance Review for subsidies to allow people living in high-risk flood areas to insure. This leaves the problem of affordability open and likely to regain prominence in the next major flood.
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SPECIALTY INSURANCE
REINSURANCE
AM Best rating of A (Excellent) XV
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The consumer and human rights movements have changed common perceptions of fairness and what constitutes discrimination, and this is flowing into insurance.
Apart from the international regulatory push, there are also moves from within and abroad to introduce social equality measures into insurance, and this issue of “soft” regulation is just as vexed. The consumer and human rights movements have changed common perceptions of fairness and what constitutes discrimination, and this is flowing into insurance. The most commonly quoted example is the European Court of Justice’s imposition on British motor, life and health insurers of a rule forbidding them to use gender to fix premiums – even though women carry statistically lower accident, health and longevity risks. It’s a worrying issue for the Australian insurance industry, because it has the potential to prevent insurers pricing their product on the basis of risk, which may in turn lead to them quitting markets or segments of markets. Allens partner John Morgan says policymakers are influenced by factors outside the insurance industry, and by current thinking, such as on notions of fairness. He sees the issue of insurance affordability as part of the fairness debate. While that is a local problem brought to prominence by the 2011 floods in Queensland, there is the potential for soft regulation to be imported and factored into product design and marketing. The European Union Gender Directive has raised premiums for low-risk women drivers at a much higher rate than the fall in premiums to higher-risk male drivers, according to early reports. The payment protection insurance (PPI) debacle in the United Kingdom, where consumers were mis-sold credit insurance, has led to debate around insurers’ responsibility to make sure consumers are not sold products that are unsuitable for their needs. There has been no such problem in Australia, but concepts from the UK financial sector are often taken up here. And while there may be little debate about them in the insurance industry, Mr Morgan warns that in the wider community, “the idea of product governance is gaining traction”. “Ideas of fairness and product suitability are not going to go away and we need to be careful about how this develops,” he told Insurance News.” Affordability remains a hot issue at government level, and at the ICA regulatory update conference both Parliamentary Secretary to the Treasurer Bernie Ripoll and Shadow Financial Services Minister Mathias Cormann asked for the 14
industry to work with the Government on finding a solution. Many in the industry would say they have been trying to do this since before 2011’s floods, and point out that flood risk affects only about 7% of the population. Mr Whelan says the industry has substantially increased its exposure to flood risk over the past three years. “We are actively working on these sorts of issues to do what we can as an industry to alleviate some of these pressures, but we cannot do it all,” he said. “We need co-operation and engagement with all levels of government.” Mr Whelan says “soft regulation” can often be seen as a social reform, but has implications for insurance because companies discriminate between levels of risk. He says moves that can be well intentioned could ultimately increase the cost of insurance to the consumer. As the international bodies work on global regulation for insurance, insurance bodies are raising concerns about “regulatory fatigue” and the benefits versus the cost of more regulation. But whether or not Australia has any insurers considered likely to bring down the global financial system, no one is under any illusion that what happens abroad will flow here and affect the local industry to some degree – for better or for worse.
On APRA’s watchlist APRA Executive Member Ian Laughlin says that now the regulator is “over the hump” of implementing the Life and General Insurance Capital requirements, it is able to focus more attention on disclosure. Mr Laughlin told the ICA regulatory update conference that although Australian insurers’ disclosure is as strong as it should be, it does not meet international best practice. APRA is reviewing insurers’ recovery plans and continues to look at risk transfer, having previously signaled it is not happy about reliance on catastrophe models. The focus on boards continues. APRA has raised issues about board-level understanding of catastrophe modelling and is looking at the level of understanding and debate at board and senior management level on the limitations of models and the uncertainty around them, since insurers use the models when buying reinsurance. Retiring APRA Chairman John Laker says supervisory agencies everywhere are devoting their energy to promoting more effective governance. “Around the globe, supervisors are increasing their level of engagement with boards, developing a better understanding of board dynamics and the effectiveness on governance arrangements and heightening their expectations of boards, particularly in the governance of risk.”
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Policy flood swamps insurance
No money for Bundaberg: the Queensland city was inundated in January and in 2011, but federal funds haven’t been allocated to it or other vulnerable centres
As the Government turns its attention to mitigation, affordability remains the elephant in the room By Michelle Hannen
AS RECENT WEATHER EVENTS HAVE SHOWN, THE description of Australia as a land “of droughts and flooding rains” is apt. The phrase could also be used to describe government policy changes to address the flood issue, which after a year or so of “drought”, has swamped the political agenda in recent months. Many issues arising from the Queensland floods of 2010/11 have now been addressed. The first in the series of announcements saw the Government commit $100 million over two years to flood mitigation – funding the insurance industry has been seeking for years. Half the money, allocated as part of the National Insurance Affordability Initiative, will be spent raising the wall of Warragamba Dam in the heavily populated Hawkesbury-Nepean Valley in Sydney’s west, considered by many to pose Australia’s biggest flood risk. However, the project is expected to cost almost $500 million, and the New South Wales Government will have to make up the shortfall if it chooses to proceed with it. NSW Premier Barry O’Farrell has yet to back the plan due to the perceived inadequacy of federal funding and because the project was already the subject of a state government review of flood mitigation options, with a decision expected this year. The remaining $50 million of federal funding has been allocated to levee-building and defence projects in the flood-hit Queensland towns of Roma and Ipswich. Queensland Premier Campbell Newman has welcomed the money, but laments the fact funds have not 18
been awarded to other vulnerable towns such as Emerald, Rockhampton, Maryborough, Bundaberg and Gympie. “The people of Gympie must be wondering how much suffering they need to endure before the Gillard Government puts their livelihoods before votes in western Sydney,” he said, making a wry reference to the Warragamba scheme. Indeed, the timing of the announcements suggests Labor believes flood mitigation can be a vote-winner in this election year, with reduced risks and lower premiums the aim. The Federal Government will also establish the National Insurance Affordability Council (NIAC) to co-ordinate flood risk management, recommend natural catastrophe mitigation projects and undertake unspecified “other functions” to cut disaster insurance premiums. Insurance Council of Australia (ICA) Chief Executive Rob Whelan says the creation of the NIAC – which will initially be managed by Treasury – is welcome, but with scant detail on who will run it or what it will actually do, he will be lobbying to ensure the industry’s voice is heard. Mr Whelan has reason to be cautious. When Prime Minister Julia Gillard announced the formation of the NIAC, she warned the insurance industry had been “put on notice” over flood risk pricing – the implication being that companies have been guilty of price-gouging. Suncorp Personal Insurance Chief Executive Mark Milliner, who is also ICA President, says his company has already begun “premium re-pricing programs” in towns where there is evidence of mitigation work and its benefits. insuranceNEWS
April/May 2013
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With the Government sensing a chance for political gain at the insurance industry’s expense, other insurers had better follow suit – and fast. While the standard definition of flood has largely addressed the issue of flood cover accessibility – more than 80% of home and contents policies now offer it – affordability remains a problem. Many insurers recently re-rated their books to accurately reflect true flood risk, while Suncorp refused to write new business in Roma and Emerald after the 2011 floods. Since floods in Queensland and northern NSW in January, policyholders have complained of rising premiums, driven by their inability to opt out of flood cover. There have been fresh calls for governmentsubsidised premiums on the highest-risk properties – a key recommendation of the Natural Disaster Insurance Review (NDIR) completed in November 2011. After the NDIR report, a government issues paper on the idea failed to materialise, with insiders saying action stalled as Canberra awaited a Productivity Commission report on climate change adaptation that, it believed, was addressing similar issues. The commission’s report, Barriers to Effective Climate Change Adaptation, was released in March and quickly followed by a second raft of flood reform announcements from the Federal Government, including a rejection of subsidies for policyholders in high-risk zones. The Productivity Commission says the overall costs to the community of subsidising insurance “are likely to exceed any benefits”, and subsidies “cannot reduce the physical risks that individual properties face”. This view has been backed by the Government and welcomed by ICA. “Government subsidies would distort the insurance market, might not assist those most at need and may serve to encourage rather than discourage development in at-risk communities,” the council said in a statement. But NDIR panel members John Trowbridge, John Berrill and Jim Minto say their review recognised the Productivity Commission’s economic arguments that intervention in insurance markets “may be ineffective or expensive”. “In preparing its proposals [the NDIR] made a strenuous attempt to overcome [these arguments], so as to meet both the economic questions and the community issues,” Mr Trowbridge told Insurance News. He says the Productivity Commission report “does not do that and, as a result, recommends no action on affordability”, leaving the issue “unresolved”. Mr Whelan says ICA acknowledges that affordability remains “the elephant in the room”. Gerard Brody, the new Chief Executive at the Consumer Action Law Centre, says he is disappointed but unsurprised that the Government has rejected the subsidy scheme. “Affordability issues are just going to continue,” he said. “Unless they deal with affordability we are still going to have problems with access to insurance. “A lot of work and thought went into the NDIR. We hope the NIAC will be one way to continue to look at these issues.” The Productivity Commission also rejects compulsory flood cover (with opt-out) in all home and contents policies – another NDIR recommendation. The commission says it would “remove consumer choice and potentially increase costs and narrow competition in the market”. NDIR work on the matter petered out; a consultation paper was released in November 2011 but there was no final report. 20
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The Government revealed its hand by accepting the Productivity Commission’s position last month. However, the market has created its own constraints. Most home and contents policies that now include flood cover do not allow opt-out. Among those that do, it is typically policyholders with the highest risk – and soaring premiums – who opt out, leaving them in the same position as before. ICA says the affordability problem is relatively contained, primarily affecting Queensland and some small parts of Victoria, and limited to household and small and medium enterprise cover. The council, along with many in the industry, believes flood defence is the answer. But mitigation is a big, expensive beast that could take years to push down premiums. Nicholas Scofield, General Manager of Corporate Affairs at Allianz Australia – which backed premium subsidies for high-risk homes – argues “not all flood risk can be mitigated and, even if it could, it would take tens of billions of dollars of government investment over many decades to achieve”. “Australia has, and will continue to have, a substantial flood problem affecting large numbers of property owners.” Allianz considers the Government’s lack of response on affordability “an opportunity lost”, he says. Sometimes it is worth looking to other insurance markets that have faced similar issues.
“Unless they deal with affordability we are still going to have problems with access to insurance.” Jim Donelon, State Insurance Commissioner for Louisiana, who oversaw the US state’s recovery from Hurricane Katrina, says homeowners’ premiums soared after the disaster. The problem was addressed by a combination of mitigation and more widespread introduction of hurricane deductibles. Such deductibles began appearing in the US personal insurance market after Hurricane Andrew in 1992. They work like excesses, with the policyholder bearing the lower layers of claims and the insurer compensating for damage above a certain level. This allows the policyholder to reduce their premium while offloading most of their risk; the part retained serves as an incentive to mitigation. Insurance News investigations have not revealed specific flood excesses on policies in the Australian home insurance market. Natasha Fenech, Executive General Manager Customer Product and Pricing for Personal Insurance at Suncorp, says her company, which covers the largest share of flood-prone Queensland, has considered flood excesses but research suggested consumers find them confusing and instead favour opting out entirely. Whatever the solution to the affordability problem, it will no doubt be complex, given the range of competing interests. And despite the recent momentum behind solving the flood issue, it is clear there is still a long way to go. insuranceNEWS
April/May 2013
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My stormy career They are the scourge of the US insurance industry, but for forecaster Phil Klotzbach hurricanes are a labour of love By Michelle Hannen HURRICANES CAN MEAN BIG MONEY to the insurance and reinsurance industries – usually in the form of losses. Nowhere is this more true than in the United States, where the outcome of the Atlantic hurricane season can obliterate capital and change pricing industry-wide overnight. Insurers and reinsurers are forever seeking ways to reduce their risk, and the industry awaits with bated breath the first forecasts for each hurricane season. Such responsibility could sit heavily on the shoulders of Phil Klotzbach – research scientist at the Colorado State University (CSU) Tropical Meteorology Project (TMP) and co-author of one of the most wellknown and respected Atlantic hurricane forecasts. But for him, hurricane forecasting is all about the science. The TMP released its first forecast in 1984, when Dr Klotzbach was aged just four. The reports were pioneered by William Gray, who joined CSU’s Department of Atmospheric Science in 1961. In the 1960s Dr Gray released a paper identifying six conditions necessary for hurricanes to form. 22
“He applied them globally and he basically got a very good pattern match based on these six predictors for why you get more storms in certain areas than in others, and why you don’t get storms in certain areas,” Dr Klotzbach says. “The thing is even now, 45 years later, people are still pretty much using his genesis parameter and they haven’t really tweaked it very much. So it’s been pretty amazing working with him.” Dr Klotzbach first heard about Dr Gray and his hurricane forecasts as an undergraduate student in an introductory climate class. Sceptical that hurricanes could be forecast more than 10 days in advance, he began reading some of Dr Gray’s work. “I’m like, ‘Holy cow, this guy’s got some skill and he’s not completely out to lunch’!” Dr Klotzbach wrote his undergraduate thesis on seasonal hurricane prediction, then decided he wanted to work with Dr Gray in Colorado. He sent off his thesis and received an invitation to visit Dr Gray at CSU, where he has worked, while pursuing further study, since 2000. The early forecasts were created with limited data – generated by Dr Gray insuranceNEWS
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phoning individual climate tracking stations and formulated with pen, paper, a calculator and a slide ruler. “The testament to him is that he put together those forecasts when there really wasn’t much data out there,” Dr Klotzbach says. “In a way our job is kind of easy now. We have globally accredited data. You can just say, ‘OK, here’s the time series, correlate it with this’, and bam... there you go, there’s your model.” Dr Klotzbach describes his mentor – widely regarded as one of the world’s leading tropical storm experts – in typical Gen-Y fashion: “a really smart dude” whose meteorological instincts are “pretty much uncanny”. It seems the respect is mutual. Dr Gray, now 83, passed primary authorship of the hurricane forecasts to Dr Klotzbach after the 2005 season. Dr Klotzbach spoke exclusively to Insurance News while in Australia to work on a meteorological data analysis project with natural hazards researcher Risk Frontiers. Our interview came on the eve of the first forecast for this year’s Atlantic hurricane season, from June 1 to November 30.
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It all depends on El Nino: Colorado University weather guru Phil Klotzbach at Macquarie University, northwest Sydney
He says the April forecast has “the least skill”, with subsequent releases in June and August further refining the picture. The August forecast in particular is a lot more accurate; 95% of all major hurricane activity occurs after August 1. “Between June and August you generally get a really good idea about what El Nino’s going to do and if you look at conditions over the tropical Atlantic, especially in June and July, there’s a lot of persistence,” he says. “So if the waters are warm and the pressures are all low in July they tend to remain that way the rest of the season.” Dr Klotzbach says this year’s latest model guidance is “all over the place”, which is “fairly typical for this time of year”. As ever, the big question is, what will El Nino do? El Nino is indicated by warmerthan-normal water in the tropical Pacific Ocean. The early suggestion is that conditions are neutral. One predictor for El Nino is warm water building up in the western tropical Pacific before flowing east. But Dr Klotzbach says a partial discharge of that warm water last season “means the heat content isn’t really there, primed to go east” this year.
“Usually in the [northern] spring we’re not very confident in forecasting El Nino unless we’ve just had [one] and then we’re usually pretty confident we’re not going to get a second. They don’t usually occur twice in a row. “Unfortunately for our predictability purposes we haven’t had El Nino in a while, and it was kind of a failed El Nino last June, July, August, so it’s made for a challenging forecast right now.” However, Dr Klotzbach says the odds of a strong El Nino this hurricane season “are pretty minimal. I think if anything we may get a weak one.” Another factor determining whether warm water heads east is wind flow across the tropical Pacific. “Small perturbations in the wind flow at this time of year can cause significant changes in El Nino conditions,” he says. “So that’s one of the big things we’re going to be monitoring over the next couple of months, along with the warm water build-up in the western Pacific.” Conditions in the Atlantic also play a role. “You can have a weak El Nino but if the Atlantic is warm and the pressures are low, you can still have a relatively active season.” insuranceNEWS
April/May 2013
The first forecast of the Atlantic hurricane season, released by the Colorado State University’s Tropical Meteorology Project on April 10, suggests a more active than usual season, with an above-average probability that major hurricanes will make landfall along the US coast and in the Caribbean. Dr Klotzbach and Dr Gray are predicting the 2013 season will feature 18 named storms compared to an average of 12; nine hurricanes compared to an average of 6.5; and four major hurricanes – classified as a category three, four or five storm – compared to an average of two. They are also predicting a 72% probability of a major hurricane making landfall at any point on the US coast, compared to an average for the last 100 years of 52%. The probability of a major hurricane making landfall on the US east coast, including the Florida Peninsula, is 48% compared to an average of 31%, while the chance of a landfall in the Gulf of Mexico is 47%, compared to an average of 30%.
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Dr Klotzbach says the Atlantic is “pretty warm and the pressures in the tropical and subtropical Atlantic have been quite low”, indicating “a relatively active season”. But the situation is prone to change. When pressed, he plays down the importance the insurance industry places on the TMP’s work. “I don’t think major financial decisions are based on a seasonal forecast and I certainly wouldn’t advise [insurers] to do so. “I wouldn’t base huge financial decisions on a seasonal forecast, because we say it’s a seasonal forecast that has some skill, but it’s still a forecast.” He says the TMP does not forecast which storms will make landfall, which is when the insurance industry experiences major losses. “On a year-to-year basis you can have a very active season but very few landfalls, or none, or vice versa.” Dr Klotzbach says the past seven years have been relatively active, but not one major hurricane has made landfall in the US. But he is aware of the reach the forecasts have and the high regard in which they are held. He says some US primary underwriters have introduced underwriting moratoriums for short periods based on whether the TMP’s fortnightly forecasts during the hurricane season indicate a particularly active period. Several years ago, at Dr Klotzbach’s insistence, the TMP dropped its December forecast, which came too early to predict El Nino “with any skill”. It means most of the North American market, with its January 1 renewals for property-catastrophe reinsurance treaties, renews before the first TMP forecast – further proof, he says, that they do not play a role in pricing. The TMP is not the only group to release US hurricane forecasts, but Dr Klotzbach says one point of differentiation that attracts users is the amount of detail included. Its updates, which can run to 40 pages, not only state what the numbers indicate, but also explain the physics behind the forecasts, including the background to the model, the physical features currently evident and how they may trend. This level of detail also serves the scientists who create it. “I think when you write a decent bit about your forecast, you can go back and look and see, ‘What was I thinking then? Did I miss something? Did I miss something obvious or did it actually verify well?’” The TMP releases a report each year after the hurricane season self-assessing its forecast. 24
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“The key is just being open and transparent and always trying to look for new predictors and see how things are progressing,” Dr Klotzbach says. This is true even when the forecast is a miss. “We’ll basically say, ‘Our forecast this year sucked’. “You just be honest about it and say, ‘It stank, and this is why it didn’t work out’.” Dr Klotzbach says forecasts for 2006 and 2007 were “pretty bad”. Of course, he has analysed why.
“Sandy was nasty but it wasn’t actually a major hurricane. It was just a really, really monstrous storm size-wise.” “In 2006 the Atlantic was really, really hot but we had an El Nino come on that wasn’t very well predicted... so that one really caught us by surprise. “We were forecasting a very active season and we probably went a little higher than we should have, given 2005 was so active.” Forecasts for the past five years have “actually been reasonably good”, he says. “After 2007 I went back and redid all the statistical models and I’ve started using different data sets.” Among the changes introduced under Dr Klotzbach’s stewardship are fortnightly updates during the peak months of the season. These indicate whether the following fortnight will be active, inactive or neutral. “The reason we’ve done that is just because you have an active season or an inactive season, it doesn’t mean you can’t get active or inactive periods during a season. We have pretty good skill with those.” Dr Klotzbach says the TMP’s models can now predict smaller weather systems in outlying areas, but he admits this advance may not, in itself, be particularly useful: usually, only storms that form in the deep tropics intensify into major hurricanes, make landfall and cause damage. “North of 30 degrees north it’s just going to spin around and go out to sea and not really do much of anything most of the time.” insuranceNEWS
He says the TMP may in future consider trying to differentiate between major systems and “shorties” – storms that last fewer than two days. “More of these kinds of subtropical marginal systems are getting named,” he says. The huge increase in such storms has come because advances in observational technology over the past 20 to 30 years mean they can be detected more readily, Dr Klotzbach explains. “The structure’s kind of marginal, and now we have better ways of analysing the structure, so we can say, ‘Yes, it is a tropical cyclone’, whereas 20 years ago we didn’t, so we’d just be like, ‘Maybe, maybe not, but it’s in the middle of nowhere so why bother?’” Last year was a good example. Dr Klotzbach says the forecast “wasn’t great” because of a “very odd distribution of storms. We had more storm activity than we thought because we had a whole pile of stuff in the middle of absolutely nowhere.” The season saw 19 storms, with just two hurricanes that lasted a total of 12 hours. It also included Superstorm Sandy, the second-most expensive weather event after Hurricane Katrina. “Sandy was nasty but it wasn’t actually a major hurricane,” Dr Klotzbach says. “It was just a really, really monstrous storm sizewise, and caused a lot of damage.” The forecasts still have room for improvement in predicting landfall, he says. While models have become relatively sophisticated in terms of predicting activity, storm development and direction are different matters. Statistically, about 25% of the major hurricanes that form in the region should make landfall in the US, Dr Klotzbach says – although recent history tells a different story. Since 1995, 10 of 67 major hurricanes that formed in the region have hit the US, although they did include Katrina, Rita and Wilma, which inflicted huge losses in 2005. Since 2006, none of 19 major hurricanes have made landfall. “It goes to show that just because you have a lot of storms, it doesn’t necessarily mean you’ve got landfalls,” Dr Klotzbach says. However, based on probabilities, the industry should expect a higher number of landfalls in the future. “Never say the word ‘due’, but if nature behaves the way it has in the 20th century, we should expect to see higher percentages of storms making landfall, given that you should see about 25% and we’ve only seen about 15%. “So the insurance industry could very well expect to see more insured losses.”
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A climate on steroids? The Climate Commission’s claim that global warming is making extreme weather events worse doesn’t stir the insurance industry By John Deex
Report co-author Will Steffen: the insurance industry needs to take note of what’s happening
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Allianz Australia General Manager of Corporate Affairs Nicholas Scofield questions the commission report’s central tenet that climate change is already influencing extreme weather events. “From where insurers sit I don’t know that our experience can confirm or deny that as a statement of fact,” he told Insurance News. “For example, the Brisbane floods in 1974 were bigger than the floods of 2011, and there have been cyclones in Queensland since Adam was a boy. “We are yet to be convinced that you can look at a specific weather event and draw a link to climate change. “There still needs to be an element of caution in making such an assertion. We’ll know more after the next 10 or 20 years.” The Insurance Council of Australia (ICA) warns that while many climate change scenarios depict the risk 50 to
100 years ahead, insurers gauge risk by looking one to two years ahead. Mr Scofield agrees, saying insurers can’t price for the future. “Could we increase premiums now and put money aside in anticipation of more frequent and severe extreme weather events? It is not possible in an accounting sense. “For the year ahead insurers will have a reserve for natural catastrophes, but if there is money left over at the end of the year it can’t be carried over. It falls to the bottom line and you start afresh the next year. “From a competitive market point of view that would also be very hard.” Mr Scofield said past claims experience rather than predictions forms the basis for pricing. “The best idea of what might happen in the future is what has happened in the past.”
ScienceWise/ANU
AUSTRALIA WILL BE HIT BY MORE frequent and severe extreme weather events as a result of global warming, according to a new report. But questions remain over how the insurance industry should respond. The Climate Commission report – The Critical Decade: Extreme Weather – says climate change has already contributed to events such as the recent “angry summer” of 2012/13, as well as the 2010/11 Queensland floods. And it warns worse is yet to come. Will Steffen, one of the report’s authors, says asking whether climate change has caused specific extreme weather events is over-simplifying the issue. What is crucial is the influence climate change is having, he says, adding that Australia’s climate is behaving like it’s “on steroids”. “An elite athlete can already reach a very high level,” Professor Steffen told Insurance News. “But if they take steroids their performance is enhanced and they can break more records. “The greenhouse gases in the climate are like steroids to an athlete. We have always had extreme weather events, but the nature and frequency of them is changing.” Professor Steffen says the insurance industry needs to take note of what is happening. “It is in their interests to understand the way in which climate is changing. Companies would be advised to keep up with the very latest in scientific research. Ignoring the sort of evidence contained in the report will put more people and property at risk than necessary.” The Climate Commission report has attracted considerable attention, even though the longevity of the commission itself is in doubt. Federal Opposition Leader Tony Abbott has said he will abolish the commission if he wins the federal election later this year – a statement that prompted Climate Commissioner Tim Flannery to tell Mr Abbott that “ignoring it or shooting the messenger will not reduce the threat of climate change”. While insurers have been in the front line of extreme weather events over the past 10 years, there is no universal attitude on climate change evident in the industry.
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However, he says insurers are now able to respond “continually and quickly” to events and adjust their pricing accordingly. While there are many things that can be done in terms of adaptation and mitigation – such as increasing the requirements around cyclone-proofing houses, fire-proofing houses and investing in flood control systems – these are more the responsibility of property owners and government than insurers, Mr Scofield says. He says that if predictions of more frequent and severe extreme weather events are correct, then an increase in premiums will follow. “If there are more claims, and more expensive claims, you would expect that to flow through to premiums. “And if some areas become too vulnerable then insurers might have to withdraw from those regions, or you might need to introduce peril-specific excesses.” He says the industry is facing a situation where flood insurance is now widely available, but many people are not covered because they can’t afford it. “The question for the future is whether the same happens in relation to cyclones or bushfires in certain parts of the country. “If premiums for perils like those increased to unaffordable levels then people would be forced out of insurance altogether. “And if large numbers of people are forced out due to affordability on a standard home insurance policy, then that would be a real concern for insurers – and for government.” ICA General Manager Communications Campbell Fuller told Insurance News no insurer offers cover against gradual changes in sea level or other anticipated impacts of climate change. But the council agrees adaptation to extreme weather events is essential. “Physical mitigation measures such as levees, dams and barrages can prevent and reduce the damage caused by these events, and may help to reduce insurance premiums.” ICA wants to see changes made to local government land-use planning laws and the Building Code of Australia to ensure homes are no longer built in atrisk areas and are resilient to extreme weather events. And it is committed to working with governments at all levels to highlight the importance of disaster mitigation. The industry has welcomed the Federal Government’s announcement of the National Insurance Affordability Initiative that will invest $100 million over two years to reduce flood risk. 28
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“We would like to see a move away from post-disaster relief funding to a position where money is spent to mitigate and protect at-risk towns and communities from disasters before they happen,” Mr Fuller says. “Prevention is better than cure, and money invested in a permanent levee to protect an at-risk community, for example, would be recouped many times over during the life of that levee.” The Productivity Commission’s Barriers to Effective Climate Change Adaptation report, which was released in March, was welcomed by the Insurance Council because it “provides clear guidance for governments of all levels to implement measures that would help protect at-risk communities from the impact of extreme weather.” The industry’s mixed response to the Climate Commission report comes despite the fact that insured losses from
the summer’s floods and fires were around $1.15 billion, on top of costly damage bills from floods in previous years. There were four declared catastrophes during the summer, generating 106,245 claims. The report says greenhouse gases have led to a climate system containing significantly more heat than 50 years ago and this has “loaded the dice” towards more frequent and severe extreme weather events. Global greenhouse gas emissions must be cut to almost zero by 2050, the report says – and Australia, the 15th largest emitter in the world, should play its part to stabilise the country’s climate “for our children and grandchildren”. However, even with appropriate action, the commission expects extreme weather events will continue to worsen over the next few decades, because “stabilising the climate is like turning round a battleship”.
CLIMATE COUNTDOWN The Climate Commission report says all extreme weather events are now influenced by climate change and damage caused by heatwaves, heavy rainfall, drought, bushfires, coastal flooding and cyclones is very likely to increase in the coming years. It says that although Australia has always had heatwaves and hot days (over 35°C), climate change has increased their intensity. Heatwaves cause a rise in deaths and hospital admissions, as well as significant financial losses. Melbourne’s January 2009 heatwave cost the city an estimated $800 million – caused mainly by power outages and disruptions to the transport system. “As climate change continues, it is virtually certain that Australians will face extreme hot weather much more often and the impacts will become more severe,” the report says. It also expects heavy rainfall and flooding to worsen. Higher temperatures in the surface ocean waters lead to more evaporation, and, because the atmosphere is warmer it can hold more water vapour. This leads to a higher water vapour content in the atmosphere and as a result, precipitation increases in many locations. And having claimed that climate change is likely to have contributed to the 2010/11 Queensland floods – which claimed the lives of at least 33 people and cost an estimated $5 billion – the report says droughts could worsen in some areas too, with potentially devastating effects on agriculture. “Climate change is likely influencing the increasing aridity in the southwest and possibly the southeast of the continent,” it says. Regions that are currently dry will become even drier, and wet regions will become wetter. The report expects conditions favourable to devastating bushfires will become more prevalent. “The projected increases in hot days across the country, and in consecutive dry days and droughts in the southwest and southeast, will very likely lead to increased frequencies of days with extreme fire danger in those regions,” the report states. Rising sea levels are also expected to lead to an increase in coastal flooding, the report states. Global sea level has risen by 21cm since 1880, and could rise as much as another 1.1 metres by the end of this century. The report says this would put between 157,000 and 247,600 individual buildings in Australia at risk. Even a much smaller rise in sea level would have a dramatic impact on the likelihood of coastal flooding events. “For coastal areas around Australia’s largest cities, such as Sydney and Melbourne, a sealevel rise of 50cm would lead to very large increases in the incidence of extreme events, typically by a factor of several hundred and in some places by as much as 1000.” Tropical cyclones, although not likely to increase in number, will cause more damage in future too. “Maximum windspeeds and rainfall rates that occur during tropical cyclones are likely to increase, and thus pose a greater risk in terms of their impacts on people, property and ecosystems.”
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Bill Berkley’s Australia
WR Berkley Chairman and Chief Executive Bill Berkley with Australia Chief Executive Tony Wheatley
The US company’s local operation has lived up to its potential By Terry McMullan FIVE YEARS AGO US-BASED global insurer WR Berkley entered the Australian market with a sparkling reputation and a very keen eye for a market that matched its appetite. The company’s iconic Chairman and Chief Executive William (Bill) Berkley has built the company he founded in 1967 with $2500 into a highly profitable insurance powerhouse that includes a reinsurance company and operations across the US and in 13 other countries. Australia was a natural fit for the company, and today it has 42 staff working in Melbourne, Brisbane, Perth, Adelaide and Sydney. Locally the company specialises in liability classes, accident and health, travel, engineering and construction, medical malpractice and strata. Earlier this year WR Berkley Australia and Berkley Re Australia held a cocktail party in Sydney to celebrate the landmark. Mr
Berkley and his son Robert, the comany’s President and Chief Operating Officer, attended the party. It’s testimony to the company’s place in the market and the “pulling power” of its founder that some 420 insurance professionals turned out to meet him. WR Berkley Australia Chief Executive Tony Wheatley, who took up the job just over nine months ago, says growth has been steady over the past five years and the company has grown faster than other companies playing into the same space – the SME/mid-market. The company makes much in its marketing about “the difference” between it and other insurers. The list of differences is fundamental enough – it includes such qualities as “people-oriented strategies”, which have seen the company develop 36 of its 43 business units internally, while only seven were acquired. Words like accountability, responsibility and transparency insuranceNEWS
During a short visit to Sydney in March, Bill Berkley spoke to Insurance News about the Australian market, the place of brokers in a rapidly changing business environment and emerging risks.
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I think, first of all, on the casualty side, reserve development and settlement is longer than America, so the tail on casualty business is quite long. Your court systems are slow; everything moves slowly. So, it is not like most smaller marketplaces where casualty business gets resolved quickly. The average tail is as long here or longer than the US. When they told me that I sort of couldn’t believe it, but in fact, it’s true. I think it’s a market that has relatively high distribution costs. Everyone has the same situation, so it’s not a competitive disadvantage. But ultimately you have to find your way in the market, since distribution is expensive, to be sure you’re dealing with the right brokers, the right intermediaries. If you have the right ones you get value for your money. If you don’t you’re spending a lot of money and not getting value. But I would say, in general, the Australian marketplace was pretty much like we expected it to be. There’s a bit more loyalty and relationship business here than certainly in most markets, which are transactionally driven. [That] gives you the opportunity to invest in those relationships and get rewarded for those investments. So, that’s a real plus. While there are competitive pressures here I think that relationships – both brokers with their customers and companies with their brokers – are much stronger here than in most
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sprinkle the rest of the list. “It’s the old-school way of doing things that makes us successful,” Mr Wheatley tells Insurance News. “We’ve got a strong focus on brokers and really servicing them. “We work to make ourselves more convenient. If a broker doesn’t want to risk five different computer systems to get the right quote, they know we will provide a competitive quote quickly and without the complications that can arise with companies that rely on systems to do the job. “People do make a difference.” Mr Wheatley says other companies’ back-office functions can slow down the quote process, but he sees his team as “47 small underwriting agencies with a big company behind them”. WR Berkley has recently expanded locally to allow the
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much alone to get on with it”. Shining through much of the company’s ethos are the views of Mr Berkley, who says risk and uncertainty “create opportunities for our business”. Writing in the company’s 2012 report, he says a third of the corporation’s business today is derived from businesses started within the past six years. “When people ask about our business we talk in terms of combining capital with outstanding people and wrapping it all in a culture that is focused on optimising returns, but returns always measured in terms of risk. “We are always searching for great people… who bring expertise, leadership and relationships.” Echoing Mr Wheatley’s comment that the company adopts the “old school way of doing things”, Mr Berkley says the parties to an insurance contract used
“When people ask about our business we talk in terms of combining capital with outstanding people and wrapping it all in a culture that is focused on optimising returns, but returns always measured in terms of risk.” company to bring all its functions inhouse. “We now control everything ourselves,” Mr Wheatley says. “From the professional point of view brokers want our claims service to be responsive. It’s up to us to provide that and bring the clients and brokers along with us.” The company has the back-up and flexibility to quickly capitalise on new opportunities, but he says bringing along new products isn’t always easy in a market as competitive as Australia’s. The Australian operation is treated as an independent branch. Mr Wheatley answers to the London-based Europe operation of WR Berkley, and says support is available when it’s needed, but the team is “pretty 32
to be defined in terms of utmost good faith. “Our company and some others continue to behave this way. We continue to believe that treating our customers fairly and appropriately is one of our competitive advantages.” He lists two other “building blocks” that underpin the company’s success: outstanding distribution partners who are essential in meeting customers’ needs, and financial strength. “The financial capacity of an insurance company is the final backstop,” he says. “It is important that in managing our enterprise day to day we recognise that we will be tested in the worst of times, not the best of times.” insuranceNEWS
marketplaces. This is a good balance between the old and the new. [But] I think ultimately someone’s going to have to look and say, “Hey, are we efficient enough? Are we giving the customer enough value for their money?” And how much do you pay for those relationships? And do they work to the customer’s benefit? Lots of times relationships work to the customer’s benefit because, in fact, you get claims paid more promptly, and people use human judgements instead of by-the-book for settling claims. Those are things that are really valuable in relationships. On the other hand there is a limit to how and what percentage of the total pie gets paid for distribution costs, and I think that’s a high percentage in Australia. Certainly it’s going to become something that’s under more and more pressure. And now the comparators are bringing pressure on the brokers themselves with distribution cost. Look, we’re moving in a more and more competitive world. There’s more information; we can make informed decisions. The difficult thing in the insurance business is understanding that you get what you pay for. And here people are buying a promise in the future to pay a claim that may or may not happen. And that’s a hard thing to value until after the fact. You want to be sure you have someone that’s going to meet that promise and has a capacity to meet that promise and you want to be sure you have an agent or a broker who is going to represent your interest and help you with the company and get paid the right amount. I think that there are a number of things that are going to evolve as this market gets more sophisticated. Australians are going to have to deal with their strong currency, which is going to cause them to try and find ways to be more competitive, which is going to cause them to probably adopt more technology to be more competitive. And I think insurance that relates to technology is probably going to be an expanding market here in Australia and something we’re interested in. I think there’s nothing particularly new in the area of risks. I think issues having to do with the complexities of global trade and global ownership – especially issues concerning non-domestic participants in the economy – are going to require more concern and more insurance coverage. So if you have a non-domestic company participating in the [mining] industry, we all think it’s a big company that’s doing the mining but if they have a lot of debt they may not have enough resources to meet obligations for a restoration of their properties or whatever. So I think insurance is going to come in more and more to play into ensuring non-domestic companies fulfil their obligations. The other issue that I think is going to be a clear problem is this: I think every company in the world has been hacked. The only difference is do you know it or do you not know it? Someone has gone into your worksite, someone has looked around, and they may have just done it because it’s interesting to do or a challenge, and they may have just come in and gone out. But the question is, how do you protect yourself? I think that’s another real key area for insurance, and I think many people haven’t realised how expensive hacking can be.
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Learning from Katrina Louisiana’s Jim Donelon has plenty to say about regulation, recovering from disaster, affordability and keeping politicians away from insurance By Michelle Hannen
AS A US INSURANCE REGULATOR FOR the past 12 years, Jim Donelon has seen a lot. But given his home state is Louisiana, and that those 12 years include Hurricane Katrina – which remains the costliest disaster in insurance history – that’s hardly surprising.
The Louisiana Insurance Commissioner, who is also the current President of the US National Association of Insurance Commissioners (NAIC), was in Sydney recently to promote the effectiveness of the US regulatory system, which is under threat from the European push toward global regulation under the Solvency II prescriptive regulation model. Taking time out to speak to Insurance News, Mr Donelon acknowledges that the US system of state-based insurance regulation may seem foreign to Australians but has more in common with our current riskbased capital model than we may realise. General insurance in the US is regulated in 56 jurisdictions, which include 50 US states, the District of Columbia and five territories, with each jurisdiction having its own insurance commissioner. Some are appointed and others are elected. Insurers that operate in more than one US state are primarily overseen by the insurance commissioner in the state where they
are headquartered, as are foreign insurers operating in the US. Each commissioner is a member of the NAIC, which has its technical offices in Kansas City, Missouri and New York City. Its executive offices are in Washington DC. The NAIC is not a regulatory body; instead, the commissioners establish standards and best practices and co-ordinate their regulatory oversight. Mr Donelon says the state-based approach, which evolved from a distrust of centralisation dating back to the American Revolution, makes sense in a country as big in both size and premium terms as the US. There’s no doubt regulating the entire country as one market would be challenging; California alone is the sixth largest insurance market in the world, with a global premium share of 4.36%, only slightly less than China, while the Pennsylvania insurance market is the same size as Australia’s. Mr Donelon’s Louisiana market, with $US23 billion in premium, is the world’s 47th largest. Due to the extreme nature of the risks Louisiana faces, it is also the fifth-largest surplus lines market and the fifth-largest Lloyd’s market in the US. Although Mr Donelon says the state-
based regulatory approach has been “watered down” in other areas of financial services in the US, various laws have reinforced the states’ authority in regulating insurance. “I dare say we’ve really done an outstanding job of doing that,” he says. “First and foremost we’re charged with protecting consumers, and part and parcel of that protection of consumers is the monitoring of companies for solvency so that we can be sure they have the money to make the payments when they are called on by their policyholders.” He points to the recent global financial crisis as a time when even in the US, “insurance came through as the success story of regulation versus the federal regulation of the banking industry”. “It has been a very successful system that we at the NAIC are very, very protective of,” he says. Mr Donelon is wary about the Solvency II regime being developed in Europe, which appears to be on track for global adoption, saying it’s a different system “that hasn’t been proven over a hundred years as ours has”. “We point to the success of ours and urge our friends around the world to look to our system and see if it doesn’t suggest
New strength: Brass bandsman Woody Penouilh marches past one of the levees rebuilt since New Orleans was inundated by Hurricane Katrina. So far $14 billion has been spent strengthening and building new levees to protect the city. Image: Reuters
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Far left: National presence, state focus: Louisiana Insurance Commissioner and NAIC President Jim Donelon Left: Mr Donelon talking to a flood victim after Hurricane Katrina swept through New Orleans in 2005
something that’s worthwhile as opposed to inventing a new system.” He says the US is not against the globalisation of insurance regulation, but it is “very concerned about the changes in the regulatory framework being promoted, though not necessarily yet implemented, around the world”. At present US regulation revolves around a risk-based capital system, and Mr Donelon believes integrating that approach with the International Association of Insurance Supervisors’ own risk and solvency assessment system is the way forward, rather than imposing Solvency II’s proposed strict capital requirements. He says these requirements represent “a brand new additional regulatory scheme on companies doing business internationally”. Major insurers in the US “fear greatly” having to meet two different regulatory standards, and Mr Donelon says any increase in regulatory costs will ultimately be borne by policyholders. The state-based system of regulation in the US also has the advantage of accounting for the vast geographic diversity of the country, which faces almost every natural peril imaginable, from bushfires to hurricanes, droughts to floods, volcanoes to winter storms, and tornadoes to earthquakes. It would be impossible to talk insurance with Mr Donelon without touching on Hurricane Katrina, which devastated much of Louisiana in 2005. Reflecting on that event, he tells Insurance News that a large number of the deaths experienced in and around New Orleans were avoidable and came as a consequence of a failure to evacuate the city, despite sufficient warning. “We had been through so many hurricanes before that folks stayed in place against the advice of the public officials,” he says, in part blaming a mis-step the previous year when the roads became gridlocked with evacuees trying to flee a hurricane tracking towards Alabama. While Mr Donelon says Katrina itself was “challenging”, the State Insurance Commissioner’s Office was then faced with a new challenge once the claims started rolling in. More than a million claims were lodged, resulting in over $US25 billion in insured losses being paid by private insurers in Louisiana alone. 36
Katrina and its massive losses led to an exodus of major insurers from coastal exposures. These included the two largest insurers by market share operating in Louisiana – State Farm with 32% and Allstate with 22% – giving the insurance regulator yet another problem: finding adequate sources of cover. “We were extremely successful in attracting a dozen small or regional companies to fill that void,” he says. “Our market today, although still too expensive, is more competitive than it was the day before Katrina hit. The commissioner’s office was also faced with a “dysfunctional” state-sponsored residual market called Louisiana Citizens Property Insurance, which had to evacuate its offices, didn’t know who its policyholders were and couldn’t get loss adjusters, creating a huge public backlash. Today, he describes the same organisation as “professional and efficient and able to handle its business as well as any private insurer”. Mr Donelon characterises Katrina as primarily a flood loss event, and listening to him reflect on inadequate levees in New Orleans, failures to evacuate, insurer withdrawals and spikes in pricing, it’s hard not to be struck by similarities between the aftermath of the hurricane and the 2011 Queensland floods. He agrees that our market currently faces similar challenges to those Louisiana faced in the aftermath of its greatest disaster. After hearing Australian market participants discussing Queensland and flood insurance at the Insurance Exchange conference in Sydney, he says “it’s like being back in New Orleans, or our state capital, Baton Rouge, or Washington DC, where these issues are being discussed on a daily basis”. “And for the same reasons – affordability is such an issue back home for coastal states.” One of the issues Australian insurers recently grappled with was the possibility of government intervention in the flood insurance market in the form of a reinsurance pool to help subsidise premiums for high-risk properties – a plan the Federal Government ultimately decided not to support. The US operates a National Flood Insurance Program (NFIP), which has provided federally funded cover for flood risks since the 1960s, when the private insurance insuranceNEWS
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market started excluding flood. It provides a cautionary tale for our local market about how out-of-hand such a pool can get and the pain that can be involved in correcting it. The NFIP has historically been run at heavy losses and, after adding an additional $US10 billion of borrowing capacity following last year’s Superstorm Sandy, the pool is now $US28 billion in debt. A new reform program passed earlier this year by the US Congress means that the debt will be reined in over the next five years so that the NFIP reaches “actuarial soundness,” Mr Donelon says. “There’s going to be huge sticker-shock as a result of those increases that first commercial property-owners are going to experience, and then residential owners on transfer of property.” He says the repricing has only just commenced, but “the outcry has been substantial already”. Despite his state being of one of the key beneficiaries of the NFIP, Mr Donelon applauds the decision of the Australian Government to stay out of the market. “I would say you are headed in the right direction, and I say that coming from the state that has benefitted the most from the federal program over the years. “Politicians just don’t do insurance very well, and the reason for that is they can’t bring themselves to charge the actuarially necessary price for the coverage they are promising.” In Louisiana today, the situation is far different from what it was in 2005. Mr Donelon says the $US25 billion claims payout from private insurers, plus $US15 billion from the NFIP, “had a huge stimulus effect” on the state, while $US15 billion in federal funding to upgrade the failed levee system around New Orleans and the introduction of a new state-wide building code mean Louisiana is now in better shape than before Katrina hit. Offering hope to those still grappling with the aftermath of our own catastrophes, Mr Donelon adds that if a similar event occurred tomorrow the outcome would be far different. That’s thanks to improved levees, better building standards, greater awareness of the need to evacuate and a more efficient system of doing so. And, of course, a more robust insurance market.
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Same direction, new approaches FOUR MONTHS INTO HIS NEW JOB, MARK SEARLES IS ON top of the world and on top of his game. The new chief executive of Austbrokers Holdings is in a car north of Sydney on his way to see yet more of his partners when Insurance News finally catches up with him. “This is a very strong business,” he says. “I came in with an initial view that this was an incredible company. From an opportunities point of view – it just gets better.” Mr Searles succeeded founding chief executive Lach McKeough, who retired on December 31 after 27 years in the job. The new boss has been on a steep learning curve ever since, with his key priority meeting the people in the 43 broking companies who make Austbrokers the success story of Australian broking. “This is a relationship business, and right now I’m talking to our partners, one on one, and seeing how they fit in the Austbrokers model,” he says. “I knew that before I could make a difference I had to understand the people and how they view the Austbrokers model.” The much-discussed Austbrokers model, where the company and its partially owned members work in partnership for mutual gain – “a perfect balance of individual commitment and national performance” is how the group explains it – has been remarkably successful. Under Mr McKeough Austbrokers proved to be a darling of the sharemarket, increasing its profit year-on-year. In the six months to last December 31 it more than doubled its profit from $11.2 million to $24.5 million. It has developed a remarkable momentum of its own, with the broking business making the best of premium increases to grow its profits by 14.2%, while the Austagencies underwriting agency arm provided another revenue source, kicking in a handy $3.1 million in the same period. Mr Searles says he inherited a dream company, and is clear that his job is to keep it heading upwards. Nevertheless, despite the remarkable success achieved by Mr McKeough, he agrees he wasn’t selected to provide “more of the same”. Chairman Richard Longes said on October 22 last year that Mr Searles was appointed only after a “significant search” and his wide experience in broking and the manufacturing side of the industry was expected to drive Austbrokers’ next development phase. CGU recruited Mr Searles in 2010 from the UK, where he had been working for Zurich as chief marketing officer and head of broker marketing for Europe, having previously been managing director of their direct and partnerships business. As chief commercial officer and general manager broker and agent at CGU he was charged with making the insurer more responsive to brokers. He had established a reputation with several major British companies as a skilled marketer and business leader, with “extensive experience of B2C, B2B and B2B2C markets with particular emphasis in the financial services and software industries”. Mr Longes said Mr Searles’ background in IT development was “important from our point of view”. The new man in the Austbrokers hot seat is well into his review of Austbrokers’ strategy and operations – a job he expects to have completed by the end of June. He agrees many things are likely to evolve in the organisation over the next year or so, building on the group’s historical successes but adding to its abilities so it can achieve even more. Austbrokers has always been careful to ensure its partner firms retain what it calls “that all-important feel of independence” and at
Mark Searles is re-engineering Austbrokers as he builds on the legacy of Lach McKeough By Terry McMullan
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the same time “are part of the Austbrokers ‘family’”. “Austbrokers partner firms are all pretty different, but they come together under the one umbrella.” It’s what makes it different from other broker groups, and what may well give the group a strategic advantage if the broker market starts to reshape during and after the Steadfast float later this year. The impact on the broker market of the Steadfast float is a relatively unknown quantity at this stage. It’s likely that not all members of the giant group will feel the new structure suits them. Some may choose to leave the organisation post-float if they feel their independence is somehow compromised in the new public company. A logical place to go to maintain that feeling of total independence isn’t Austbrokers, but its joint venture partner IBNA. The A&I Member Services (AIMS) organisation agreement was renewed last year, and from all accounts continues to serve both organisations very well. The joint venture, under which products, wordings and support facilities are made available to both Austbrokers and IBNA members, is a valuable business that Austbrokers Chairman Longes described last year as “something we treasure”. No wonder. Not only is the combined power of the two organisations through AIMS formidable – a combined force of more than
“We have to be competitive, yes, but we also have to be relevant to our clients. We have to ensure people understand and support the value of the broker in insurance.” 120 leading brokerages handling around $2.5 billion in total premium into the insurance market – it also provides IBNA members with succession planning options no other independents have. They can sell into Austbrokers or negotiate a merger through either of the joint venture companies. Mr Searles says he wants to help IBNA continue to be a strong membership group and is keen to provide assistance. “We’re an equity partner-based organisation and they’re a nonequity partner-based organisation,” he says. “Together we present highly credible and viable options for any brokers wanting a partnership solution. “So the joint venture means we’re all stronger – we’re sometimes accused of being joined at the hip with IBNA through AIMS. Well, that’s for real; there is a clear logic to the relationship and while there’s a need for a strong non-equity organisation like IBNA, sometimes it’s difficult to stay independent and therefore Austbrokers is on hand to provide the equity solution. “The pooling of gross written premium does give the two organisations a very strong buying capability with underwriters. insuranceNEWS
Commercial terms have evolved to be a group initiative.” Mr Searles says small local brokers in the market are going to find it very hard to survive in the evolving world of insurance distribution – a point borne out by the large number of so-called “lifestyle brokers” in Steadfast whose annual premium fell short of the official earnings cut-off point for participation in the upcoming public float. “It’s going to be very different in five to 10 years,” he tells Insurance News. “Consolidation in the market is inevitable.” Mr Searles may have come most recently from the underwriters’ side of the fence, but he points out that his experience has in fact been based around distribution for the majority of his career. “I take a distribution view more than a manufacturer’s view,” he says. “Having worked both sides of the fence does allow me to understand the various perspectives and how we can work together more effectively and to our mutual benefit.” The application of that understanding will be important to Austbrokers’ continuing upward trajectory over the next few years. Further development of the Ebix-developed iClose transaction platform being used by Austbrokers is critical, for example. Mr Searles says iClose enables Austbrokers members to all work through one platform and build upon the usage of a single broking system. While he’s “very comfortable” with the capabilities of iClose – saying it’s “a fabulous system” – there will always be a need to invest in development. “Connectivity is king,” he says. “But that’s not a priority just for brokers. The underwriters have their own work to do in that direction.” Equally important is communications, electronic and human. With his extensive experience in marketing and channel distribution, Mr Searles has no problems in recognising that broking is “first and foremost a relationship business”. “We have to be competitive, yes, but we also have to be relevant to our clients. We have to ensure people understand and support the value of the broker in insurance.” He says his experience in the British market, where the growth of aggregators has had a strong impact on the broker channel specifically in the personal lines market, highlights the fact that the impact of direct players on the SME market should not be ignored to ensure brokers remain relevant to their customers. “But when it comes to the advice side and where there is real risk involved, it’s a different story. Advice ensures the customer has the correct product. “So to ensure brokers do retain their relevance, we as brokers have to create and maintain strong relationships with the end market.” A few weeks ago marketing and public relations company Taurus Marketing was appointed by Austbrokers – a sign that Mr Searles isn’t wasting time in framing some new strategies around the company’s profile in the market. He told Insurance News that while Austbrokers “hasn’t historically needed to shout loud and proud about ourselves given the rate of growth”, new market realities “do require us to be loud and proud about ourselves and the things we’re keen to do”. “There is a need for us to take more of a leadership role and to express our views about things that need to be articulated. “In a world where the game is so rapidly changing, I know our network looks to Austbrokers to take up a more obvious leadership role in the market.” April/May 2013
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What price your reputation? Many professionals are still failing to cover the costs of protecting their good names By Jan McCallum
PROFESSIONAL INDEMNITY ISN’T THE gentle class of insurance business so many people believe it to be. As lawsuits against professionals grow in number and losses continue to rise, insurers are increasingly wary about the real risks they’re taking on. CGU National Commercial Manager Jarrod Wilson says any kind of profession that gives advice – financial advisers, accountants or consulting engineers, for example – should see professional indemnity as a “must have” item of protection. “Their advice is their livelihood, so protecting it is worth its weight in gold,” he says. Yet many people in that position don’t consider that an attack on the reputation of their business could send them broke. Mr Wilson says many professionals get caught up in litigation when they’re not at fault, and can face substantial legal fees. Despite this, many underinsure because they underestimate the real cost of defending a legal action – typically about $100,000. “Most small to medium-sized businesses would not… have that money spare to fund their defence,” he told Insurance News. Mr Wilson has seen a number of claims against SMEs that have cost significantly more than $1 million, but many businesses still want just that $1 million of cover. He recommends a $5 million minimum. CGU recently saw a case settle involving a $23 million claim against an engineer, with a long list of defendants. After $1 million in fees over several years, the engineer was found to have not been negligent. Insurance House Group Director Gary Gribbin agrees professionals often underinsure which can lead to lawsuits against their brokers. He says PI cover sees more claims against brokers than other classes, “which speaks to a need for great care and vigilance” when arranging cover. He is aware of one case before the Victorian Civil and Administrative Tribunal in which the insured is not covered by PI because of an exclusion in the policy. They face a $90,000 bill for a seven-day hearing. Mr Gribbin says defence costs can be high because they include substantial costs incurred by solicitors preparing cases and briefing counsel. “Defence costs are always 40
more than you think.” Mr Wilson says litigation often involves a large number of defendants seen as having “deep pockets”. The engineer’s case was a typical example of a professional being pulled into litigation against a group of professionals and businesses. Defending it also meant supporting the engineer through the process, so he could continue trading while the case proceeded, Mr Wilson says. He says while most claims are settled in fewer than three years, a file can be open for five to seven years and it is important for the insured to be supported through the process by an expert. In the engineer’s case, CGU appointed a lawyer with expertise in the field and investigated and managed the claim. “His insurance premium covered all associated costs and the case was handled by the company,” Mr Wilson said. Although some professions, such as financial planners and tax agents, must hold a mandated amount of PI cover, many insuranceNEWS
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others underinsure. Certain professions are encountering a greater number of claims, Mr Wilson says. In the past three years there has been a rise in cases against structural engineers, which may be due to companies working beyond their scope and smaller companies taking on projects that require greater expertise and scale. He has also seen a growing number of disgruntled customers taking action against travel agents for failing to deliver. Financial advisers have incurred more claims since the credit crunch and are now regarded as a problematic class, due not only to the number of claims but also their complexity. Mr Gribbin says valuers have encountered claims over property valuations used for loans. Borrowers have sued when their buildings have sold for much less than expected, leaving them with a shortfall on their mortgages and facing bankruptcy. Mr Wilson says issues around defending professional reputation can be overlooked,
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but PI cover allows clients to pursue legal avenues to clear their name. While clients and their advisers may wish to settle cases as quickly as possible, “it’s important to consider the long-term impact. It can be seen as an admission of guilt and have a devastating effect on your client’s reputation.” He says the task for brokers is to understand insureds’ needs and their clientele. “In PI, a business might deal with multiple professions or undertake many business activities; it is not just about understanding everything the client does but what the client’s clients do. What type of customer does the insured attract? Are they particularly litigious customers? What will they do if something goes wrong?” PI rates remain soft, particularly for smaller businesses. About 50 underwriters cover a market worth $1.3 billion, so there is plenty of competition to keep rates down, unless the client is a financial adviser. Indemnitylegal Principal and insurance law specialist Kevin Gibbons says it is important that insurers’ claims and legal officers are highly experienced, so the person reading the claim has some knowledge of the industry involved. “A claim might look innocuous but an experienced person will know whether to treat it more seriously or not. Or a claim might look serious and not be worth a cracker.” Mr Gibbons says the level of expertise varies, but most insurers providing PI have people with a deep understanding of how policies respond and how matters need to be resolved and managed. However, most claims settle before they get to court, he says. Although clients may wish to litigate to protect their names, once a case gets into court “litigation has a life of its own” and the issue of professional reputation may get a low priority. Mr Gibbons says clients may want to avoid the publicity of being on a court list or having media or competitors see statements of claim and other court documents. “It is frequently the case that matters can be settled on the basis of confidentiality, whereas that is lost if one resolves it in court. insuranceNEWS
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Brokers beware Two studies by insurers show the market is changing and brokers need to adapt By Elizabeth Redman and John Deex
LIFE CAN’T BE EASY FOR A BROKER RUNNING A BUSINESS these days – there are so many things to worry about. If the effect of rising premiums doesn’t do it, there’s always proving their value to clients, how to compete with the increasing number of competitors, or the limitations of industry technology, or what to do about an increasingly aggressive direct market. Maybe they should also be more worried about retaining SME clients, especially the under-40s and women who rely less on brokers. Two recent broker surveys conducted by Vero and Lumley have laid out the issues brokers face. There’s no need for panic – many of the challenges brokers face are also opportunities – but there’s also a lot of evidence that brokers will have to keep up with the market’s changing dynamics. Some 61% of SME businesses used brokers last year, Vero’s study of more than 800 business-owners and insurance decision-makers shows. That’s four percentage points less than the year before. Men aged over 40 are the core market for brokers. Among under-40s, only 44% of SMEs use brokers, compared with 61% overall. The Vero SME Insurance Index features quantitative surveys of 885 business-owners and insurance decision-makers across Australia, followed by in-depth interviews with eight SME respondents from September to November last year. It says younger SME decision-makers “are both more confident to research their options and more cost-conscious”. “For them, the internet has become the default medium to gather and research information and to transact… [they] need to be given a good reason to do business by means other than the internet.” The survey results found different attitudes among men and women. Some 43% of women use brokers, 18 percentage points lower than the average. Although women are more likely than men to agree that insurance “gives me peace of mind” and “is important”, they are also more likely to forgo the personal contact that using a broker brings “to get it cheaper”. Some 58% of women surveyed say they personally research their insurance needs, compared with 49% of men, and women are also more likely to use the internet to do so – 50% compared with 42%. “Given both [women and younger men] will play an increasing role in future insurance decision-making, there will be a longer-term threat to broker businesses if they fail to engage these groups,” the Vero report says. The answer: brokers should communicate clear value-for-money benefits and embrace the internet. Suncorp Executive General Manager Commercial Insurance Distribution Andrew Mair says Vero is planning an educational program to assist brokers in attracting this market. “This is where brokers need to demonstrate how important advice is,” he told Insurance News. “They need to demonstrate how they provide service to help SMEs get the right cover.” The study also finds that attitudes to insurance have become more relaxed as memories of the 2011 catastrophes fade. The number of respondents who “need to see all options before I can make a decision on insurance” has fallen to 68% in 2012 from 76% the previous year. Fewer respondents say that “recent events have made me question the cover I have” – a 10 percentage point drop from 29%. The Vero report warns brokers against complacency, saying that last year 47% of insurance decision-makers said they “only take out 44
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TOP: Factors that worry brokers, from Lumley survey ABOVE: What SME clients say they will do if their premiums rise further, according to the Vero SME index
April/May 2013
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some insurance because I am legally obliged to”, up from 35% the previous year. “SMEs are less anxious than they were a year ago,” the report says. “There is less need to reassure them, but complacency could become a risk. “The need to review the appropriateness of insurance cover becomes more relevant as the top-of-mind awareness of insurance diminishes. “Also worth considering is the impact on confidence if natural disasters occur again and a significant number of SMEs hold inadequate cover.” The study also looks at the effects of premium rises on SME decision-makers. Some 75% of respondents expect premiums to increase over the next 12 months, up from 65% last year. Of these, 54% expect the increases to be more than 10% – and they’re not happy about it. “Many SMEs appear to have reached breaking point in terms of what increase in insurance costs they can bear,” the report says. “There is a dramatic drop in respondents who say they could pay increased costs and/or pass them on to their clients.” The survey says many clients expect to change purchasing behaviour after price rises, such as reducing cover, changing insurer or changing broker. Mr Mair says such a trend isn’t obvious yet. “The renewal season is coming up and we will get a clearer picture after that.” It’s a problem that brokers are well aware of, according to the Lumley survey of more than 100 organisations. It finds brokers themselves are worried about rising premiums, with 45.5% of respondents saying premium increases are the external factor
most affecting their business. And 57.4% recognise that premium rises are a main concern for their clients. Falling consumer confidence is the next most important factor, at 38.6%. Internal issues that most affect business performance are structure (22.6%) and staff retention (20.6%). These are followed by uncertainty over coverage (16.8%) and confusion over the type of insurance they need (10.9%). Brokers understand underwriters are increasing premiums for a range of reasons, including the need to cover operating expenses, the rising cost of claims and reinsurance. But 77.2% of customers still want their broker to shop around. Despite this, more than 76% of brokers think the economic environment is average, good or very good. Some 75.2% agree they’re enjoying gross written premium increases and 52.5% report growth in client numbers. The Lumley survey raises questions about underinsurance and affordability. Brokers say more than 35% of clients are downgrading or ceasing personal lines and property coverage. Some 78% say new customers have inadequate business insurance and 81% say their clients are underinsured for personal cover. Lumley says although affordability is more of an issue after the Queensland floods, people are choosing to remain underinsured. “We have to accept that people are making this conscious choice, but they have to accept they will be accountable if things go wrong,” Lumley Chief Executive John Nagle told Insurance News. “The Government cannot always bail people out.”
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Running aground Bigger ships and the rising cost of salvaging wrecks mean trouble for global marine insurance By John Deex THE COSTA CONCORDIA DISASTER WAS WITHOUT DOUBT one of the worst maritime losses ever witnessed, yet it has not had the impact on the marine insurance industry many expected. The Italian cruise ship ran aground off the coast of Tuscany in January last year, claiming 23 lives and resulting in a total insured loss estimated at around $US1 billion. Despite the insured value of the hull alone standing at $US513 million (between 6% and 7% of the world’s hull premiums) predictions of sharp increases in prices in the hull insurance market have not materialised. Yet the hull market has continued to suffer from losses for the 16th year running – with no immediate prospect of this trend reversing. “The hull and machinery market is tight,” says Richard Jowett, head of insurance and reinsurance in the Asia-Pacific region for global commerce lawyers Holman Fenwick Willan. “There is a lot of capacity and it is pretty cut-throat, with pressure on rates all the time.” Mr Jowett says that whereas larger risks are ordinarily spread across the insurance market, a limited number of insurers wrote the Costa Concordia risk. The hull value is believed to have been spread across 28 under-
writers – a very small figure compared to the number of insurers operating in the hull market. “Those insurers would have suffered a major loss,” says Mr Jowett. “But many won’t have been affected at all and will be writing premiums as they always have done.” However, the Costa Concordia loss has had a major impact on protection and indemnity groups, more commonly called P&I clubs, due to the spiralling cost of wreck removal. While insurance companies provide cover for damage and loss to hull/machinery and cargo, it is the not-for-profit mutual P&I clubs that provide third-party liability insurance – including for removal of wrecks. The 13 principal P&I clubs form the International Group. They pool their larger risks and buy reinsurance in the commercial market for risks exceeding $US70 million. Costly cases mean the commercial markets have been more frequently and more substantially exposed to reinsurance risk – and the price of reinsurance has risen as a result. The cost of the removing the Costa Concordia wreck is currently estimated at $US560 million. Jim Metters, Managing Principal for Marine at Marsh, says the impact of the Rena grounding off the coast of Tauranga in New Zealand in
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A $240 million impact: Human error continues to be the “most significant” cause of shipwrecks like the Rena off the New Zealand coast. Image: Reuters
October 2011 will also add to the pressure. The cost of salvaging the wreck of the Rena is expected to be around $US240 million. “That’s a pretty big hit,” Mr Metters says, “and this is reflected now in the P&I clubs’ rating going forward. “Due to these losses and as a result of an upward trend in claims generally the February 20 renewal rates reflected a 5-12% general increase, depending on the club. “P&I reinsurance costs have gone up by roughly 15% although the rate increase on passengers liability was over 200%. Furthermore club claim retentions and claim pooling between the clubs have increased to $US9 million and $US70 million respectively. “The P&I market has been through a bad patch in the past couple of years but with the measures at the 2013 renewal and with perhaps further increases to come in the next few years the situation should stablise.” It is thought with further risk management, ship inspections and as newer ships are brought in, the risk profile should improve. “In the meantime it is the club members that will have to pay for these losses.” A new report from Lloyd’s, The Challenges and Implications of Removing Shipwrecks in the 21st Century, explains how the increasing
cost of wreck removal is impacting on the insurance industry as a whole. “These recent major losses will impact the financial arrangements of the individual clubs and their members, the pooled arrangements of the International Group of P&I clubs and the wider reinsurance markets,” the report says. “With the general cost of wreck removal rising, the likelihood of exceeding the $US70 million International Group retention (increased from $US60 million from 20 February 2013) is increasing. “Therefore, the Lloyd’s and company reinsurance markets, which also take the hull loss, are likely to be more frequently and more substantially exposed to wreck removal losses.” A recent report from Hannover Re refers to this issue, saying that in view of the record major loss expenditure incurred in marine business as a consequence of the Costa Concordia incident and Superstorm Sandy on the US east coast, rates surged sharply higher. “Under loss-impacted programs the increases ranged from 25% to 40%. Even under treaties that had been spared major losses Hannover Re was able to achieve premium increases averaging 10%. The premium volume for marine business was enlarged.” Looking to the future, the Lloyd’s report says the economic environment has remained challenging for many industries,
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including insurance and shipping, and the outlook for investments continues to be a low-yield environment. “Increasing wreck removal costs and the associated insurance implications need to be considered in the context of the economic and regulatory challenges facing the shipping and insurance industries,” Lloyd’s says. One practical challenge facing the shipping industry is the gap between the increasing size of vessels and the capability to handle them as casualties or wrecks. Closing this gap is an important consideration for shipowners, the ship design industry, the salvage industry and liability and hull insurers to explore. The report says human error continues to be the single most significant cause of shipwrecks – so reducing human factors in marine casualties is also imperative for the shipping industry. The report adds that shipowners and operators should ensure that seafarers are well trained and that operations are conducted safely and supported by appropriate technology. Lloyd’s notes that overcapacity “remains a concern” in the marine (re)insurance industry, but that this could change. “If the insurance industry is subject to increased frequency or severity of losses due to either a string of major incidents, or a natural catastrophe, such as Superstorm Sandy, insurance and reinsurance capacity would be diminished. “While a single large loss like Costa Concordia is unlikely to reduce capacity, the trend of more frequent and severe wreck removal losses will eventually affect capacity levels (through insurers exiting the market or reducing the percentage of the risk they are willing to underwrite) if there is not an opportunity for the insurance industry to adjust premium levels accordingly.” The International Union of Marine Insurance (IUMI) estimates the cost of Superstorm Sandy to the global marine market at $US2.5-3 billion, effectively wiping out the entirety of US marine premiums for 2012. The impact of Sandy will define 2012 in the eyes of the underwriters, IUMI says, adding that in the ocean hull class the loss of the Costa Concordia was the biggest event in a year where the level of losses remained at “concerning levels”. “Some severe major losses hit several lines of marine insurance business in 2012,” IUMI President Ole Wikborg said. “Although the claim frequency and cost are beyond our control, we’re going to do our part to turn it for the better in 2013.” IUMI says the rally in financial markets is creating an upturn in trade with a positive impact on the cargo market. Mr Jowett says the marine insurance market generally has been soft for some time. “There is large capacity, with low, sometimes decreasing, rates but I’m not sure it can continue. “Will rates go up? I can’t say. A lot of factors have to be taken into account, including what an insurer’s competitors are doing. “An underwriter is always going to be looking over their shoulder.” Allianz Marine & Transit Chief Executive Stephen Ford says the direct impact of the Costa Concordia on the local hull market has been very limited. “The stuff that we write [in Australia] – tugs, workboats and barges – is a world apart from cruise ships. “The impact of the Costa Concordia has been largely on the reinsurance market, which does filter down, but it’s only one factor in our local pricing equation.” He says the hull market locally is into its second or third year of “overdue hardening”. “It has certainly struggled for consistent profitability. But some have reconsidered their involvement and this has resulted in some hardening.” Local cargo rates have been more stable over the long term. “There have been a few factors which have influenced this, such as the strong dollar and the impact of the Rena grounding,” Mr Ford says. He also expects the increasing size of vessels to have an impact on the cargo market locally. “We need to understand what our exposures are on these bigger vessels,” he says. “One of the things we are seeing locally is some fragmentation of the market. A few new operations are starting up or other, longer-established ones are being reinvigorated. “The dynamic of a market that has been fixed for 20 years is being challenged.” 48
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lawNEWS
Pay up now The owner of a quake-damaged office building should be paid the indemnity value before it rebuilds it, a judge says By Jan McCallum
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Fairfax Media / The Press
Pay now: a restaurant in Clarendon Tower was evacuated in the February 2011 earthquake. The building has since been demolished
THE OWNER OF A BUILDING damaged in the Christchurch earthquakes has won a case against its insurer, with a judge forcing the insurer to pay the indemnity value of the policy before the building is replaced. The insurer was resisting paying the full indemnity value of the policy until the owner decided whether to reinstate the building. But the New Zealand High Court says Mitsui Sumitomo Insurance must pay out whether or not the policyholder has decided to reinstate. While the insurer had agreed to pay the indemnity value, it believed it didn’t need to part with the money until the building’s owner, TJK, incurred the cost of reinstatement. But Justice Forrest Miller has ruled that it’s liable to pay the indemnity value of the building now. Clarendon Tower, a premium 18-storey office building in central Christchurch, was damaged in the September 4 2010 quake. Mitsui paid $NZ2.4 million for repairs, which were under way when the February 22 2011 earthquake devastated the city. People were trapped in the tower when internal stairs collapsed, but no one was killed. The Canterbury Earthquake Recovery Authority ruled Clarendon Tower was dangerous and arranged demolition. The High Court’s Christchurch division, which is hearing a series of earthquake cases, was then asked to decide whether TJK should be paid the indemnity value for the building before reinstatement. The hearing was part of a bigger case concerning the insurance – scheduled for August – which will decide on the issue of rebuild versus repair, with millions of dollars at stake. Mitsui and TJK dispute the valuation of Clarendon Tower, and whether it should have been demolished or could have
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been repaired. The case is also likely to test how the insurance responds to the September and February earthquakes; TJK renewed its cover in October, between the two events. Sarah Waggott, a solicitor at legal firm Wynn Williams in Christchurch, says the question of whether one insurance contract covers the two events is being watched by many insureds who renewed policies between September and February. In a bid to assist the Christchurch recovery by speeding up the legal process, the High Court has prioritised earthquake cases that may set precedents. It has also singled out issues that can be heard separately, as in the Clarendon Tower case. Justice Miller made no ruling on the insurance renewal, and notes the “demolition versus repair” argument will “assume prominence” at trial. In the meantime, his declaration on the indemnity issue should lead Mitsui to make a further payment before the trial. The judgement says TJK insured the building with an extension under which Mitsui would pay the cost of reinstatement to a specified sum if TJK decided to reinstate. The policy renewed on October 2010 with a higher reinstatement sum. TJK has elected to reinstate but has not yet incurred the cost, and the judgement says it seems likely the owner will be able to rebuild on the site. “Whether it takes the form of notional repair or actual rebuilding, reinstatement cost will exceed the building’s lost market value following the earthquakes,” Justice Miller says. TJK valued the tower at $NZ37 million in March 2010, but Mitsui estimates its market value at $NZ30-$NZ35 million.
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The court was not asked to rule on the valuation. Justice Miller says what matters is that lost market value is less than the cost of repairs and represents the lowest measure of indemnity value under the policy. “The parties agree that lost market value is the least amount Mitsui must pay when its obligation to pay falls due,” he said. “The question is whether it must pay a larger sum by way of reinstatement cost. If so, the court must decide which of repair or rebuilding represents the correct measure of reinstatement cost.” TJK says it will cost about $NZ90 million to rebuild the tower. Mitsui contends it could have been repaired for $NZ45$NZ50 million. The building owner had asked the court for a declaration that Mitsui must pay the indemnity value, whether or not TJK had incurred the reinstatement cost. It also sought declarations that Mitsui should pay the cost of reinstatement – that is, the cost of repairs from the September quake under the first policy and the cost of replacing the building after the February event under the second policy. Mitsui argued the building was repairable after both quakes but since it has been demolished that can’t happen. So its liability has been confined to the indemnity value. Justice Miller says the fact TJK has decided to reinstate does not preclude payment of indemnity value. “Under the policy, the insured must arrange reinstatement and claim the cost from Mitsui,” he said. “Having been paid the indemnity value, it would simply credit repair or rebuilding costs against that sum as it incurred them, making further claims for reimbursement once those costs exceeded the indemnity sum.” The policy expressly recog52
nised that indemnity value might be payable in some circumstances, possibly before TJK incurred reinstatement costs, Justice Miller says. “Because reinstatement cover was an additional extension to the primary indemnity, applicable only where the insured chose to repair or rebuild, the insurer’s obligation to pay reinstatement cost would arise only as the insured incurred such cost. “That rationale cannot affect the obligation to pay indemnity value, which compensates the insured for a loss suffered when the building was damaged.” The insured need not put a payment for indemnity value to any particular use, and it need not reinstate the property, Justice Miller says. Ms Waggott told Insurance News she was surprised by the insurer’s argument. She says the decision gives propertyowners a clear message that their indemnity cover should pay out, with access to the reinstatement cover if they decide to rebuild. She says the August trial will consider whether damage from the September quake, when many buildings were damaged, should be merged with claims from February, when they were often damaged more badly, sometimes to the extent they had to be torn down. “Insurers are saying that, particularly if the repairs were not actually carried out between September and February, later damage should just be seen as essentially caused by one event,” Ms Waggott says. But she says that while this argument may be accepted over one term of insurance, when policies renewed between the events – and the insurer had accepted a claim from September – policyholders say they should be paid for two separate claims from two contracts. insuranceNEWS
Fairfax Media / The Press
The August trial will consider whether damage from the September quake, when many buildings were damaged, should be merged with claims from February, when they were often damaged more badly.
Unsafe: the Clarendon Tower’s owner sued its insurer for the indemnity value before deciding whether to rebuild
April/May 2013
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“ Play fair. Pay early.”
Paying claims has always been the real test of an insurance policy. At W. R. Berkley our philosophy ensures our clients and their reputations are properly protected. We invite you to experience the W. R. Berkley way of doing business. You’ll get the benefits of partnering with an insurance company that has a reputation for reliability, financial stability and a commitment to exceptional client service and timely claims resolution.
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Information sheets available. Please email your enquiry or contact your nearest W. R. Berkley office.
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The power plant: NTI beefs up CPE
Ironshore’s coup: Political risk innovation popular SPECIALTY INSURER IRONSHORE HAS for the first time delivered “pre-syndicated” capacity to the Australian marketplace for its mobile asset political risk product. The development, which brings $30 million blocks to the local market in some challenging territories, is the first stage of the company’s wider strategy to offer presyndicated capacity across all of its local business lines. The political risk product includes cover for forced abandonment, expropriation, deprivation and physical damage caused by political violence. Typically it is purchased by mining and oil and gas companies wishing to insure their plant and assets – including excavators, trucks, drilling equipment and other vehicles – in emerging markets. Ironshore Australia Senior Underwriter Ian Rouse says the pre-syndication offering has already proved popular. “We find that clients are typically looking to have risk spread between insurers,” he says. “The fact we have got a few different securities under one panel is being quite well received.” He says Ironshore’s political risk product has received increasing interest due to a rise in “resource nationalism”. “There have also been global instances of civil unrest that generally weren’t foreseen,” he says. “Cases in point would be Egypt and North Africa during the Arab spring, and more recently Mali. “Not many people in the international community saw these events coming and the situation in each deteriorated very quickly.” Mr Rouse says clients are increasingly looking to lock in coverage for longer periods. The Ironshore product offers noncancellable policies for up to five years. “Clients are also looking to insure assets across a number of countries rather than a single location or project, again, we believe, as a result of recent unforeseen events,” he says. “They may have assets in countries next to ones where the situation is deteriorating.” Many general insurance brokers have been “surprised and interested” to hear this product offering is available from Australia rather than just through the traditional route into London or Singapore. “We are bringing the expertise here, so clients can have local conversations, rather than having to go offshore for it,” he says. “This is part of an overall strategy to develop this kind of syndication across our other lines. Political risk is the first to be put in place and that is available now.” 54
HEAVY MOTOR SPECIALIST NATIONAL Transport Insurance (NTI) has enhanced its contractors’ plant and equipment (CPE) cover to better meet market needs. It is also sharing its expertise with brokers, to help them understand the needs of mining, landscape, quarry, plant hire and civil earthmoving clients. The updated CPE cover insures against fire, damage and theft of mobile plant and equipment. Plant theft has grown more common in Australia in the past year to 18 months, particularly from remote sites without full security, NTI says. Damage such as rollovers and collisions can occur while equipment is being moved on trucks and fire risk comes from long running times and debris left near machinery. NTI’s Accident Assist claims service is now available for CPE clients. The insurer will manage the accident scene, recover loads, get vehicles to a safe place and manage the repair process so the customer is quickly back in business. The company has a network of recovery operators and repairers across Australia. Every claims team member has industry experience – as truck drivers, machinery operators, mechanics, fitters, boilermakers or plant equipment managers – so they understand how important it is to avoid downtime. NTI says it’s enjoying nationwide demand for its CPE cover, rather than just resourcesrich Western Australia and Queensland. The policy allows automatic additions of up to $300,000 per item for motor and $500,000 per item for fleet. Clients can buy new equipment and notify NTI within 45 days, while knowing they are covered if anything goes wrong before then. Its CPE product covers dry hire (equipment without an operator) and wet hire (operator included). Optional benefits include business interruption for SME clients, and substitute hire costs to help larger companies get replacement equipment and keep working after a loss. NTI Mining and CPE National Manager Grant Skinner says he has been meeting brokers to explain why tailored cover is necessary and to give training on insurance issues and typical accidents. The response to the CPE cover has been “phenomenal”, he says. “I’ve been around the country now and it has been overwhelming,” he told Insurance News. “It’s because of the level of expertise we offer, right through to the claims service. There’s a gap in the market to have a specialist in this area.” Because clients may also need to insure cars and trucks, NTI can package the cover together, simplifying claims involving several vehicles. For SME clients, all products are available on Sunrise Exchange. insuranceNEWS
April/May 2013
Crashed? Confused? Lumley has an app for that
MOTORISTS ARE LIKELY TO BE A little shaken after a car accident. It can be hard to remember what to do. But – like so many things in life now – there’s an app for that. Lumley has launched two mobile phone apps to help its motor vehicle policyholders collect accident scene information and find a local Lumley-partnered repairer. The Lumley Accident Help app lets customers store accident information and notify the insurer of a claim. It also reminds them of all the details they need to collect. Policyholders can store driver, vehicle and policy details, then email these to themselves, the other driver and Lumley. They can also take photos at the accident scene to support their claim and add witness contact details. The app’s GPS service automatically recognises and stores the exact accident location. The insurer has also launched its Partnered Repair Network app, which helps customers to find a local Lumley-partnered repairer who can provide a quote. The repairers provide a lifetime guarantee on workmanship and a fast turnaround. App users can search for a location by address, suburb or postcode to find and contact a repairer, or use the current location function on their Apple device. Both apps are available in the App Store. Lumley Chief Executive John Nagle says the apps will “provide a high level of functional value to policyholders”. “I would encourage brokers to promote these apps to customers as a terrific new benefit when taking out or renewing their policy with Lumley,” he said. An app for non-Apple devices is in development, and a website with a search function for partnered repairers is also available.
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The Longest Race Aon executive Greg Donovan is running to find a cure for type 1 diabetes By Ben Oliver
GREG DONOVAN HAS LACED up his runners and is about to step outside his North Shore home and into the chilled air of a brisk Sydney morning. It’s a familiar routine for many hard-working, time-poor city executives, for whom scheduling exercise between work commitments and family life means an early alarm and a grudging extrication from warm covers. In many ways Greg is the typical executive cum family man. The only relationship that has lasted longer than his 20year career at Aon is his 28-year marriage to Raylene, a parttime nurse. The couple has three children; Laura, 25, lives nearby and works as an office administrator for a building company; Matthew, 23, is a personal trainer and spinal cord injury therapist; Steve, the youngest at 19, is in his second year of a Bachelor of Business at the Australian Catholic University. 56
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Like many executives, Greg runs in the mornings, a habit he started in his 20s while racing motocross at a professional level. In 1998, he won silver at the World Six-Day Enduro Championships and two years later completed his first marathon. Greg arrived in broking in the 1980s via NZI Securities, where he was the financial controller. This led to AIBA Insurance Brokers which was later acquired by Alexander and Alexander, only to be absorbed into Aon in 1997. He was most recently managing director for Aon GRIP Solutions but has since moved into a project management role. In 2002, he ran the New York Marathon to help raise $160,000 for the children of the Aon employees who lost their lives in the September 11 attacks the year before. The race would become a seminal moment in the evolution of April/May 2013
Greg’s fundraising activities. The project manager never takes a phone on his runs because, like many runners, he enjoys being unreachable. Runners often talk about the release the road brings, about running as a form as meditation. Greg is no exception. “It’s the freedom,” he says. “No one can interrupt me.” The morning Insurance News talks to Greg he will run what could be sardonically described as a “lazy” 25km – more than a half-marathon – while carrying a 12kg backpack. He’s doing this three times a week, clocking more than 100km in between core and other strength work. “On the weekends, I’ll do a short run and another four-hour run the other day,” he said. “It’s about getting those distances in your legs. It’s not about speed, but setting a good pace.” Where most train for months to run a marathon –
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Greg is not your typical Aon suit seeking an endorphin release prior to his morning coffee and email scan. He’s running not just for an escape from the world, but to create a better version of it.
Racing for a reason: the Sydney team crossing the Sahara Desert
considered by sane people as the pinnacle of supreme fitness – Greg’s marathons form part of his training. In 2011, he completed the Gold Coast and Melbourne marathons, later flying to New Zealand to compete in the 60km Kepler Challenge across the South Island. Despite his insistence on a steady pace over sheer speed, Greg’s best marathon (42.195km) time is 2 hours 49 minutes, a frighteningly quick pace for an amateur. At this point in our conversation it becomes obvious Greg is not your typical Aon suit seeking an endorphin release prior to his morning coffee and email scan. He’s running not just for an escape from the world, but to create a better version of it – one where his son Steve and others with type 1 diabetes suffer no longer. The incredible story of Greg’s transformation from runner to ultra-marathon ath-
lete began in 2008, shortly before Steve’s 15th birthday. His youngest son had been unwell for some time, was constantly lethargic and had lost an alarming amount of weight. “My wife saw him without his shirt on and she was shocked,” Greg says. Steve weighed just 49kg, nearly 20kg below what would be considered healthy. The next day when Steve was tested by their local GP, his blood glucose level was 20, where five is considered normal. “I knew about the injections with insulin and the difference between type 1 and type 2 diabetes,” Greg says. “But once we starting reading about the longterm health implications, the kidney disease, loss of eyesight, shortened life expectancy, you begin to realise just how extensive and emotional this disease is.” Steve is one of the 1.7 million Australians living with insuranceNEWS
diabetes, of which between 10-15% are diagnosed type 1. Where type 2 diabetes is associated with lifestyle factors such as a poor diet and a lack of exercise, type 1 can develop at any time, although it usually strikes before a person turns 30. Type 1 diabetes occurs when, for reasons scientists still don’t understand, the body’s immune system turns on and destroys the cells within the pancreas that produce insulin, a vital hormone for regulating carbohydrate and fat metabolism. Without insulin to absorb glucose from the blood stream, people with diabetes at first experience frequent urination, increased thirst and appetite, fatigue and weight loss, followed by rapid breathing, drowsiness, abdominal pain and vomiting. If untreated, patients will eventually slip into a coma and die. Steve barely had time to April/May 2013
adjust to his new life of constant blood-monitoring and insulin injections when a fortnight later he began suffering stomach pains. More blood tests were ordered. The results showed Steve also had coeliac disease, an autoimmune disorder of the small intestine where the body rejects gluten. “We looked up and down the aisles at Coles for anything that was gluten-free,” Greg said. “But nearly everything has gluten in it. “You put yourself in the shoes of a 14-year-old in that situation; one moment he’s a happy camper and the next he has two chronic diseases.” Steve found the adjustment difficult in the early years. Once a keen rugby union player for his school, St Augustine’s, Steve was forced to quit after finding the disease interfered too much with playing the game. His year 12 exam results also suffered. 57
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However, the past few years have seen a sharp turnaround in Steve’s fortunes. While the stimulation of university life – not to mention a new girlfriend – has helped shape a more positive outlook, a large chunk of the credit must be attributed to his father’s work in raising funds and awareness of type 1 diabetes. It’s here that Greg has applied his passion for running to a greater cause – the search for a cure. His Spartan training regime began in September 2011 when Greg and running teammates Ron Schwebel, Jess Baker, Roger Hanney and Greg’s elder son Matt began training for the running equivalent of the Tour de France, sans cycles. The Four Deserts competition has been described as the ultimate test of human endurance – a race which beggars belief for the sheer distances and hostile terrain covered. Even experienced runners have described the race as crazy. Taking place over four continents, contestants run the equivalent of a marathon every day, covering 250km per race. The Four Deserts race was created by American runner Mary Gadams in 2003 and takes runners from the Atacama Crossing in Chile to the Gobi Desert in China and Sahara Desert in north Africa before finishing with the “Last Desert” – Antarctica. To enter the Antarctic race, runners must finish two of the three desert races and participation is strictly invitation-only. Since the races were first run in the same year in 2006, only 11 competitors had finished all four. In December last year, Greg and his companions became the 12th, 13th, 14th, 15th and 16th to complete the grand slam of endurance running, and in the process broke a number of other records. These include being the first team, the first father/son combination, the youngest and finally the oldest to complete all four desert races. It’s an incredible achievement, especially given Roger Hanney, like Steve, 58
also suffers from type 1 diabetes, and one that earned Greg and Matt a nomination as Australia Day ambassadors for 2013 and beyond. Beginning with the Atacama Crossing in March last year, the team arrived four days before to acclimatise to the heat and altitude. The Atacama, more than 1.6km above sea level, is said to be 50 times more arid than California’s Death Valley. “We were looking for things to do, so we drove up to this mountain behind the town at around 4000 metres above sea level to go for a walk,” Greg says. “After a while we could hardly breathe and we later found out the mountain is 5600 metres high – higher than Everest base camp. “When the first race started everyone was on a real high. It’s not like rocking up to a City to Surf. Reality had arrived and nobody knew how we would perform or how difficult it was going to be. “I had my own race plan to keep my heart rate at about 140 beats per minute but as the race started and I was barely into a jog, and it was already up to 140 beats. “I was shattered after day one. But you push on and your teammates are critical in helping you get through. “We actually finished in the top 20 and we thought, ‘Wow, we can actually do this.’” Greg says each race was different, but the goal of finishing as quickly as possible remained the same. The team’s fastest days over the four deserts were about four hours, rising to seven for particularly difficult terrain. Their longest day was an 85km trek through the Sahara that lasted 17 hours, described by Greg as his worst day. “The team was pushing me up sandhills, and that was horrific with the heat,” he says. While extreme heat was a constant theme of the first three deserts, the Antarctic provided different challenges in insuranceNEWS
navigating deep snow, treacherous winds and plummeting temperatures. Conditions turned particularly nasty during stage 2 of the race, which had to be postponed due to 80kmh winds and large pack ice along the shore. “There were some horror sections where you didn’t know if your foot would sink up to your knee with every step,” Greg says. “But the scenery is mindboggling. The place is just pristine. There were also some funny moments. We had to stop and wait several times as penguins made their way through and we actually slept on the ice next to a colony one night. “They do smell a bit but they didn’t seem perturbed by our presence at all.” With all four deserts behind them, Greg and the team – working as the charity Born to Run – have found new worlds to conquer. On July 8 this year, the
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team will host and compete in the inaugural Big Red Run, a 250km, six-day dash through the Simpson Desert, starting and ending in Birdsville, Queensland. Born to Run has collected $110,000 so far, and aims to raise $5 million towards finding a cure for type 1 diabetes. The Big Red Run and another planned trek re-tracing the famous steps of 19th century explorers Burke and Wills are the primary vehicles to raise money and awareness of the disease. The Big Red Run will also mark Steve’s first ultramarathon. Steve, who will have an insulin pump fitted to his stomach to monitor his blood glucose level and deliver the appropriate amount of insulin, is now well into his training program, with Greg and Matt lending support. “We’ve achieved a lot, but there is plenty of work that has to be done,” Greg says.
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Brokers become masterchefs as Zenith returns Zurich’s top broker relationship program kicked off for the year at launch events in Perth, Adelaide, Melbourne, Sydney and Brisbane. The Zenith program’s tagline is “pure partnership”, and in that spirit, partners and spouses were also invited. Almost 300 brokers and their partners across the country enjoyed some rather hands-on meals, getting involved in culinary demonstrations with regional chefs and sampling entrees before sitting down for a late afternoon lunch. In teams, they learnt a lot about produce and helped shuck oysters, make ricotta and assemble sausages. The Zurich executive team was also on hand to meet brokers. There were plenty of chances to mingle and network in settings ranging from cooking schools to a market and even a car park.
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NSW Young Eagles take home the prize Young professionals from New South Wales have wrested the crown back from the South Australian team in the annual Allianz Young Eagle simulation challenge. State-based teams of four nominated brokers plus an Allianz employee form the executive management team of a simulated general insurance company. Allianz also entered a national team of employees. With mentors on hand to help out, the teams compete by running their companies over several years. The simulation demonstrates to the 30 participants the long-term impacts of their financial decisions. The two-day event at Allianz’s Sydney head office concluded with a “fireside chat”, where new Managing Director Niran Peiris shared his insights on the state of the insurance market. The winners were the NSW team: Noel Kelly from Austbrokers AEI Transport, Charles Gow-Gates from Gow-Gates Insurance Brokers, Julie O’Donovan from Allianz, Carlo Gentili from GSA Insurance Brokers and Brian Barreto from Austbrokers City State.
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WR Berkley marks five years in Australia If you have something to celebrate, 47 floors above Sydney Harbour is the place to do it. Especially when you have so many people wanting to attend. While a couple of hundred guests makes for a very successful cocktail party, Berkley Re Australia and WR Berkley Insurance Australia held a fifth anniversary function at Australia Square, and more than 420 turned up for the cocktails. WR Berkley founder William (Bill) Berkley, who is Chairman and Chief Executive of the global company, flew in from New York for the event. He hosted the evening with his son Robert, who is the companyâ&#x20AC;&#x2122;s President and Chief Operating Officer. Attendees included brokers, insurers, clients, regulators, business partners and associates of both the insurance and reinsurance operations. The evening featured speeches from Mr Berkley, Berkley Re President and Chief Executive Asia-Pacific Grant Robson and Chief Executive Australia and New Zealand Peter Nickerson, as well as WR Berkley Australia Chief Executive Tony Wheatley. The WR Berkley Corporation was founded in 1967 and Berkley Re Australia was licensed in December 2007. Hereâ&#x20AC;&#x2122;s to the next five years!
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Ace takes in the view from the top Some 90 insurance professionals enjoyed the view from the top, literally and figuratively, at the most recent Ace Leadership Forum. The event was held on level 88 of Melbourne’s 300-metre Eureka Tower skyscraper and featured a talk on leadership from a leading businessman. Guest speaker David Smorgon, a former director of Smorgon Consolidated Industries, had the attention of the room with tales from an impressive career. He spoke about his time in the corporate world as well as his work in sport as President of the Western Bulldogs AFL club. Mr Smorgon says key elements for success in today’s corporate environment include communication, transparency, hard work, client focus and determination. Ace Insurance Chief Operating Officer Australia and New Zealand Ken Brown called Mr Smorgan “a name synonymous with success”. Ace’s Victorian business partners “were impressed by his insights on business leadership and management”, Mr Brown said. Previous Ace leadership forums have been held in Melbourne, Sydney, Brisbane, Perth, Hong Kong and Singapore and provide professional development opportunities for brokers, risk managers and corporate executives.
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Unique vehicles...
Dawes has you covered. When it comes to exotic vehicles no one does it like Dawes n Dawes has over two decades of finely tuned experience in exotic vehicles. n Dawes’ dedicated underwriters work with you to determine the best cover for your clients’ high-end vehicles, it’s what they love. n Dawes’ dedicated claims consultants take care of every detail, and offer choice of repairer. n Dawes’ quick quote turnaround means you’ll be back to your clients, fast.
Experience the benefits for an even better rate Dawes has recently reduced rates by up to 10% for many exotic vehicles including Ferrari and Lamborghini. Contact Dawes now, so your clients can experience all the benefits of Dawes Motor Insurance at a very competitive rate.
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The PDS can be found at www.dawes.com.au and should be considered when deciding to purchase or renew the product. Dawes Underwriting Australia Pty Ltd t/as Dawes Motor Insurance ABN 18 050 289 506 AR 342982. Dawes Motor Insurance products are underwritten by Calliden Insurance Limited AFSL No. 234438 ABN 47 004 125 268. For more information on Calliden visit www.calliden.com.au
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Marsh treats guests to a night at the gallery The Marsh Sydney office hosted some 500 clients and colleagues for a private viewing of the finalists’ entries in this year’s Archibald Prize in Sydney last month. The broker hosts an annual cocktail evening for guests to enjoy the exhibition of Australia’s premier prize for portraiture, as well as the Wynne and Sulman Prizes, at the Art Gallery of New South Wales. Former Archibald winner Ben Quilty was the guest speaker, sharing his perspective of the prize. Apart from winning the 2011 prize, he was also the subject of an entry this year. He also told of his experiences in Afghanistan as the Australian War Memorial’s official war artist. Marsh Australia Chief Executive and Pacific Region Head John Clayton and Gallery Director Michael Brand spoke about the important contribution business can make to the arts and of the benefits a thriving arts community can bring to the city. Marsh has been a principal sponsor and official insurance and risk partner of the gallery since 2010.
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UAC’s Hobart expo proves rewarding The Underwriting Agencies Council’s (UAC) first Hobart expo attracted more participants than the organisers had expected – and proved a big hit for brokers and exhibitors alike. Some guests made the trip from as far as Burnie in the state’s north, more than a three-hour drive away. Held at Hobart’s waterfront Grand Chancellor Hotel, the expo had 34 exhibitors – 32 UAC members and two premium funders – who were kept very busy during the morning event. This was followed by networking opportunities over finger food and beverages. Tasmanian brokers had been requesting a local expo for some time, UAC General Manager William Legge told Insurance News. “So we thought, why not give it a go? “We’re still getting feedback from the Tasmanian broking market that it was really worthwhile and very much appreciated.” UAC members have also reported they made some great broker contacts and are writing business resulting from the expo.
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AIG gets its name back AIG held a very blue launch event in Sydney in February to farewell the Chartis name and promote the return of the AIG brand in a bright and more contemporary form. Around 180 guests, including key broking partners, business partners and clients, attended the function at Cruise Bar on Circular Quay. Custom-made blue cocktails matched the company’s new logo colour and all guests went home with an “AIG blue” set of macarons. Regional President and Chief Executive Jose Hernandez and Australian Chief Executive Noel Condon made speeches celebrating the return of the AIG name to Australia and thanking everyone who attended for their support over the last few years. AIG changed its brand to Chartis in 2009 after the global financial crisis, then recently rebranded when it found customers preferred the former name. Launches were also held in Melbourne and Brisbane.
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NTI celebrates 30 years in Newcastle Truck insurance specialist National Transport Insurance (NTI) celebrated the 30th anniversary of its Newcastle office with a wine-tasting evening in February. Around 40 people attended the event in the major New South Wales regional centre, including brokers and staff. NTI Chief Executive Tony Clark and General Manager Sales and Distribution Mike Edmonds were on hand to welcome guests. Newcastle is an important city for NTI because of its role as a regional and national transport hub. The insurer says itâ&#x20AC;&#x2122;s committed to keeping a significant sales, underwriting and claims presence in the city.
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Ph 02 9200 4000 Fax 02 9200 4099
Melbourne
Ph 03 8629 8800 Fax 03 8629 8829
Melbourne: glenn_eason@ausuw.com
frank_vanrooy@ausuw.com jim_petdro@ausuw.com nicole_koutsaplis@ausuw.com
www.ausuw.com
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Hollard companies move under one roof Industry mover and shaker Hollard has brought a number of its varied insurance operations under one roof with a move to new offices in Chatswood, Sydney. About 130 guests attended a cocktail evening to mark the opening of the new office. Executive teams from Real and Hollard were present, along with representatives from partners such as Woolworths, brokerages and underwriting agencies. Hollard Insurance Managing Director Richard Enthoven was on hand to welcome guests to the new open-plan office, which covers four floors connected by an internal staircase, plus a café. Mr Enthoven told guests the new working environment allows staff to learn from each other and collaborate. While bringing the different groups together it also maintains their individual identities. Two arms of the group’s general insurance business, Real Insurance and Hollard, plus two Hollard partners, PetSure and Velosure, have moved to the Chatswood office. The businesses were previously spread across Sydney’s northwest and the CBD.
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peopleNEWS
CGU’s top reps get together CGU’s top 100 authorised reps from around the country have enjoyed a three-day conference at the Gold Coast. Held at the Sheraton Mirage, the company’s annual National Authorised Representative Conference hosted the top ARs based on growth in gross written premium. The event included sessions on CGU’s product and service offering, market insights and technology advancements. It wasn’t all work. Guests dressed in their best denim and cowboy hats for a visit to the Outback Spectacular theatre restaurant. There was an opportunity to celebrate, too. The AR awards night recognised the highest-performing authorised reps in the categories of state growth and national growth as well as Young AR of the Year and AR of the Year. Outstanding Achievement Awards were presented to Peter Costanzo from Peter Costanzo Insurance Agencies, Brian Rainey from Rainey Insurance Agencies and Graham Elliott from Graham Elliott & Associates. As well as celebrating the achievements of its AR network, CGU says the conference also helps top performers network and collaborate.
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peopleNEWS
Vero looks at the bigger picture This year’s Vero Expo took a global view, covering the world economy, natural disasters and social media trends. About 400 brokers and Vero staff attended the Sydney and Melbourne events. Suncorp Chief Financial Officer Michael Miller and Executive General Manager Distribution Andrew Mair took part in a panel discussion on the recent spate of natural disasters and the business impacts of bad weather. Vero Senior Professional Indemnity Product Leader Cathie Thompson spoke on her area of expertise – including when to report issues, what happens when matters are not reported and what can go wrong. Tim Harcourt – Adjunct Professor at the University of New South Wales Australian School of Business and author of The Airport Economist – explained how Australia’s economy could mitigate the effects of European uncertainty. Other sessions covered the use of new media for competitive advantage, engaging with audiences on social networks, making lasting impressions and improving relationship skills. The full-day expos, at Crown in Melbourne (this page) and the Hilton in Sydney (opposite), also included the opportunity to network over lunch and closing drinks.
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Learning at Lumley’s ladies’ lunch
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insuranceNEWS
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AIB 6248
Lumley celebrated International Women’s Day with a lunch for 80 female insurance professionals, including Lumley staff and brokers – plus a few men. Held at stylish French restaurant Comme in Melbourne, the event was Lumley’s way of thanking the women, celebrating their success and recognising their contribution to the insurance industry. The guest speaker was Jane Hunt, the Chief Executive of not-for-profit organisation Fitted for Work. She leads the research and advocacy program at Fitted for Work and explained that more than 300,000 women in Australia are unable to secure sustainable employment. Fitted for Work aims to help women experiencing disadvantage to transition back into the workforce. Support services include interview coaching, personal outfitting, mentoring programs and support during the recruitment process. Ms Hunt’s work aims to influence companies’ employment practices to create sustainable employment opportunities for women.
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maglog »
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Sam Pentecost Contributor
Dear son, Well, I’m back at Duck Flats. The sun is shining brightly and the dams are full and all is well with the world. The bits of land that aren’t desert are providing plenty of feed for the cattle, so your father has very little to complain about, all in all. Not that everything being marvellous ever stopped him complaining. The insurance company seems to have had a change of heart since the Big Flood of 2011, and now they are falling over themselves wanting to insure the old homestead. You’d never believe we spent so much time living on the roof during the time of the flood, and the less said about my little fling with the local insurance broker I met as a consequence the better. I think now it was just an urge to get away from the drudgery of living on a hot tin roof, if you see what I mean. Your father refuses to discuss anything about that time. He still believes the insurance company was his enemy and the broker was an enemy agent. My goodness, how that attitude has changed in the past few months! As I write this in the shade of the big old gum behind the kitchen block I can see your father stumping around on the roof, head up and chest out. He’s so proud of that new roof. He says it’s the first time he has ever been able to get something over an insurance company. Except he hasn’t. The nice loss adjuster who finally fixed things up for us turned a blind eye to all the fake hail damage your father caused that time with a golf ball in one of his old socks. He even ignored the missing sheets of corrugated iron your father ripped off the roof when he tried to beat the floodwaters because someone had told him insurance companies pay for damage caused by water that comes down but not up. The loss adjuster said none of that mattered. He kept saying, “It’s all in the policy, and that’s all you have to worry about, and it looks like flash flooding to me,” and your father kept dancing around chanting a little dirge about how he’d always told me that. Which was rubbish, as you well know. I would also be mourning the loss of all the antique furniture that he says was washed away except it wasn’t antique and it’s behind the back shed, waiting for the new floors to be installed. What has surprised and perplexed me most is this talk of insurance companies now providing insurance cover for flood. How this came about I have no idea. But I can’t help wondering how it’s not available one day and it is the next. There’s a lot of complicated stuff about opting in or opting out, but neither of us could make any sense of that at all. Not surprisingly we have a new broker these days, a very nice man who came out from town and explained very carefully that we could have flood cover if we wanted, but we didn’t have to if we didn’t and it would probably be too expensive because Duck Flats is a bit flood-prone. That got your father very angry. He pointed straight at the broker and said, “No you bloody don’t, I want flood insurance.” So we now have flood insurance, even if statistically we can expect the next big downpour sometime in 2040, by which stage I don’t think we’ll be caring whether we can get another new roof and some furniture out of it or not. Besides that, at the price we had to pay for the normal insurance, let alone the flood insurance, we could have paid for a new roof ourselves and refurnished the whole damn house, including replacing the piano. We have had to take out another mortgage on the property and sell the story about your sister’s billionaire Perth boyfriend to a ladies’ magazine to pay the insurance premium. (It turns out he’s married and very happy to pay her a lot of money not to make a fuss about it, but we need the money for the insurance premium and we did put her through boarding school. We all have to make little sacrifices sometimes. She can always come back and live here if things don’t work out with her bloke.) Tell me, when did insurance get so expensive? People in Norelle’s Salon de Beaute were talking about it when we went into town last week. As my friend Phyllis said, how come insurance companies are suddenly happy to insure us against flood now that we’ve been flooded and can’t afford the premiums because we spent all our money fixing up our homes after the last flood? There’s some logic there I just don’t get. Much love, Mum
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