THE GIS REVOLUTION: DATA GETS FOCUSED
AFFORDABILITY: A LOW-INCOME DILEMMA
HIGH-RISE BLAZES: MEET THE EXPERT
Easy driver Niran Peiris is confident and focused as he steers Allianz Australia into the future
June/July 2013
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Contents 6 Newsmakers » 10 At ease in the driver’s seat » He’s not planning to be a revolutionary, but Niran Peiris wants to keep building Allianz Australia.
16 So many things to worry about »
Is the world really a riskier place or does it just seem that way? Robert Hartwig unveils his list of risks.
20 GIS: Game-changer »
It’s revolutionising insurance by making risk data specific rather than general, and providing other information that can be used in a variety of ways.
28 Business, capital and people »
Meet the man charged with ensuring Lloyd’s has a big global future.
32 Axis tilts towards Australia »
The local market is competitive but growth opportunities remain, the Bermuda insurer’s chief says.
34 Hot on a high-rise issue »
Jonathan Barnett focuses on keeping tall buildings safe from fire – although Australia’s methods and rules can leave him cold.
48 Be careful what you regulate »
Consumers don’t always act rationally, which can make things complicated when regulators set out to protect them.
50 Expensive, inflexible, unattainable »
Insurance for low-income earners is a ‘hot-button issue’, according to ICA. So why aren’t we working harder to fix it?
companyNEWS
58 Online, easy and categorised » Protecsure and Chubb strengthen their partnership with launch into marine.
58 AIG eliminates renewals »
‘Evergreen’ policy is aimed at big Australian corporations.
60 QBE takes cargo cover online »
New system offers simplicity and speed.
60 Australis moves into marine »
Experienced underwriters and solid security were key to decision.
peopleNEWS 62 64 66 72 75 76 83 84 86 87 88
Brokers enjoy an amazing day with CGU » Axis hails the chief » Steadfast lights up Sydney » Insight enjoys the best of both worlds » Centrepoint Alliance says ‘mahalo’ » Anticipation pays off for AIMS in Hawaii » AIG mixes Gold Complete with evergreen » AILA spins the wheel » Allianz sets new goal for brokers » Gen Z has that conversation » Nice day for a white wedding »
90 maglog »
lawNEWS
40 HIH: the last gasp » After a long legal battle, investors have lost their bid to be repaid.
42 Social media and the workplace »
How to ensure every employee knows what’s acceptable and what’s not.
June/July 2013
Cover: Niran Peiris Managing Director, Allianz Australia Image: Cameron Ramsey
INMAG JUNE13-FINAL:page layouts
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newsmakers at
Reinsurance ‘stable’: Australian cedants hoping for lower reinsurance costs from July 1 could be disappointed, with Munich Re expecting a “stable price” in the region’s key renewals period. The country has once again made a significant impact on Munich Re’s claims expenditure, with January’s Queensland floods causing a loss “in the mid-double-digit million euro range”, according to the company’s
The best fit: Roger Abel and Steadfast Chief Executive Robert Kelly announce the purchase of 30% of Rothbury
Steadfast’s bold move: New Zealand consumers will have access to more capacity following Rothbury Insurance Brokers’ decision to become the country’s founding member of Australian-based broker group Steadfast. The Canterbury earthquakes have made “well-priced insurance cover” harder to get, and Rothbury decided it needed an international partner, Managing Director Roger Abel says. Directors looked at possibilities in Singapore, London and Australia before deciding Steadfast was the best fit. Steadfast will acquire a 30% cornerstone shareholding in Rothbury, comprising 17% cash and 13% Steadfast shares. The deal is conditional on Steadfast proceeding with its plans to list later this year. Insurers have grown more selective about New Zealand risk following the Canterbury event, and brokers face problems advocating for clients when capacity and pricing are challenged, Mr Abel says. The tie-up will give Rothbury more choice in a market with tight capacity, according to Insurance Brokers Association of New Zealand Chief Executive Gary Young.
Ebix Australia says local market reaction to the impending sale of its USbased parent to an affiliate of investment bank Goldman Sachs has been positive. The $US820 million deal is being explained to Australian customers in material being sent out by Ebix Australia. Managing Director Leon d’Apice (pictured) says it supports the comment he made last week – “that there will be no impact on the local market and people probably won’t notice any change at all”. Ebix Australia is the local industry’s largest
6
– Willis Research Network Chairman Rowan Douglas explains what’s keeping underwriters awake at night
No doom, no gloom:
technology company, operating the dominant Sunrise Exchange transaction platform, broker system WinBEAT and the iClose e-commerce transaction platform. Pundits have suggested the acquisition will boost the long-term capacity of Ebix to expand and could lead to new acquisition opportunities. Positive reception greets Ebix sale deal, May 6
Brokers hit back at survey findings, April 29
‘No change’ for Ebix:
July reinsurance prices to remain flat, May 13
“A changing climate, an imperfect understanding of seismic hazards, new vulnerabilities and shifting patterns of exposure.”
Brokers insist their future is bright, despite recent surveys indicating a shift towards the direct purchase of insurance through online channels. While some business is being lost to the direct market, brokers contacted by insuranceNEWS.com.au say it is insignificant and their genuine value to key clients is not in doubt. However, they accept the need to adapt to changing times, work harder than ever for customers and promote themselves to the general public more effectively. “There is a generational change in business-owners and they buy insurance differently,” National Insurance Brokers Association Chief Executive Dallas Booth says. “But this is an opportunity rather than a threat. I am more convinced than ever that there is a strong future role for brokers.” It comes after the Vero SME Insurance Index released [in March] reported a drop in small and medium enterprises’ use of brokers, from 65% in 2011 to 61% last year. Business-owners aged below 40 are most likely to buy direct, it found. A Roy Morgan survey seemed to confirm the shift, showing the direct market was having its greatest impact in industries such as construction and professional services.
Steadfast-Rothbury deal raises NZ capacity, April 29
first-quarter results. The Asia-Pacific region provides “profitable growth opportunities”, Chief Financial Officer Jorg Schneider says. There may be “slight price erosion” for natural catastrophe covers in the US from July 1 because of growing capacity, while prices “moved sideways” at the April 1 renewals.
insuranceNEWS
June/July 2013
Nobody wins: New Zealand’s insurance brokers organisation has cancelled its November industry awards celebration in the face of a similar event to be staged two weeks before by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF). Insurance Brokers of New Zealand Chief Executive Gary Young announced the cancellation of its event, saying that considering the small size of the New Zealand insurance market, “it is not in the best interests of the insurance industry” to have two competing events. ANZIIF last year decided to move into the New Zealand market with its own awards event. After a standoff that lasted several months, IBANZ negotiated to include ANZIIF as a partner in its awards, “as we believed it would be inappropriate to have a second awards event introduced”, he said. However, the brokers’ group found its ability to be involved in the organisation of the joint event last year was compromised. Negotiations between the two groups to modify this year’s event to make it “more of a true joint venture” failed to reach agreement on a number of aspects. IBANZ bows out of NZ awards, May 27
Reuters
Disruption worry: Business disruption is the main risk facing companies this year, according to senior executives in an annual survey by Marsh and the Risk and Insurance Management Society. Economic conditions, cashflow and liquidity, and regulatory compliance complete the top four issues for more than 1200 risk management professionals questioned. Business disruption, which ranked just sixth last year, may have been pushed up by the “Superstorm Sandy effect”, Marsh says. Last year’s top-ranked risk – legal and regulatory shifts – may have fallen away following the US election. Risk management is in an “evolutionary period”, and is yet to be fully integrated strategically into businesses, the survey finds. The main reason it is included in executive activities is to identify and assess risks arising from strategic plans, according to most respondents. But 40% of those questioned say risk managers should be empowered to provide strategic risk input to the planning stage, rather than being brought in afterwards. Only 15% say risk managers are full members of their strategic planning and execution teams. Three-quarters do not aggregate risks at the portfolio level, which demonstrates an “immediate opportunity”, Marsh says. Almost three-quarters say their organisations should conduct deeper analysis of risk-related data, with better use of data and analytics the preferred method. In terms of catastrophe planning, risk managers are more strategically focused on company-wide impacts, while senior executives’ priorities lay with ensuring adequate insurance is in place. Business disruption a major worry for CEOs, April 29
Tornado terror: Insurance claims of more than $US2 billion are forecast from the deadly tornado that ripped through a suburb of Oklahoma City on May 20, killing at least 24 people and injuring more than 240. As many as 2400 homes in the suburb of Moore were damaged or destroyed and 10,000 people were affected. The system that led to the tornado began to form two days prior to the event when warm air moving north from the Gulf of Mexico met a cold front from the Rocky Mountains, leading to thunderstorms. During the next few days, 20 tornadoes formed in Oklahoma, Missouri, Texas, Kansas, Arkansas and Colorado, but the Oklahoma City tornado – at 1.6km and with winds of up to 320kmh – was by far the worst. It lasted for 50 minutes and ran for 27km.
Tornado activity had been particularly low in the US this year until the event on May 20, and catastrophe modeller RMS says now there is much uncertainty about the US tornado outlook for 2013. May is traditionally the worst month for tornadoes. RMS says it was the third major tornado to hit Moore since 1999. Most of the homes in the area are of wood-frame construction and more vulnerable to high winds than masonry houses. Although basements and underground shelters are the safest refuge from a tornado, AIR Worldwide says many homes in Oklahoma have concrete slabs because the soil in the region makes basement construction too costly. Tornado ends benign year for twisters, May 29
Join us, say broker groups:
Working together: IBNA Chairman Gary Gribbin and Austbrokers Chief Executive Mark Searles in Honolulu
Austbrokers and IBNA have celebrated the success of their six-year-old joint venture relationship, with their leaders saying the time is right to demonstrate the strength of their partnership and what it offers brokers. IBNA Chairman Gary Gribbin and Austbrokers Chief Executive Mark Searles told the opening session of the A&I Member Services (AIMS) conference in Honolulu that the unity achieved through the joint venture should be considered by brokers looking at their options. “There has never been a better time to really anticipate the future and ensure we face it together,” Mr Gribbin told the opening session of the three-day conference. Mr Searles says the combination of his company as Australia’s leading equity-based insurance broking network and IBNA as the leading non-equity membership network insuranceNEWS
June/July 2013
“provides real, tangible benefits to broking firms that want either an equity partnership or a non-equity membership relationship”. “We provide the best affiliation options,” he said. In what could be seen as a direct appeal to members of Steadfast looking at alternatives to being involved in the broker group’s forthcoming public listing, Mr Gribbin says the AIMS partners are “working closer than we have ever done before”. “We want our joint strength in the market to ensure we are the respective ‘games in town’ for those broking firms seeking equity relationships and those wanting to retain their independence. “One of my great joys in this business is the collegiality of networks. There’s always someone you can call.” Austbrokers, IBNA spruik their partnership, May 13
7
newsmakers at
Watching over risk:
Middle East and Africa dominate terrorism risk map, May 20
APRA wants insurers to appoint independent risk officers, May 13
Reuters
high or severe risk, reflecting terrorism, unrest and conflict in the wake of the 2011 Arab Spring. The Middle East and North Africa have the highest proportion of countries with terrorism and sabotage peril, at 85%. Risks were assessed against a backdrop of economic crises, shifting geopolitical balances and two years of “unusually high” levels of civil unrest, according to Henry Wilkinson, head of the intelligence and analysis practice at The Risk Advisory Group, which partnered with Aon on the map. “North and west Africa and the Middle East stand out as regions of increasing risk,” he said. “Civil wars in Libya and Syria in particular have contributed to violent risks in nearby countries. “Egypt returns to the highest risk rating this year due to persistent civil tumult, political instability and terrorism.”
General insurers will have to appoint independent chief risk officers under a new standard proposed by the Australian Prudential Regulation Authority (APRA). Such an officer would be independent from the day-to-day running of the insurer and its sales and finance departments, according to proposed standard CPS 220. “The chief risk officer must not be the chief executive, chief financial officer, appointed actuary or head of internal audit,” APRA says. “The standard is intended to support the stature of the chief risk officer role by proposing that it has a direct reporting line to the chief executive and unfettered access to the board.” APRA also proposes that insurers create board risk committees, to provide objective oversights of the implementation and operation of risk management frameworks. The risk committee should be run by an independent director, not the chairman of the board, according to proposed standard CPS 510. It will have the power to endorse the appointment, or dismissal, of the chief risk officer. “This latter responsibility is consistent with the elevated stature and authority of the risk management function,” APRA says. Members of an insurer’s board audit committee could sit on the risk body, but APRA wants “an appropriate diversity of membership of board committees to assist in the clear delineation of oversight responsibilities”. Enhancing the regulator’s risk management requirements is consistent with global improvements on the matter and lessons learnt in the global financial crisis, according to APRA Chairman John Laker. “Our aim is to reinforce good governance and risk management. We want to ensure boards and supervisors direct their focus to where it is most appropriate – on desirable values and behaviours implemented by strong management teams.” The regulator proposes introducing the new requirements by January 1.
Bombed French embassy in Tripoli, Libya: the Middle East and North Africa are the most perilous places, says Aon
Places to avoid in a turbulent world: Almost half of the 200 countries featured on this year’s Terrorism and Political Violence Map have identifiable risk, Aon Risk Solutions says. Threats are particularly prevalent in Africa, according to the 10th annual report, which measures for risks including terrorism, sabotage, strikes, riots, revolution, rebellion, coups and war. Eleven countries’ risk ratings have been upgraded, including Argentina, Egypt and Jordan, while 19 have been downgraded, including Germany, Italy and the UK. Of the countries with an identifiable terrorism threat, those deemed to be most at risk include Afghanistan, India, Iraq, Nigeria, Pakistan, Russia, Somalia, Syria, Thailand and Yemen. Europe has the most positive regional outlook, with 47% of countries rating lower this year because of “receding civil unrest associated with the financial and economic crises”. The Middle East is rated the most unstable region, with 64% of countries at
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At ease in the driver’s seat He’s not planning to be a revolutionary, but Niran Peiris wants to keep building Allianz Australia By Michelle Hannen
Allianz Australian Managing Director Niran Peiris: inherited a “really strong company”
FAR FROM BEING THE NEW KID ON THE block, Niran Peiris looks very comfortable in his new role as Managing Director of Allianz Australia. After taking over the insurer’s reins in January following the retirement of longtime managing director Terry Towell, Mr Peiris could be expected to be a little daunted by the prospect of filling such influential shoes. But despite his relatively low industry profile, he’s no newcomer to Allianz or to insurance, and the experience he’s already had is reflected in his open and relaxed manner. An accountant by training, with previous finance roles at FAI and QBE under his belt, Mr Peiris joined Allianz Australia as chief financial officer in 2000 – a position he held until 2009 – before his chief executive apprenticeship began after he was appointed to head up the company’s life insurance business and be chief general manager of its retail distribution arm. His relaxed demeanour may also be explained by the solid, steady and successful business he has inherited. For those expecting a new broom, think again. “To a large extent it’s not broken,” Mr Peiris says of the current Allianz Australia business strategy. “And as the old adage goes, if it ain’t broke don’t fix it. “I was a member of the management team for a very long time and a key member who helped shape the strategy, so to change it would be confusing and probably we would lose a lot of focus,” he says. “From my side it’s really about refining the strategy, and the strategy is very much one of multi-lines, multi-channel distribution.” More of the same it may be, but Mr Peiris says there will be some “refinement” of the vision. “Obviously there will be things we’ll do slightly differently,” he says. insuranceNEWS
June/July 2013
Data, or more accurately, the better use of data, is central to this plan, with Mr Peiris describing it as “very much a strategic theme for the next five years”. “I see our next phase of growth as being where we can use the data we have to analyse our customers and our offerings more to make those more meaningful,” Mr Peiris says, adding that it’s necessary in order to increase its share of what is a mature, somewhat saturated insurance market. “We’ve been very much a sales and distribution-led company, and we’ve acquired a great amount of business through winning new partnerships and new accounts because of that,” he told Insurance News. “I think going forward we’re going to need to look at not just that sales and distribution activity but also how we refine our offerings to help our existing partners sell more. “And also, we need to refine our offerings so we retain more of the customers we acquire.” He describes an industry that will become increasingly focused on information, overlaying individual risk rating factors on top of a pooled risk approach, with data and analytical capabilities coming to the fore, particularly in personal lines. Personal lines and the direct business are areas Mr Peiris knows particularly well. He says the trend towards the direct market is well established for simple lines of business and less complex risks. With the rise of online transactions the most notable development in the past five years, “the machine gets smarter, our rating intellect becomes smarter and our ability to deliver that in an automated way through the use of systems becomes easier”. He says that online offerings, particularly in personal lines, “are getting very much more sophisticated and will continue to do so”. The future, he says, “won’t be just that 11
I think going forward we’re going to need to look at not just sales and distribution activity but also how we refine our offerings to help our existing partners sell more.
If you’ve got appropriate, strong regulation it’s a good thing. It makes markets stable and it generally is better for the business environment.
For brokers I think the real trick is to focus on those businesses where they can genuinely add value, and there’s a lot of that business where the advice is genuinely valuable.
you buy a motor vehicle policy, it will be how you buy that motor vehicle policy”. Citing a car insurance example, he says insurers now have the capability to bind risks based on minimal information from consumers, making buying a policy a far less onerous task. It is something Allianz will introduce shortly. “There is technology available now where you can enter your registration details and your name and get a quote that some people will be happy to bind. In a few months time, on just two pieces of information, we will be able to bind by finding from third-party sources all the other information we need.” He describes the development as a “very significant change” and as a result of this and similar innovations in other simple lines of business, the direct players “will be even more dominant” in the personal lines space over the next five years. But in Mr Peiris’ opinion, the same fate does not lie in store for online aggregators. He says aggregators have “struggled to get traction” in the Australian general insurance market because “the insurers have, by and large, stayed away from them”. “The reason we’ve stayed away from them is purely for a rating reason. You almost always get discovered in terms of the gaps in your rating if you’re on an aggregator site.
“[Insurers] know that there’s always going to be a price differential for exactly the same risk because we have different rating factors or we have different weightings on rating factors. “I think aggregation is a fact of life now in the sense that Google is an aggregator. You can type in car insurance, you can get the top four brand names and within 20 minutes you can have yourself a quote from all of them.” He says the experience insurers in the UK market have had with aggregators has been “absolutely terrible” and that most Australian players have a strong enough brand and market presence and do not need “the simplicity of aggregation”. Another development in the world of personal lines – telematics – is an area that Allianz has on the back burner. Mr Peiris says that while the technology – which entails installing “black boxes” in cars to record trip information – is well established, questions remain “about what you do with the data once you’ve got it”. “The big trick is then to find what data points are meaningful in terms of coming up with a rating factor and I’m not sure that’s as well developed around the world as I think everyone makes it out to be.” One area Mr Peiris does see growth coming from in the direct business is what
he calls “micro-SME”, the small-risk end of the commercial lines space. He says Allianz is “the only truly integrated multi-distribution company in the insurance space”, which has its challenges. And he acknowledges that where the direct arm meets the intermediated arm, channel conflict is “inevitable”. “There is always going to be an element of channel conflict. But our experience is it’s relatively low. We don’t see masses of clients transitioning from one channel to our direct channel or vice-versa – and we measure it.” He says the market itself usually decides the line between intermediated and nonintermediated risks. “The question really becomes more of a value question, which is, where does the customer, the end client, see the greatest value? They will go to an intermediary if they think the intermediary adds value. “For brokers I think the real trick is to focus on those businesses where they can genuinely add value, and there’s a lot of that business where the advice is genuinely valuable. “That’s the case particularly in the more complex risks, but even when you get to very simple – or simple-looking – businesses, the risk can be quite complex and people need advice as to the coverage they need and the amount of cover they need to buy.”
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“If we can’t rate on certain factors like age or gender, then all of a sudden you take away from us our ability to distinguish you from me. Then we end up with community-rated type products where we all have to pay for the poor risks.”
Mr Peiris believes the direct businesses will never be set up to provide that sort of advice, “or at least I can’t see it in the next five years”. Besides advice, he believes brokers can also prove their worth in the event of a claim, even in the micro-SME area which is being increasingly transacted through direct channels. Aside from its direct and intermediated businesses, Allianz is also a strong player in specialty insurances, and Mr Peiris says acquiring or establishing niche businesses remains core to the Allianz strategy. “Our strategy has always been to go out and find niche businesses which are strong players and can be dominant players in that marketplace.” The company counts premium finance firm Hunter, pleasurecraft insurer Club Marine, commercial marine underwriter Allianz Marine and Transit, agriculture underwriting agencies Agricola and Primacy, and caravan and campervan insurance specialist Ken Tame and Associates among its niche brands. “We have a very strong position in financial institution distribution, a dominant position in motor dealer, a dominant position in boat dealers, so we have really very much gone in and segmented the market into these channels that we would like to go and exploit,” Mr Peiris says. “We have never been too keen on buying a general business. It’s really about saying, is there something we’re missing in our product set or in our distribution reach and how do we acquire that?” Mr Peiris has also succeeded Mr Towell on the board of the Insurance Council of Australia, putting him in a position to exert significant influence on some of the big-picture issues facing the industry. Regulation is a topic causing much chagrin among senior insurance executives who are concerned that over-burdensome insurance regulation will eventually take its toll on the price consumers pay for insurance. But Mr Peiris says he “swims a little bit 14
contrary” to popular opinion on the issue. “If you’ve got appropriate, strong regulation it’s a good thing. It makes markets stable and it generally is better for the business environment.” He describes the regulatory regime established by the Australian Prudential Regulation Authority as “a great plus for the industry”, but does warn against the effects of the “accumulation of regulation”. As he sees it, insurers’ “room to move” is significantly decreased by the many different types and layers of regulation they face, including, but not limited to, consumer regulations, prudential regulations, tax regulations, company regulations and health and safety regulations. This number and variety of regulations “may result in outcomes for the customer which in the end may not be so good”. Mr Peiris is also wary of European Union-style regulations on gender or age being introduced here. “However wellmeaning, as an insurer [they] cut directly across our ability to rate. “If we can’t rate on certain factors like age or gender, then all of a sudden you take away from us our ability to distinguish you from me,” he says. “Then we end up with communityrated type products where we all have to pay for the poor risks, and I’m not sure that we, as a community, are ready for that.” Allianz has also run contrary to industry opinion on the solution to the flood insurance problem that Australia has long faced, but which has reared its head again in recent years. Mr Peiris says that the affordability of flood insurance has become an issue primarily because insurers have begun overlaying “individual risk factors into what has always been pooled risk rating”. “Recognising that risk a lot better means that someone with a significant risk, as opposed to the vast majority of the population with little or no risk, starts to pay their share – and their share can be prohibitively expensive,” he says. insuranceNEWS
“There are no solutions from an insurance perspective because insurance responds well to uncertainty, it doesn’t respond well to certainty and flood is certainty. It’s not if, it’s when.” He says that mitigation, in order to either eliminate the risk where possible or at least reduce it, is the only way to change the nature of the risk. But Allianz has also been a strong supporter of government intervention in the market to help address the affordability of cover for those with the most extreme risks. “That’s not a solution necessarily seen by everybody as a viable way forward,” he admits. Indeed, it was not a solution preferred by the Federal Government, which recently dismissed the idea in its response to the Productivity Commission’s report on barriers to effective climate change adaptation. But even with boosted funding for mitigation projects, Mr Peiris says it is “inevitable that you need to have some form of solution or you end up with people who are still uncovered for the peril when it happens”. On the broader issue of climate change, he says the Allianz Group is “probably agnostic as to whether it’s happening or not”. “What we’re interested in is the trends, and whether we’ve got that sufficiently covered into our pricing and ratings structures.” As a business entity, Allianz Australia ranks around fifth in size of all the property and casualty businesses in the Allianz Group. It’s a ranking that pleases Mr Peiris. “Certainly Australia punches well above its weight if you look at population relative to the markets where Allianz is. “We’ve grown very strongly over the last few years – 10% compounding growth over four years. And our results have been great – very good margins, high return on equity, so very pleasing results.” He leans back in his chair and smiles. “I’m very fortunate,” he says. “I’ve inherited a really strong company.” No wonder he looks so comfortable.
June/July 2013
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Big gun in the risk business: Robert Hartwig joins AIMS delegates aboard the USS Missouri in Pearl Harbour, Honolulu
So many things to worry about Is the world really a riskier place or does it just seem that way? Robert Hartwig unveils his list of risks By John Deex ROBERT HARTWIG IS A MAN WITH HIS FINGER ON THE global insurance industry’s pulse, and he has detected plenty of things we should be worrying about. Uncertainty, risk and fear seem to be everywhere in modern society, the New York-based Insurance Information Institute President says. In a speech on increasing and emerging global risks he asked the A&I Member Services (AIMS) conference in Hawaii: “Is the world really a riskier place or does it just seem that way, no matter where we look?” New York-based Dr Hartwig outlined five major categories of risk: economic, geopolitical, environmental, technological and societal. The economic risks include chronic fiscal imbalances, severe income disparity, volatile energy and food prices and adverse consequences of regulation. Referring to the “never-ending echoes of the financial crisis”, he says economic factors are “influencing the insurance world wherever you are”. Australia has done “relatively well” economically compared to the US and Europe, but Dr Hartwig says emerging and developing
nations are leading the way in terms of growth – and this will be the case “for many years”. The insurance industry should benefit from demand for energy and commodities, he adds. “I’m kind of bullish on this in the long run because… we have a growing global population, a growing middle class, and an increasing tendency for many of these emerging economies to become more consumer-oriented. “That means there is going to be more demand for just about everything – energy and commodities included,” he says. Geopolitical risks such as unstable states, corruption, terrorism, organised crime, illicit trade, weapons of mass destruction and the militarisation of space are among “the things keeping people awake at night”. On Australia, Dr Hartwig says: “Most of Africa and most of Asia – basically your entire neighbourhood – is considered quite politically risky, with the exception of yourselves and New Zealand.” He says there are frequent reminders of the terrorist threat. His son ran in the Boston Marathon, crossing the finish line shortly before the bombs exploded on April 15.
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June/July 2013
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“Fortunately, Australia has not been touched like this.” Environmental risks include rising greenhouse gas emissions, the world’s failure to adapt to climate change, persistent extreme weather and pollution. Dr Hartwig says Australia has had more catastrophic events in recent years “than it would have liked”, which has affected the cost and availability of insurance. Between 1967 and 2011, storms were the most costly natural disaster in Australia, accounting for almost $22.5 billion in losses. Hail accounted for just over $16 billion, bushfires $5.49 billion, floods $5.36 billion and earthquakes $3.45 billion. Over the same time period, most losses occurred in New South Wales and the Australian Capital Territory, with a total of almost $20.5 billion. Queensland was hit with $17.28 billion of losses, Victoria $6.37 billion, the Northen Territory $4.39 billion, Western Australia $2.89 billion, South Australia $804 million and Tasmania $799 million. Dr Hartwig says there is no question the global toll is rising, with five disasters from the last three years making it into the “top 16”.
Economic risks Chronic fiscal imbalances Severe income disparity Extreme volatility in energy and food prices Recurring liquidity crises Major systemic failure Adverse unintended consequences of regulation Unmanageable inflation/deflation Chronic labour market imbalances Hard landing of emerging economies
Geopolitical risks Critical fragile states Pervasive entrenched corruption Terrorism Failure of diplomatic conflict resolution Global governance failure Entrenched organised crime Widespread illicit trade Diffusion of WMDs Unilateral resource nationalisation The militarisation of space
“We are good at insuring atoms and molecules and things that have mass, but when it comes to the bits and bytes we are not so good.”
Environmental risks Rising greenhouse gas emissions Failure of climate change adaptation Land/water use mismanagement Antibiotic-resistant bacteria Vulnerability to geomagnetic storms Mismanaged urbanisation Species over-exploitation Persistent extreme weather Irremediable pollution
Technological risks Cyber attacks Massive data fraud/theft Mineral resource supply vulnerability Massive digital misinformation Unintended consequences of new life sciences technologies Unintended consequences of climate change mitigation Unintended consequences of nanotechnology
Societal risks Water supply crisis Food shortage crisis Rising religious fanaticism Vulnerability to pandemics Unmanaged migration Mismanagement of population ageing Unsustainable population growth Backlash against globalisation Ineffective drug policies
Top five global risks: likelihood Severe income disparity Chronic fiscal imbalances Rising greenhouse gas emissions Cyber attacks Water supply crises
Top five global risks: impact Major systemic financial failure Water supply crises Food shortage crises Chronic fiscal imbalances Extreme volatility in energy and agriculture prices
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These were the Chilean earthquake (2010, insured losses of $US8.5 billion), Thai floods (2011, $US13.4 billion), Christchurch earthquake (2011, $US13.4 billion), Superstorm Sandy (2012, $US18.8 billion) and the Japanese earthquake and tsunami (2011, $US38.6 billion). “My estimate for 2011, which was the most expensive year in the history of catastrophe losses, is that those losses shaved about half a point off global GDP at a time when the world could scarcely afford it.” Dr Hartwig says this year’s US hurricane season is expected to be 75% worse than normal, and he is often asked whether insurers have enough money to pay all the claims. But he insists the industry is “rock solid”, in stark contrast to banks during the financial crisis. And he finds plenty of things to worry about in the area of technology, with risks including cyber attacks, data fraud and theft, digital misinformation and the unintended consequences of new life sciences technologies, climate change mitigation and nanotechnology. “We are increasingly subject to technological risk. In particular there is not a day goes by when we don’t hear about a cyber attack.” He wonders if the insurance industry is doing enough to respond to the emerging technological risks. “We are good at insuring atoms and molecules and things that have mass, but when it comes to the bits and bytes we are not as good.” Dr Hartwig says societal risks are perhaps the most difficult for the industry. They include water and food supply problems, religious fanaticism, vulnerability to pandemics, unmanaged migration and population ageing and growth. “Insurance can be kind of a palliative, but it is probably not a solution to many of these.” However, he says the industry can be proud of its ability to tackle most risks. “There is hardly a risk in the world that you can think of that insurance cannot at least play some role in.” June/July 2013
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GIS GAME-CHANGER It’s revolutionising insurance by making risk data specific rather than general, and providing other information that can be used in a variety of ways By Elizabeth Redman
A FEW YEARS AGO INSURERS WERE COMING TO REALISE THE potential of technology that could unlock a massive amount of data that would revolutionise the industry, changing the way it goes about everything from pricing to claims management. The happy result is GIS – properly known as geographical information systems. More than 80% of all data has a location component, according to geographic information system specialist company Esri. Instead of showing this in spreadsheets or lists, GIS plots the information on maps. This exposes patterns and relationships that might be hidden otherwise. “The map is a way of communicating information,” Esri Australia Financial Services Principal Consultant Gary Johnson told Insurance News. “It is very clearly understood by anyone receiving it compared to receiving a report with tables and rows of data.” Such “maps” can show patterns between buyers and products, compare households with their neighbours, or use aggregate data to analyse larger populations. It’s particularly useful for insurers, who can plot policyholders and risks on a map together, using their findings to prepare for disasters, respond to claims and even conduct more strategic marketing campaigns. And they can show reinsurers their business isn’t in the areas of highest risk – an advantage that can also be reflected in the end premium to the customer. Globally, the insurance industry has been adopting GIS technology for the last 15 to 20 years, Mr Johnson says. Locally, a big increase in adoption of the technology in the past two to three years has been driven by flood events, particularly the Brisbane flood of 2011. 20
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A GEOGRAPHIC INFORMATION SYSTEM (GIS) integrates, stores, edits, analyses, shares, and displays geographic information that can be used to assist decision-making. It allows users to analyse a range of data sources, especially spatial information, edit data in maps, and present the results of all these operations in a coherent and usable form. GIS is a relatively broad term that can refer to a number of different technologies, processes, and methods. Insurance is only one industry that can make use of GIS to improve understanding of such things as flood risks, as well as measure the extent of catastrophes.
June/July 2013
Reuters
THE BUNCEFIELD FUEL DEPOT FIRE IN 2005 was the UK’s largest peacetime fire, and one of the first opportunities for GIS to demonstrate its effectiveness for insurers in post-catastrophe recovery. Giant insurer RSA used GIS to accurately identify the range of likely claims, reducing what would normally be a three-week exercise to two minutes. Twenty large oil storage tanks were destroyed in the fire that followed a massive explosion, injuring 42 and damaging buildings up to 5km away. The plume of smoke (above) could be seen across eastern England. RSA Global GeoRisk Director Rob Osment recently visited Australia to demonstrate the company’s approach to integrating GIS technology and show local insurers how modern mapping technology can help it to respond more effectively to large-scale catastrophes. The former Royal & SunAlliance Insurance Group – it changed its name to RSA in 2008 – adopted GIS technology in 2000 following a run of particularly bad flood-loss years in the UK. “There was a recognition we had to do something differently to understand flood risk better,” Mr Osment told Insurance News. The company began by integrating GIS technology into one underwriting platform, allowing it to underwrite flood at an address,
rather than by using the property’s postcode. Since then it has extended the technology to other underwriting platforms and also uses it to help assess subsidence, arson and crime risks. But Mr Osment says more accurate underwriting is only part of the picture. GIS also helps after significant claims events, allowing RSA to quickly and accurately understand its exposures based on solid data, rather than relying on loss estimation by market share. It means the company can allocate claims resources to the most in-need areas, avoiding claims leakage and providing a competitive advantage in terms of claims-handling response. He says GIS technology should be integrated into current systems, allowing the geographic risk assessment process to be automated rather than operating on a standalone basis, which involves manual referencing and, often, a doubling up of work. Integrating GIS across RSA’s systems hasbeen “a real journey”, and getting buy-in and demonstrating the value of the technology is essential. “The Buncefield disaster saw us use GIS technology to identify with precision likely claims based on individual circumstances,” Mr Osment said. The company was able to produce an initial estimate of its exposure to the fire that fell
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June/July 2013
within 6% of the final figure. Last year RSA used GIS to expedite the claims process after widespread flooding in the UK. The company is now considering rolling out the technology across its operations worldwide. Fully integrated technology can also help insurers set risk appetites in particular geographic areas, and Mr Osment says it has been key to RSA managing its accumulations more effectively. It is also useful for event modelling, reporting and in negotiations with reinsurers, which have been using GIS to profile accumulations for many years. Gary Johnson, Principal Financial Services Consultant at mapping technology provider Esri Australia, says RSA “has put geography at the heart of its business”. But insurers in this country are using GIS technology “in small pockets” of their business and typically as a stand-alone system. Some Australian insurers are “beginning to understand that if they had it in real time it would be more valuable to really understand accumulation at a property level”, Mr Osment says. “In my opinion, insurers that have GIS technology in place before the next natural disaster will have a significant edge over their competitors and will increase their market share as a result.”
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“Reinsurers have been ahead of the game, looking at accumulation and risk concentration. It’s now pushing down to primary insurers, who look at having a better understanding of their own business. “Often events or changes to legislation force insurers to have a better understanding of risks in their portfolio,” he says. “It was shown through events such as the Queensland and Victorian floods and cyclones that there wasn’t a strong understanding of where their risks were. “Some insurers had particularly high exposures in areas susceptible to flooding.” This is even more pertinent for variable risks, such as two neighbours having different flood risk if one is higher up a hill. For bushfires, cyclones and hailstorms, the risk to properties in an area is more consistent, he says. The maps can aggregate many different pieces of data. To create flood models, a map can include street inclines, house elevation, creeks, rivers and oceans. The system can even create models based on different levels of flow in a waterway, how it would cause a river to burst its banks and where the water would spill over. It shows the effect of certain rainfall levels as well as that of past rain and floods. Geoscience Australia provides a digital elevation model for Australia. Each piece of information covers a cell 30m by 30m. But Mr Johnson says that even this level of detail isn’t sufficient in some areas. A number of insurers have gathered more terrain detail using aerial photography, where a camera measures elevation in the amount of time it takes for a beam of light to be reflected from the ground. This method also shows how close trees are to properties to estimate the likelihood they will fall on roofs in a strong windstorm. Local governments have their own flood models but Mr Johnson says accessing these in a usable format is a challenge. The technology enables property-level pricing. Previously the industry was built around large administrative regions, such as states, postcodes or “ICA zones,” he explains. Insurers would calculate the loss they expected in a region for a year, then spread that risk across the premiums of all insureds in the region, who would all pay the same amount for a type of cover. With the move to property-level cover, insureds pay a premium based on the risk to their individual property or vehicle. “It’s less about a social contract of a pool of insurance and more about individual level risk analysis,” Mr Johnson says. Of course, not all insurers are pricing this way. Property-level pricing means cover is more expensive for high-risk properties and cheaper for low-risk properties. But for insurers that are still spreading risks evenly across a region, cover may be cheaper for high-risk properties than it would be with a more detailed assessment. He says this is not a perfect estimate as other costs such as marketing will affect price, but it does mean high-risk customers are drawn to insurers that will spread the cost. One positive of “equitable pricing” is that it shows customers if their home is high-risk and gives them a financial incentive to mitigate the risk. With growing disquiet about insurance affordability and criticism of postcode rating following floods earlier this year, this momentum is expected to continue. Once the technology is in place, it can be used to see other geographical aspects of pricing. For example, it shows how where 22
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Putting it on the map Arch Underwriting’s experience illustrates the value of data in a connected society “TOO MANY PEOPLE THINK THEY’RE THE GATEKEEPERS of information, not the enablers,” Adam Matteson says. But data shouldn’t be seen as a source of a company’s intellectual property, the Arch Underwriting at Lloyd’s (Australia) Regional Director explains. It’s more valuable when it’s shared. He’s putting his money where his mouth is. The local branch of the UK-based Lloyd’s underwriter has been creating information-rich maps and sharing them freely with brokers. Mr Matteson collects information ranging from where fires and floods have occurred, to crime statistics, census and government information. “I have all the fire callouts for the New South Wales fire brigade for the past four years,” he told Insurance News, explaining this is helpful when a client is asked about past losses. “I can see if I’m getting an honest answer.” It also helps show clients risk exposures they may not have realised they have, such as building owners who have sprinkler systems. “We get maps of all the water pipelines in Sydney and they show where there are issues with the water pressure,” he says. Another client was encouraged to improve security after a map showed break-ins in the area and a bikie club next door. “It helps to paint a bit more of a picture of the area.” Insureds understand their own risk profiles better than insurers, Mr Matteson says, but when insurers have a better grasp of the issues, the focus of discussions changes from price to coverage and risk management. Arch collects the data in spreadsheets, then uses Google Earth and similar software to extract information and place it on the map. A handful of brokers and agents have started to use the service. “We’re hoping momentum increases in the next 12 months.” He says it provides brokers with a “value-add”. When they tender for business, they can show they have made an effort to understand a client’s risk profile rather than just competing on price. This deeper understanding can also help brokers reduce their own professional indemnity exposure. “GIS is just the infrastructure,” he says. “It’s the data that makes the GIS provide value. “By providing our data we hope it drives innovation.”
June/July 2013
someone lives affects their crime risk. They might live close to a train station, where he says there are higher levels of criminal damage and theft. Or they might live close to a police station. It can also be used on a smaller scale, such as understanding where different buildings are situated on a rural property to help farmers mitigate risk. Although none of Esri’s Australian clients are willing to be named, three of the biggest four insurers use its technology, as well as many smaller insurers and industry service providers. Some Australian insurers are now considering integrating GIS into underwriting systems. Globally, Willis Re has been more forthcoming. For example, when the reinsurer realised several hurricanes would soon hit the US, it built a system to estimate the potential impact of large tropical storms and show the exposure of insurers, who can then contact policyholders in a storm’s path. After the Japanese earthquake and tsunami, Willis Re found that in many cases insurers only held policy location information categorised by the equivalent of postcodes or municipalities. Without access to street address data, it was difficult to map policyholders in the tsunami zone. After this experience, insurers started to collect address data and pass it on to brokers more often. Claims management is another area where GIS shines. Maps of looming or unfolding natural disasters overlaid with policyholder locations help insurers prepare for and estimate potential losses by showing how many policyholders are likely to be affected. This allows insurers to add call centre staff, choose the best locations for mobile claims units and check service providers are ready to undertake repair work. It’s much more accurate than estimating risk by postcode. And the faster they can move, the more insurers may be able to minimise damage. Loss adjusters’ visits to customers after catastrophes are usually scheduled in the order that calls are received, not the proximity to an adjuster’s last visit or degree of the insured’s distress. But using prepared maps of customer information, the same mapping technology orders visits more efficiently, and can sync with loss adjusters’ mobile devices. This results in faster response times and better loss estimations. The system also provides access to information about the location, such as “before” photos, which can also help identify potential fraud. “It makes it quicker to respond and offer higher levels of customer service,” Mr Johnson says. “At the only time when people understand what insurance is for, the insurer with GIS has superior service.” Social media also adds a layer of information – and fast. Traditionally insurers have had to wait for information from emergency services or local governments to understand the extent and impact of a bushfire or cyclone. But Mr Johnson says people on the ground now take photos on their phones and post them to Twitter, Instagram, Flickr or Facebook, or upload videos to YouTube. These posts often have a location attached, which the GIS aggregates on a map. The system allows searches by keyword, location and date. For example, it can show key areas where many users mention the word “flood”, and access photos of the flood. GIS is not only useful for insurers dealing with major natural catastrophes. One US business uses the technology to provide insurers with a fire protection information service that features fire 24
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The heart of GIS GEOGRAPHIC INFORMATION SYSTEMS HAVE APPLICATIONS far removed from those adapted to the insurance industry. For example, a team of leading cardiologists enlisted the mapping technology in a seven-year study into access to cardiac services. As a result of being able to map data, the study identified a “significant gap” between access to cardiac care in regional and metropolitan areas. “We looked at the distance to cardiac treatment centre locations in all of Australia’s 20,000 population centres,” Queensland University of Technology Associate Professor Robyn Clark said. “By mapping the huge amounts of statistical data we collected with GIS technology, we were able to identify critical patterns and relationships that would not have been so apparent in tabular form. “More specifically, we were able to identify locations and groups of people with limited access to cardiac services.” Esri Australia GIS health specialist David Purkiss says the study has important implications for the use of GIS technology across all areas of healthcare. “Beyond cardiac research, the approach can be applied to a whole range of other acute and chronic conditions in areas such as mental health, midwifery, cancer treatment or burns services. “Medical information has limited use unless it is combined with knowledge of the environmental factors associated with patients, locations and conditions.” He says a future national health system underpinned by GIS technology could result in “a more precise understanding of the links between our health and where we reside, work and play”.
June/July 2013
station information including personnel, equipment capabilities, jurisdiction boundaries and emergency response times for particular property locations. The business also offers a car insurance service that calculates risk based on the garaging address, likely commute routes, traffic, weather and crime. US car insurers don’t necessarily see information presented as a map. They’re more likely to receive a table of risk scores that helps them price policies more accurately. Crop insurers use GIS, too. The US Department of Agriculture’s Risk Management Agency, which manages the Federal Crop Insurance Corporation, uses maps to ensure fair pricing. Similar to flood maps providing more detailed information than the risk of individual postcodes, the department’s data can designate subcounty areas as high-risk but leave this out of rate calculations for the rest of the county. It can also check for fraud. Photos of the land are taken every 16 days and included in the system, which allows staff to see whether the producer planted the land as reported.
“That’s what GIS is about – bringing together disparate sources of information and displaying them on the common language of the map.”
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GIS information is also is valuable to the public. Brisbane City Council worked with Esri volunteers during the 2011 floods to create an online, interactive flood-mapping system. It collated data including flood peaks, road closures and evacuation centres on a map, helping recovery operations by the council and emergency response teams. Emergency crews on the ground and local and state government officials provided information and volunteers updated the map as it was received. Users could turn layers of information on and off, showing property damage but hiding evacuation centres, for example. Mr Johnson says GIS is also useful for sales and marketing. Sales activity and retention information can be displayed on a map, along with performance by individual brokers. This shows good areas to increase marketing. Comparing this with risks also allows insurers to actively market to areas where they expect to find the lowest-risk customers, rather than stepping up advertising in a flood zone. It might seem an unexpected combination, but as Mr Johnson notes, “that’s what GIS is about – bringing together disparate sources of information and displaying them on the common language of the map”. “Location puts dots on a map. But geography provides context and builds relationships.” June/July 2013
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Business, capital and people Meet the man charged with ensuring Lloyd’s has a big global future By Michelle Hannen
THE LLOYD’S NAME IS SYNONYMOUS WITH INSURANCE. At some points in its long history that association has not always been positive, but the world’s oldest insurance market is currently enjoying a purple patch. While its capital position and financial results have arguably never been better, Vincent Vandendael, the new Director of International Markets at Lloyd’s, says the strength of the Lloyd’s culture is what he noticed most when he joined the corporation in December. “When I arrived at Lloyd’s I found an incredible difference from a market company,” he told Insurance News. “People are generally proud of Lloyd’s and what Lloyd’s represents – the quality, the history it stands for. I found that very, very special.” Mr Vandendael is a Belgian who spent five years with Chubb before joining Zurich in 1994 in a range of roles from financial lines to, most recently, chief executive of the global corporate unit in Asia-Pacific. He is clearly relishing his latest somewhat sizeable challenge. He jokes that he may be the only person in the industry whose job description relates to a building, as “everything that happens outside One Lime Street (the location of the Lloyd’s building in London) falls in my responsibility”. Jokes aside, it is a large role, with the director of international markets responsible for promoting and protecting Lloyd’s business across the globe, seeking new business opportunities and monitoring the development of emerging markets, while also managing Lloyd’s international operations. In contrast to his predecessor, Jose Ribeiro, Mr Vandendael’s remit also includes North America. He explains that a key reason for this is that the US, due to its size, is an excellent market to test new ideas, and that leveraging on best practices and rolling them out globally is an important function for the international markets team. And with the increasing complexity of legal and regula28
tory requirements for insurers worldwide, it also made sense for former Lloyd’s Director of North America and General Counsel Sean McGovern to relinquish his North American responsibilities and focus solely on the legal and regulatory aspects of his job. With a role of such scope to digest, Mr Vandendael’s first priority after joining Lloyd’s was to embark upon a feedback exercise. “Basically the approach I took was that the market is my customer,” Mr Vandendael says. He sat down with Lloyd’s stakeholders across the globe during his first 100 days and asked questions such as: What is it that you want me to focus on? What are we doing well, and what are we not doing? And what do you want us to focus on or what are we doing that you want us to do differently?” A large part of Mr Vandendael’s role will be to execute Vision 2025, the strategic plan for the future of Lloyd’s, which was unveiled last May. The strategy, launched with much fanfare by British Prime Minister David Cameron, was driven by new Lloyd’s Chairman John Nelson, who, upon taking over from longstanding Lloyd’s chairman Peter Levene in 2011, recognised that the market needed to diversify its income but lacked a coherent vision for the future to enable it to do so. Mr Vandendael says Vision 2025 is “a recognition that the economy is shifting from west to east”, a realisation that has dawned on many large corporations looking for future growth. The key countries being targeted by Lloyd’s include China, India, Brazil, Mexico, Russia and Turkey, as well as a second tier of countries such as Indonesia. Mr Vandendael has statistics at his fingertips to explain the need for such diversification. He says that in 2010, the world’s developed economies had a combined gross domestic product of $US25.5 trillion, while developing nations had a combined GDP of about $US6.5 trillion. By 2016, those figures are forecast to hit combined GDP of $US52 trillion from developed nations, while GDP from the
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Lloyd’s new Director of International Markets Vincent Vandendael: executing the market’s strategic plan
developing economies is projected to grow to $US37 trillion. “Both markets are growing their GDP, but clearly the developing economies are growing much faster than the developed economies.” The new world order becomes apparent, however, when you push the forecast out to 2030 and Mr Vandendael says you see an “inversion of the proportion”, where the developed economies will represent 30% of worldwide GDP and the developing economies will account for 70%. “That’s a major, major shift,” he says, and one that “required Lloyd’s to look at the world in a different way”. The aim of Vision 2025 is to help Lloyd’s retain its title as the global market for specialist insurance and reinsurance. “We are definitely punching above our weight in English-speaking countries, we have a strong position here in Australia, we have a strong position in the US and the UK, but what we also realise is that we are definitely not punching above our weight in other international markets – in the developing economies which are the economies of the future,” he told Insurance News. But he emphasises that Lloyd’s gaze towards Asia will not be at the expense of its traditional strongholds. “This is not to say that those markets where we are in today are not important – they are absolutely of critical importance. If you don’t have your house in order, if your pillars are not strong, your house will collapse. “So the US, the UK, Australia and Canada are very, very important. The developed economies are very important for us. If those pillars are not strong, it would not allow the market to expand into the developing economies.” Mr Vandendael says the way in which Lloyd’s intends to execute its plan for the future focuses on three particular areas: business, capital and people. In terms of business, Lloyd’s has set a target of generating 25% of its premium income from developing economies by 2025, which would see it approximately double from its current level of around 12%.
“Our target for the developing economies is to have a growth that’s over the cycle, over, in excess of the GDP growth in those countries, whereas for the developed economies, it’s not that we don’t want to grow in those countries, but it’s more like growing in line with the GDP growth,” he explains. In line with the global diversification in Lloyd’s business, Mr Vandendael says the second focus of Vision 2025 is to establish a capital base that reflects this increased business diversity. He stresses that “Lloyd’s is very, very well capitalised” and that there is no need for new capital, but that the market is looking to have its capital base mirror its business mix. “Being able to attract the right capital providers within Lloyd’s that would bring that business diversity also is one of our targets,” he says. He points to the strategic partnership formed between China Re and Catlin in 2011 to create a new quota-share special purpose syndicate at Lloyd’s, which also involves staff secondments, as the type of arrangement Lloyd’s is looking to encourage. He says the Lloyd’s model offers a unique opportunity for national carriers in developing markets to grow internationally with their major customers as they become multinational businesses, without the domestic insurer having to open a network of branch offices across the globe themselves. By way of example, he cites a major Chinese domestic insurer. “If you want to follow your Chinese customer going into Europe or the US, Lloyd’s is a very efficient vehicle to be part of so that you can access the licence network and you can follow your customer and deliver the services that those customers would expect from you.” The third pillar of Vision 2025 is people, and also embracing the increased diversity of the business and the capital base. “If you want to attract the business, it’s also important that you attract the culture of doing business in those coun-
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tries,” he says. “How do you do business in Brazil? Well, it’s different from how you do business in China. It’s about understanding the culture of the party you talk to, understanding their needs.” In practice, Vision 2025 will see Lloyd’s move into new markets using a hub-and-spoke approach. A small number of major hubs will be established around the globe, providing a centralised point for expertise in their specific region, with London remaining the ultimate hub, or point of centralisation. The approach is one used by other insurers globally and is not new to Lloyd’s, which developed our local regional hub, in Singapore, more than 10 years ago. Mr Vandendael maintains that the number of hubs will be limited, but he won’t be drawn on exact numbers or other possible locations. “We will have to look very carefully and obviously it’s the market ultimately that tells us whether or not there is an appetite for a hub. “Is the next thing going to be Africa developing, and whether that will require a hub or not is very hard for me to answer at this stage.” Under the plan, hubs will exist as a regional centre of expertise that local markets can tap into when required, rather than as a place for all regional business to be funnelled through. Mr Vandendael says he expects the Australian market to remain as robust – and local – as it currently is, emphasising Lloyd’s history of writing risks in Australia since 1860. As he sees it, “Lloyd’s has always been very, very close to the Australian markets”. And it seems the love is mutual, with Lloyd’s booming in the local market in recent years, resulting in premium income from Australia which has grown from $US1.1 billion at the end of 2009 to $US2.05 billion at the end of last year. This growth saw Australia leapfrog Canada to become Lloyd’s third-largest market in terms of premium, behind the US and the UK. Lloyd’s General Representative in Australia, Adrian Humphreys, says the remarkable growth can be attributed to several factors. He says much work has gone into raising the profile of Lloyd’s locally and educating Australian brokers about how the market works and its strengths. He says an increased local presence has also helped. “I think there are people locally a lot more comfortable with the fact that we’ve got people on the ground and that Australia is a significant part of the overall Lloyd’s global portfolio. We take it extremely seriously,” he says. Mr Humphreys also links the growth to the rise and rise of underwriting agencies in Australia. He says that in terms of the product innovation they can offer, and their strong ties to Lloyd’s they are “almost like Lloyd’s underwriters on the ground, almost like a local Lime Street”. He says risks are increasingly falling outside of the “platform and pipeline” approach of the major global insurers, who like to channel SME business into commoditised online solutions. Lloyd’s is there to catch the business when – Mr Humphreys draws an analogy from the television series Little Britain – “the computer says no”. “As businesses grow and mature, and these are tough times, they need products bespoke to them and a broker can go in and talk to an underwriter about the specific risk and that is a unique market offering that you’re seeing diminish elsewhere,” he says. “Where it doesn’t fit a pre-set, pre-agreed package, that’s 30
when Lloyd’s delivers and is at its best,” Mr Vandendael agrees. Mr Humphreys says Lloyd’s has also benefitted off the back of the 2010/11 natural catastrophes in the Australian market, picking up both direct property business and property facultative risks that the local market no longer has the appetite or the expertise to manage. Contrast that with Lloyd’s, which embraces such risks because “our expertise is in the catastrophe market”. That reputation is evident, he says, in the results of the annual Aon Australian Risk Survey following the natural disasters, where Lloyd’s jumped seven places to become the number one insurer of choice for large organisations. The mining boom has also had an impact on the local market, with premium income growth from the power generation sector up 63% year-on-year and engineering up 37% year-on-year at the end of 2012.
“Where [a risk] doesn’t fit a pre-set, pre-agreed package, that’s when Lloyd’s delivers and is at its best.” But both men are reticent to predict another doubling in size of the Lloyd’s market in Australia, with Mr Vandendael adding that there is a “natural boundary” to the market size based on the product lines that Lloyd’s deals in and the market’s mantra to maintain underwriting discipline rather than chase market share. He says that in developed markets like Australia, one focus is on ensuring a consistent experience for both brokers and policyholders. “It’s a bit the same as when you go to a restaurant, isn’t it? You don’t want to go to a restaurant and one day you rate it a three, the next day you rate it a seven and the third day a five. You can’t bring a customer there, because you don’t know what to expect.” He says that consistency extends to paying claims – an area that has attracted a lot of attention from Lloyd’s in recent times. Another future priority in Australia for Lloyd’s is the need to continue educating the local market on the benefits of the market as generational change occurs among brokers. “The older generation is very familiar with Lloyd’s and it’s very familiar with the benefits of a subscription market,” Mr Vandendael says. “But we see a generation shift happening and is the next generation so close to Lloyd’s?” Rather than wait to find out, Lloyd’s will roll out training programs to ensure that knowledge remains and established relationships continue as younger brokers come to the fore. The local market will also have a role to play in Vision 2025 as Mr Vandendael looks to leverage our long history and well-established, mature market, as Lloyd’s pushes further into the Asia-Pacific region. One area he identifies is the Australian industry’s risk management expertise as he muses how that knowledge could be exported to Asia to help large Asian customers and companies. “Australia itself is very well positioned in the broader Asia context,” he says. “Look at how we can leverage the experience and expertise we’ve been building here.”
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Axis tilts towards Australia The local market is competitive but growth opportunities remain, the Bermuda insurer’s chief says By Jan McCallum
THE AUSTRALIAN MARKET HAS PLENTY of room for expansion, according to Axis Capital Holdings President and Chief Executive Officer Albert Benchimol. He believes economic growth will continue to raise demand for insurance, while there are also opportunities to add value to the market. Axis is looking at sectors it can bring specialist expertise to, such as mining, oil and gas, power generation and multimedia, Mr Benchimol told Insurance News during his first visit to Australia in April. Although Australians talk of a two-speed economy, with mining states growing faster than the rest, the overall domestic economy continues to grow strongly compared with other developed nations, he says. “The issue for us is that we are relatively young in Australia and do not have the scale we want to have here. “Success for us is delivering our products and achieving the necessary scale to become a more meaningful participant.” Mr Benchimol became head of the Bermuda-based company in May last year after joining as executive vice president and chief financial officer in January 2011. He sees the Australia office headed by Chief Executive and Country Manager David Smith growing organically, although there will be a possibility of bolt-on acquisitions “where we can acquire specific capabilities”. “Ours is a business of relationships, of expertise and service,” he says. “I much prefer to recruit great people and give them the opportunity to flourish.” Mr Benchimol has not revealed a growth target but says Australia “ticks all the boxes” – a developed economy where businesses recognise the value of insurance and where there is a sound legal system. Axis is strong in professional lines internationally, and Mr Benchimol says its products are well suited to Australia. He brushes aside the suggestion the Australian market is extremely competitive in professional lines, with a large number of participants. This description could apply to almost any market in which Axis operates, he says. Success comes through underwriting
Recruiting great people and letting them flourish: Axis Capital President and Chief Executive Albert Benchimol with Australia Chief Executive David Smith
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skill and investment in people, data collection and analysis, to make the right decisions on which risks to write. “Not every lawyer has a malpractice suit every year, and not every professional gets sued every year.” Looking at the global insurance industry, Mr Benchimol warns that regulation remains the greatest challenge. The ongoing debate about regulation makes planning difficult, he says. If rules change, companies learn to live with them, but it is hard when they are shifting all the time. “Good regulation is absolutely necessary for the wellbeing of our industry. On the other hand, a lot of what we are seeing these days is regulation that is likely to be more intrusive, more expensive to apply, and with potentially more uncertainty.” Regulators are becoming more parochial, wanting companies to retain capital within their jurisdiction – a process Mr Benchimol labels “atomisation of insurance capital”, which emerged as a response to the global financial crisis. The industry operates effectively because reinsurers are able to move capital around and underwriters can write risk where they see an opportunity, he says. Increased parochialism stops companies utilising their resources in the most effective way. Mr Benchimol says recent loss severity has compounded the squeeze on insurers’ profits from slow economic growth and fierce competition amid shrinking demand. “We are nowhere close to reversing the negative trends of recent years.” Axis’ investment portfolio is double the size of six years ago, but investment income is barely the same, he says. “This is not just for Axis, but the entire industry, so there needs to be even more emphasis on underwriting profitability because this is unlikely to be changing any time soon.” Insurers have responded by focusing on cost control and using data-mining and analysis to improve pricing, but Mr Benchimol says better use could be made of information. The industry needs a real
partnership with clients, so it understands their businesses. Mr Benchimol is enthusiastic about opportunities in emerging markets, saying their economic growth will drive demand. “In a number of emerging markets insurance penetration is incredibly low, to the point where sometimes even buying insurance is culturally taboo or negative because people think it brings bad luck.” In the coming decades Africa and Asia will make significant contributions to global economic growth, but Mr Benchimol cautions he is thinking in the long term. “There will be a lot of growth but it is unlikely to be highly profitable in the near term. Everybody wants to go right into China and India, but because there is so little demand and so much capacity pursuing that demand right now, these are very, very competitive markets.”
ence in Singapore and London, with Singapore as a regional hub. Mr Benchimol has moved the AsiaPacific reinsurance leadership to Singapore from Bermuda. In reinsurance, he sees a graduated change in the way reinsurers assess risk, with less emphasis on diversifying globally. “Diversity alone is not sufficient. Buyers of reinsurance in other countries are feeling less willing to pay for the losses of other regions. “Somebody in Europe, Africa or elsewhere is saying, ‘Why do I have to pay for New Zealand, Australia, Thailand or Japan losses?’” He believes this will lead markets to pay for cover commensurate with their particular risk. “This is a trend in regional markets that is going to have to be recognised.
“A lot of what we are seeing these days is regulation that is likely to be more intrusive, more expensive to apply, and with potentially more uncertainty.” The solution, he says, is for companies to be highly focused in their approach to new markets. “Companies that are forward-thinking are going to be willing to make the investments in the future, but they need to be appropriately sized.” Axis remains interested in Latin America and Asia, but seeks markets in which it can add value and underwrite “intelligently and profitably”; there will be a limit to what it does in the near term. The group has expanded in Latin America in trade credit, credit and bond, crop and some catastrophe writing, with demand growing particularly in Brazil, Colombia and Chile. In Asia it sees further opportunities underwriting large accounts and is focused on working through brokers using its presinsuranceNEWS
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Diversification alone is not sufficient. Local markets are going to have to pay according to the exposures to the risks they bring to the portfolio.” After the losses suffered in Australia from the 2011 floods, Axis Re increased its exposure to the market last year, he says. “There is a real desire for Australian exposure in the overall portfolio, but it needs to be balanced.” Mr Benchimol told a Sydney cocktail party held in his honour that he wants brokers to give him a reason to visit Australia more often – by sending more business his company’s way. He says building the right team under Mr Smith has taken time, but growth is inevitable as the group uses its strength and finds sectors that are being under-serviced in Australia. 33
Jonathan Barnett focuses on keeping tall buildings safe from fire – although Australia’s methods and rules can leave him cold By John Deex
JONATHAN BARNETT MAY BE AN internationally recognised expert in fire safety, but he reckons he can’t make a cup of coffee. “Don’t put that in the article,” he pleads, rustling up “something close to a latte” after I arrive at the converted house in the Melbourne seaside suburb of Hampton that is home to Olsson Fire & Risk, where he is Technical Director. Dr Barnett hails from Massachusetts in the US, but has been drawn to Australia since childhood. He has made the trip out here a staggering 37 times but, finally, he’s here to stay. His interest in this country was sparked by his English father, Ralph, who was posted to Australia in the 1950s to set up dealerships for stationery firm Gestetner. Despite eventually settling in the United States, his father’s enthusiasm for people and places Down Under never dimmed – and he passed this passion on to his family. “When I was three, instead of a stuffed teddy bear, I had a stuffed kangaroo,” says Dr Barnett. “It was natural for me to wander this way at some point.” Dr Barnett was a professor at Worcester Polytechnic Institute, a private research university in Massachusetts which is one of a small group of US universities which focus on research into technical arts and applied sciences. Working there for 28 years, he was a founder of the university’s fire protection engineering department, which is the largest in the US. He developed a specialisation in writing computer models and teaching engineers how to use them properly. In 1992 the CSIRO brought him to Australia to teach computer simulation of blazes to fire engineers. “I taught short courses in Sydney and Melbourne and fell in love with the place,” he says. In 1997 he started a project centre for his university in Australia, bringing groups of US students out to work on various projects. He was finally brought here permanently by major project group Aecom as the firm’s technical director, before joining 34
Olsson in the same role last year. “I’ve moved here now and I have no intention of going anywhere,” he says. “I believe the future is happening in Australia now. It is a great part of the world. It’s young and fresh and exciting – like America was in the 1950s.” But Dr Barnett is not so complimentary about fire safety and construction standards in his adopted nation. “In the US, states like Nevada and Florida are notorious for sloppy construction, while Massachusetts and New York are exemplary,” he says. “Australia is closer to Nevada and Florida.” The cornerstone of this country’s regulation is the Building Code of Australia, which was reformed in the mid-1990s to allow different approaches.
tion, in a properly functioning and designed sprinkler system we have never had multiple life loss anywhere in the world since 1850,” he says. “In the US if you have sprinklers you can save on other aspects of construction. “For example, you get an automatic reduction in the requirements for fire resistance levels, which means you can go with much cheaper materials.” Where sprinklers are present, US authorities also allow builders to extend the distance someone must travel to reach an exit, “which may even eliminate the need for an additional exit stairway”. Both these can save vast amounts of money, but in Australia the same does not apply. “Here it is hard to convince authorities that you don’t need the same level of fire-
“We are stuck with this code which is based on limited expertise and old-fashioned construction techniques.” Firstly, there is the “Deemed to Satisfy” solution – black-and-white requirements based on the old prescriptive code. Then there’s the “Alternative Solution” pathway, which allows for different designs and methods – as long as they are proven to meet the performance requirements. Dr Barnett feels the first option is still too prescriptive. “There is an unknown level of safety and an unknown level of risk – it is based on historic precedents and experiences,” he says. “It does not anticipate new types of construction. “It is not always cost-effective, either. It sometimes requires more than is necessary.” For example, Dr Barnett believes the full impact of sprinklers in buildings is not taken into account by the planning authorities. “Other than people involved with igniinsuranceNEWS
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proofing,” Dr Barnett says. “You have to go with an alternative solution, which may or may not result in the same level of savings.” Dr Barnett is not entirely happy with the “alternative solution” approach either, saying that it does not have the necessary checks and balances. And he says there is often a lack of awareness of how far the code goes in terms of guaranteeing the safety of a building and the people and property within it. “The code worries about societal loss in a global sense. It doesn’t care what happens to your property as long as the risk to life is acceptable. “People think that if their building meets the code, then they have met their minimum obligation and that’s okay. “But there does need to be an awareness that the building code only goes so far.”
Reuters
Towering inferno: a 32-storey building ablaze in Madrid in 2005. While high-rise fires are rare, experts have voiced concern for buildings around the world that use flammable plastic cladding, while many have inadequate fire control and escape systems
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He doesn’t try to hide his frustration with 9/11 conspiracy theorists – particularly their claims that the buildings were brought down deliberately using explosives.
The BCA explained THE BUILDING CODE OF AUSTRALIA (BCA) is a technical document that sets the standards of building work nationally. The code is produced and maintained by the Australian Building Codes Board, on behalf of the federal, state and territory governments. The goal of the code is to achieve and maintain nationally consistent minimum standards of structural adequacy, safety (including safety from fire), health, sustainability and amenity. Prior to the establishment of the BCA, building safety had been the responsibility of the states, creating a legislative maze for practitioners to work through. The first national document, the Australian Model Uniform Building Code, was released in the early 1970s, but states still could – and did – vary the recommendations according to their perception of local needs. This led to the production of the first edition of the BCA in 1988, and states and territories adopted it during the early 1990s. An inter-government agreement was then signed in 1994 to establish the Australian Building Codes Board. One of the board’s first tasks was to convert the BCA into a more fully performance-based document. This was a key reform that allowed for the “alternative solution” pathway as well as the more prescriptive “deemed to satisfy” approach. There is no obligation to adopt any particular material, component, design factor or construction method. Approval may still be issued even if the approach differs from Deemed to Satisfy provisions – if it can be demonstrated that the design complies with the relevant performance requirement. The performance-based BCA was released in 1996, and adopted by the Commonwealth and most states and territories on July 1 1997, with the remainder following by early 1998. A decision was taken in 2003 to move to an annual amendment cycle with a date of operation from May 1 each year.
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Dr Barnett believes people will often underinsure without understanding the consequences. He says brokers need to explain the implications of underinsuring and insurers should work more closely with clients to improve the fire safety of their buildings. “Some insurers, like FM Global, are very thorough, but they are constantly being criticised for being over the top. “And it is a competitive market – someone will write the policy.” He warns against complacency, saying many people believe fire is something that will happen to someone else. “In the US there is a 51% probability that fire will hit someone in your family every generation.” The lack of fire safety statistics in Australia is a major problem, according to Dr Barnett. “There are statistics but they are very haphazard,” he says. “Insurance companies have statistics, but they don’t want to share them for good reasons. “We can’t improve the quality of design if we don’t have the data. This is one of our biggest problems here. “I think in some areas building regulations are over the top and in other places they are not stringent enough. “But because of the lack of statistics we are stuck with this code which is based on limited expertise and old-fashioned construction techniques. No one can change it without information to prove one way is better than another.” Another major concern is the lack of enforcement relating to maintenance of buildings. “We put these fancy systems in and expect them all to work when called upon. “But I hear story after story of monthly inspections where it is dutifully noted that a sprinkler head is blocked – and it might have been that way for five years. “There is no way of forcing that maintenance.” He says that based on his experience, it is not at the level that it should be. “We have this complex building regulatory environment. We think we have the checks and balances in place and then we have a brick wall fall and kill people on their way to the footy. insuranceNEWS
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“Why wasn’t that picked up? “The Fire Protection Association of Australia conference two years ago focused on maintenance. All these horror stories came out but not a lot has been done. “The penalties for poor maintenance need to be higher.” He says a lack of understanding about how new technology integrates with current fire safety systems is also a problem. The use of impulse fans, and their impact on sprinklers, is an example of this issue. Impulse fans are designed to push smoke out of a burning car park, but Dr Barnett says this action can cause sprinkler systems to be set off in the wrong part of the affected area. “There are hundreds of buildings with impulse fans in Australia,” he says. “The interaction with other fire safety systems has not been designed for, and in some cases fire engineers didn’t even know they were there. “It is an issue of ignorance on the part of building surveyors and mechanical engineers who don’t know impulse fans have a huge impact on fire safety. “The Australian standard does not address this critical interaction – and it is not keeping up with new technology. “It has an impact from an insurance viewpoint, too. Insurers may think ‘we can tick the sprinkler box’, but maybe an impulse fan will stop the sprinkler from working.” Dr Barnett’s most well-known work surrounds the 9/11 terrorist attacks in New York – specifically how and why buildings collapsed as they did. He testified before the US Congress House Science Committee, and recently carried out his 88th presentation on the subject. (In a typical nod to Australia, the very first was at the Crocodile Hotel in the small Northern Territory town of Jabiru, and recently he spoke on the subject at the Australasian Institute of Loss Adjusters’ Asian Claims Conference in Bangkok.) He doesn’t try to hide his frustration with 9/11 conspiracy theorists – particularly their claims that the buildings were brought down deliberately using explosives. While he admits he cannot rule out such a possibility, Dr Barnett adds that he can’t rule out aliens from Mars being involved, either.
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“If I can prove the simplest case using engineering analysis and well-known computer models about how buildings behave, then why do I need to do anything else? “People have such confidence in our buildings and technology that they are shocked when they fail. “This was not supposed to happen. But were the buildings defective? No. Planes flew into them.” Dr Barnett says World Trade Center 5 – a nine-storey office and retail building – collapsed later in the day partly because it had been constructed using a method known as the Gerber design. This features girder stubs welded to columns, which support central girder spans with shear connections to the ends of the stubs. The columns are further away from the connection point, and as a result these points can fail in a fire, bringing the whole floor down. He says testing does not highlight the issue because the test “doesn’t look at the connections, just puts a beam in a furnace and sees what happens”. “This is a design that passes the standard fire resistance test but performs very poorly in an actual fire. “Many engineers in the US are now educated about it and the deficiencies in the test method. There is much less awareness here.” In fact, Dr Barnett was made aware of plans for a high-rise building in Perth that proposed using the Gerber design. After his intervention, the proposal was withdrawn.
“To be fair to the design team, when I pointed out the problem they agreed to reconsider the approach.” Some of Melbourne’s tallest buildings – many of which have a single stairway – cause Dr Barnett particular concern. “I would argue that any high-rise building with a single stairway has the potential to cause a problem for the fire brigade,” he says. “This is certainly a weakness, and when you have a weakness you have to strengthen in other areas to compensate. I’m not convinced we’ve done that in Melbourne.” But the answer is not necessarily to copy everything America does. “Things changed in the US as a result of 9/11, but that doesn’t mean they have to change in the same way here,” he says. “We don’t have a lot of high-rise buildings and we are not a real terrorist target. “But when we learn something new about structural engineering, certainly we need to train people in that.” The obvious question, of course, is whether Australia is on the verge of a major building disaster. “In the US, every 10 years or so we have a fire in a public place with multiple life loss,” Dr Barnett says. “Accounting for the difference in population, it should equate that this will happen every 120 years in Australia. “Are we due? Perhaps. It wouldn’t surprise me.” He worries there might then be an overreaction to such an event. “Before we have that disaster, which sta-
tistically must happen, let’s fix the problem holistically rather than responding to the specifics of that one incident,” he says. Despite Dr Barnett’s concerns, he continues to use his influence and expertise to bring positive change to the industry whenever possible. For example, he is at the heart of a new project tackling concerns relating to using lifts for evacuating buildings more quickly. In May a new performance standard was introduced by the Federal Government tackling key design features to be considered if lifts are used in this way. But Dr Barnett says Australian architects and engineers don’t have sufficient training. In an attempt to address the problem, the Society of Fire Safety and Australian Fire and Emergency Services Council have come together in a groundbreaking collaboration to sponsor a university research project to identify misconceptions and the information that is lacking. “This is so we can put together a seminar to tell people about design parameters for the use of lifts in emergency evacuation,” says Dr Barnett. “It’s kind of exciting – design engineers working with the fire service to achieve a common goal. We don’t see enough of that.” If Dr Barnett continues to spearhead projects like this, America’s loss would appear to have been very much Australia’s gain. And actually, his coffee was pretty good, too.
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BUSINESS INTERRUPTION June/July 2013
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HIH: the last gasp After a long legal battle, investors have lost their bid to be repaid THE COLLAPSE OF HIH IN 2001 HAS CONTINUED TO WIND through the legal system, with the New South Wales Court of Appeal dismissing an appeal by investment company Perpetual Trustee Co for the failed insurer to repay $213.1 million in convertible notes. The note issue has so far led to proceedings in the Supreme Court and the Court of Appeal in New South Wales, plus the Federal Court and even the High Court of New Zealand. But the dispute appears to have reached the end of the line following the Court of Appeal decision. A spokesman for Perpetual told Insurance News the company will not request special leave to appeal to the High Court of Australia and “is now seeking to discontinue both the proceedings in NSW and in New Zealand”. HIH New Zealand issued 42.6 million unsecured converting notes in 1998, which HIH Australia used to pay for its takeover of FAI Insurances. The HIH group went into liquidation in 2001 before the notes could be converted to shares. Perpetual then acted on behalf of the note-holders who wanted their money back. The NSW Supreme Court last year rejected its argument, and the state’s Court of Appeal has upheld that decision and awarded costs against Perpetual and Paris-based financial services company Societe Generale, which ran the appeal against HIH NZ and HIH Insurance. The notes were issued on the basis that if HIH NZ elected not to redeem them in cash they would be converted to ordinary shares in HIH in 2003. Perpetual made a creditor’s claim on the HIH NZ liquidators in 2009, which they rejected in 2011. This led to Perpetual starting proceedings in the High Court of New Zealand. 40
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Perpetual was later granted a stay of that action after it decided to file proceedings in the NSW Supreme Court, seeking a declaration that the HIH NZ liquidators owed it $213 million. HIH NZ’s liquidators argued the note-holders only had a right for damages for breach of obligation to convert the notes to HIH shares, and this right was worthless because the HIH shares were worthless. The Court of Appeal’s Justice Robert Macfarlan says HIH NZ could have elected to redeem the notes for cash, but that did not give note-holders the right to demand repayment; they were never entitled to claim the company owed them the face value of the notes. He says the existence of a debt does not mean creditors have an unqualified right to payment in cash. HIH NZ’s only obligation was to pay HIH Australia cash for shares that would be issued to redeem the notes. The matter has already been before the Federal Court. Acting Justice Ronald Sackville – one of three Court of Appeal judges to hear the case – says it is not clear why the action on HIH NZ notes required separate proceedings in the Federal Court and state Supreme Court, quite apart from the action in the High Court of New Zealand. “With the benefit of hindsight, had the parties to the Federal Court proceedings brought forward all disputed issues of construction of the trust deed and deed poll, there would have been no need for proceedings in the Supreme Court, thereby saving the parties both time and cost,” Mr Sackville said. “I recognise that the wisdom of hindsight is a more abundant commodity than clear foresight. However, the procedural history of the case demonstrates the virtues of taking all reasonably available steps to avoid the risk of fragmentation of litigation.” June/July 2013
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Social media and the workplace How to ensure every employee knows what’s acceptable and what’s not By Elizabeth Redman
THERE’S ONLY THREE WAYS TO DEAL with social media in the workplace – ban it, tolerate it, or embrace it. Whatever course an employer chooses, clarity is essential, says lawyer Tim Lange. Creating a clear social media policy and inducting employees in the same way as a health and safety policy can save a lot of time and argument and reduce legal risks. Mr Lange, a partner at Hunt & Hunt Lawyers, says employers are in a better position to face courts or the Fair Work Commission if they have a coherent social media policy operating in their workplace. But he doesn’t attempt to hide the fact that social media use in the workroom is 42
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fraught with difficulties. It can pose problems before, during and even after employment. It can be seen as a way for employees to waste time that rivals the ubiquitous “smoke break”. It can also be seen as a powerful tool for improving team cohesion and keeping in touch with clients. It can promote openness and it can just as easily encourage the worst excesses of workplace misbehaviour. Deloitte conducted a 2010 survey on workplace ethics that showed the differences in attitude to social media between employees and executives. Only 34% of the employees surveyed agreed that social networking helps build
trust in the workplace, compared with 49% of executives. Perhaps the employees realised more than their bosses that social media, in all its permutations, can cause problems for employees and employers alike. Mr Lange says bullying is a particular concern. Fake email accounts can be created easily by malicious employees targeting a colleague, and have been used to distribute emails impersonating another staff member. But IT departments may be able to track the source of the hoax. This is a “terribly torturous process”, says Mr Lange – but it only has to be done once to act as a powerful warning to others. The Fair Work Commission has new antibullying measures which cover workers, contractors, volunteers and work experience students, and it can order bullying to stop. That should be a convincing reason for having a clear and concise social media policy. As Mr Lange says, it’s better to have a social media policy in place than go to the commission. Social media can present security risks for companies. Employees can use it to disseminate work-related information, or simply email work documents to their personal email account. Work-supplied IT services can also be used for unlawful conduct. Keeping social media use under control is something the employer needs to take seriously. Mr Lange says it’s necessary for companies to manage their own IT resources so they are not misused, which will help them to avoid significant liability. Social media can also raise some tricky questions after an employee leaves. Some companies may see the contacts an employee has made during their time there as its confidential information. But in one recent US case, a former employee was asked to remove information from a LinkedIn account which the employer said was confidential. The former employee deleted several connections insuranceNEWS
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“The main principle of the policy should be simple – don’t say anything on social media that you wouldn’t say to someone’s face.”
with contacts made while working for the company. The individual and the company eventually ended up in court, where the former employee was able to demonstrate the information was not confidential and people who had been removed as contacts had later requested the person to link back in. In another case, an employee was dismissed for misconduct. Later, finding she was still logged into the company IT system via her phone, she deleted the evidence that had led to the dismissal. While there are plenty of stories about people losing their jobs because of something they said on Facebook or Twitter, there are just as many risks for recruiters trawling the internet to find out any details about potential employees. Mr Lange says the internet is just too unreliable to use in this way. The information might be irrelevant or just plain wrong. For example, it might turn out that while the potential employee might have a past criminal conviction, it’s for a crime that irrelevant to the job they’re applying for. Discriminating against someone in a hiring process because of an irrelevant criminal conviction is unlawful in some jurisdictions, Mr Lange says. It’s not clear exactly how many companies do have a coherent and enforced social media policy, but a Yellow Pages survey last year found almost four in five large businesses have a policy on what is and isn’t appropriate for staff to do on social media. And Mr Lange recommends that businesses which don’t have a social media policy yet should create one. He says workers in almost every industry are obliged to comply with a safety policy, so it’s reasonable to ask staff to comply with a social media policy too. To ensure it is understood – and to ensure awareness of the policy is sufficiently strong to stand up to legal scrutiny – staff should be inducted into it formally. 44
The main principle of the policy should be simple – don’t say anything on social media that you wouldn’t say to someone’s face. The policy can cover permitted and prohibited use, guidelines, password maintenance, use of personal devices, monitoring of accounts, and the consequences of a breach. It may need to distinguish between appropriate use of corporate social media accounts and personal ones. Employment contracts that specify an obligation not to bring an employer into disrepute may also need to include explicit reference to internet use and postings. Some cases involving social media have already been to the Fair Work Commission and the courts. In one case, a tavern employee claimed to be unfit for work on New Year’s Eve. The employer discovered an incriminating Facebook post about the employee at a party. In another, an employee claimed he was unaware that the racist comments posted on his Facebook page were publicly accessible, as his daughter had set up his account. “The Fair Work Commission is less inclined to believe technical ignorance as an excuse as events like this become more notorious,” Mr Lange says. The commission has also considered a case where a disgruntled employee posted derogatory comments about her employer. Considering if the posts were sufficient grounds for dismissal, Commissioner Michelle Bissett found that in this case the post was not a valid reason for dismissal, but nevertheless issued a warning about how the commission may see such activity in future: “A Facebook posting, while initially undertaken outside working hours, does not stop once work recommences. It remains on Facebook until removed, for anyone with permission to access the site to see. “It would be foolish of employees to think they may say as they wish on their Facebook page with total immunity from any consequences.” insuranceNEWS
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Social media policies come in all shapes and sizes. Some are written in legal terms, many are overly long and confusing, and an outstanding few are so simple nobody could be confused as to what their responsibilities are. Regarded as one of the best is the Australian Broadcasting Corporation’s (ABC) policy, which applies to all employees and contractors. The three-page policy document contains four simple “standards”: 1. Do not mix the professional and the personal in ways likely to bring the ABC into disrepute. 2. Do not undermine your effectiveness at work. 3. Do not imply ABC endorsement of your personal views. 4. Do not disclose confidential information obtained through work.
Be careful what you regulate Consumers don’t always act rationally, which can make things complicated when regulators set out to protect them
CONSUMERS OFTEN MAKE MISTAKES when selecting financial products such as insurance, buying cover they don’t need and focusing on the wrong features of a product because they find its complexity hard to understand. Unravelling that complexity is often seen as the role of the industry’s regulator, but new research suggests dealing with the complex mix of consumer emotions and responses to advertising and marketing can make regulatory intervention harmful. Research for Britain’s new Financial Conduct Authority (FCA) says consumer choice in retail financial products and services is particularly prone to errors. Chief Executive Martin Wheatley says some of the mistakes are “persistent and predictable” and regulators need to direct greater focus to understanding consumer behaviour. The paper – Applying Behavioural Economics at the FCA – says consumers can make bad decisions when financial products are hard to understand. “Faced with complexity, consumers can simplify decisions in ways that lead to errors, such as focusing only on headline rates,” the paper says. Many products involve trade-offs between the present and the future, and people often make decisions against their long-term interests. Instead of assessing risk and uncertainty, a decision may be made on emotional considerations rather than after an assessment of costs and benefits. “People are generally bad, even terrible, intuitive statisticians and are prone to make systematic errors in decisions involving uncertainty,” the paper says. “So we often misjudge probabilities and make poor insurance or investment decisions.” Consumers also have limited opportunity to learn from mistakes. “Some financial decisions, such as choosing a retirement plan or mortgage, are made infrequently, with little learning from others and with consequences revealed only after a long delay.” The paper notes that while some consumer mistakes are understandable, many consumers don’t make the level of effort that might be expected in reaching an important financial decision. 48
So what does the regulator do about it? The FCA paper says it “may be crucial” for a regulator to correct consumers’ behavioural errors if it is to fulfill its role in protecting the public. The paper gives the example of the regulator noticing the market penetration of an online add-on vehicle insurance product being twice that of a similar product the company was selling through other channels to a similar customer type. The reason: the default setting for the online product was “yes” while for other channels it was “no”. This happened in motor insurance, when one UK insurer got 80% acceptance for an add-on because it had a default from which consumers had to opt out. A competitor that forced consumers to insuranceNEWS
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actively choose to purchase the product got a 40% acceptance rate. “While not conclusive, these facts alone suggest that we should investigate whether consumers are buying products they do not want because of the default setting,” the FCA says. But if the regulator is to identify and correct mistakes, it needs to be able to detect biases that may be used to make decisions. In other words, it needs to be able to understand what prompts people to make decisions that are not entirely rational. For example, a preference to avoid loss might lead to someone believing an insurance add-on is cheap because the base price is much higher. Insurers play a crucial role in shaping consumer choices. Their product design,
marketing or sales can exacerbate the effects of biases and cause problems by obfuscating about unattractive factors such as exclusions in insurance contracts. The paper says many financial decisions are emotional, and people are mostly blind to their biases. “Emotions such as stress, anxiety, fear of loss and regret can drive decisions rather than the costs and benefits of the choices. “For example, fear might drive the purchase of an expensive insurance policy for a mobile phone that is very unlikely to be needed.” Emotions can be triggered and easily manipulated, but the paper says regulators need to acknowledge that what might look like exploitation might in fact be insurers responding to consumers’ own misperceptions of their demand, or be part of a strategy to attract customers in a competitive market. It says firms offering insurance products for free trial periods may be responding to consumer inertia or fighting for market share, or both. Because of their inbuilt biases, consumers tend to stick with their existing products, do not search enough and do not switch to better offers. Financial services companies can exploit this and lower the quality of products and/or charge increased prices without the threat of customers moving. The paper notes that investigating behavioural problems can be complex because it is not always clear that consumers are making mistakes. A simple wish to “avoid regret” might lead someone to buy a low-value insurance product, and a regulatory intervention that stops them from doing so could actually make them worse off. Regulators therefore have to be careful that their attempts to help consumers don’t backfire. The paper recounts the example of US regulators’ intervention in the US health insurance market encouraging consumers to switch away from under-performing insurers. The intervention was successful, but the result of so many people switching was that the insurers found it harder to price risk, and as a result raised their premiums.
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Expensive, inflexible, unattainable
Insurance for low-income earners is a ‘hot-button issue’, according to ICA. So why aren’t we working harder to fix it? By Elizabeth Redman
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News Ltd
Adieu Akol came to Sydney from war-torn Sudan. Many refugees don’t understand insurance, and probably can’t afford it. Advocates say it’s time for the insurance industry to get involved in finding solutions
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Some case studies of people who owed money to insurance companies, from the consumer groups’ joint submission to the General Insurance Code of Practice review: “Mrs R was 79 years old… Mrs R’s only source of income was the age pension, which she struggled with to help her manage her very high medical expenses, many of which were not met by Medicare. Neither Mrs R’s financial position nor her health were likely to improve.” “Mr X’s only source of income is Centrelink payments… He supports his wife who is seven months pregnant and not eligible for Centrelink benefits, and his two-year-old child. Mr X came to Australia on a humanitarian protection visa about two years ago. He was victimised and assaulted. He is still undergoing counselling and treatment and is being assessed for post-traumatic stress disorder. Mr X has no significant assets.” “Ms C was receiving a Centrelink sole parenting payment and was a single mother of seven children, all of whom were under the age of 18.”
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IMAGINE LIVING IN A COUNTRY where you speak a language that doesn’t have a word for insurance, and any insurance that is available is out of reach of most people. Then imagine arriving in Australia without much English, and trying to buy an insurance policy. You try to fill in a form online. But it asks you for a first name and a surname. You only have one name. So you pick up the phone instead. You don’t understand the call centre person’s accent and the questions are personal and bewildering. You’ve been told you need to insure your property but how can you tell you are getting the right kind of cover and the most economical? And if you’re a new migrant from a poor country, chances are you’re likely to find the premiums will be out of your reach, anyway. Not that new migrants are the only group that finds insurance a challenge. Low-income earners, aged pensioners, Newstart recipients, renters and young people are likely to have trouble affording – and accessing – insurance. A survey last year by the Centre for Social Impact found 18.9% of adults are excluded from general insurance in Australia. Basic motor vehicle and basic contents insurance costs an average of $898 a year, the study found. The complexity of insurance, as well as its cost, simply excludes some groups in the Australian community. Underinsurance and non-insurance can affect the wider community, but it’s the people with the least ability to access insurance who will suffer the most postdisaster. It’s a problem consumer advocates are keen to fix, by working with the industry and creating alternative microinsurance products targeted at this group. The issue of insurance affordability is not just about cost. Payment methods are a particular problem. Many consumer advocates suggest insurers should introduce fortnightly payments, instead of monthly or annual payments, to align with the periods when wages or Centrelink benefits are paid. Some also advocate using Centrepay, a service that allows Centrelink recipients to pay bills as regular deductions from their payments. But there are technical issues such as a 99c fee for transactions and a minimum deduction of $10 a fortnight. It also operates on a fortnightly basis, which is incompatible with many insurers’ systems. Consumer Action Law Centre insuranceNEWS
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Senior Policy Officer David Leermakers isn’t convinced that insurers are trying hard enough to make insurance accessible to low-income earners through Centrepay. He and other consumer advocates have met with insurers, the Insurance Council of Australia (ICA) and the Federal Government to discuss the issue. “I think on both sides there has been effort made,” he told Insurance News. “It’s really frustrating to see so little progress. We think this should be really simple way to make what is an essential service more accessible and more affordable for people who need it the most. “We get that there are some roadblocks there. But we’ve been talking about it for a while. Let’s get it done.” Some advocates suggest fortnightly payments can actually help insurers save on administration costs, rather than be a cost burden. Good Shepherd Microfinance Innovation Manager Dominic Collins says it helps people budget, as their income and bills don’t get out of step. “Fortnightly payments are ideal,” he says. “If you allow people to pay fortnightly, they do pay fortnightly. “One of the ways that you make a really cheap insurance product is to reduce your administration costs. And if you want to reduce your admin costs, you don’t want to be chasing people for default payments, or sending people letters saying, ‘Since you’ve missed a couple of instalments, you’re now uninsured.’” New products designed specifically for low-income earners are being developed by organisations like Good Shepherd Microfinance, which is trying to devise a product for individuals and another for groups such as public housing tenants, who could pay a small premium with their rent. The organisation runs the country’s largest community microfinance program and hopes to work with the industry, community and government to pilot the product by late this year. In April Good Shepherd released a discussion paper calling for feedback on market size, distribution methods and how to overcome barriers such as incompatibility between insurers’ systems and Centrepay, as well as a lack of insurance understanding in community finance organisations. “There is a perception that lowincome policyholders with low-value policies will yield low returns, making the development of such policies unat-
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Insurance affordability is tied up directly with accessibility. Footscray Community Legal Centre Director Denis Nelthorpe says many of his group’s clients have recently arrived in Australia and are adapting to a new culture and language. “We get an extraordinary number of nonEnglish speaking people who buy insurance and then have all sorts of problems,” he told Insurance News. He tells the story of a Muslim woman with limited English whose car had been damaged while parked in a driveway during the 2011 Christmas Day hailstorm in Melbourne. Her policy was renewed. The insurer assumed that she was in Australia on the day of the storm, when she was actually overseas. Her brother had bought the policy for her. She had an accident and claimed. The insurer pointed out that the car had hail damage. “She didn’t know what hail damage was,” Mr Nelthorpe says. His staff asked her if she had ever seen hail. “Eventually she said to us, ‘Do you mean ice rain?’ Now, tell me someone who said that is making it up… “We had three cases all arising out of that hail damage. Another woman said she thought she was asked if her car had hole damage. “When you think about the questions that people are asked, they’re often quite complex. The classic one that catches a lot of our clients is ‘Do you have a licence?’ A lot of them say, ‘Yeah, I’ve got L. L for licence.’” He says some of his clients come from countries where there is no insurance industry, while others are from areas so poor there aren’t any cars. In Burma, many people only have one name, not two. In some countries it’s normal for brothers to make purchases for their sisters. The list goes on. “Every time an insurer says to one of these people, ‘We’re not paying because you didn’t disclose something,’ they just go and tell a hundred friends, don’t pay for insurance, it’s a rip-off.” He suggests more cultural training for call centre staff may help, covering what life is like in migrants’ home countries, as well as what is and isn’t acceptable in contracts there.
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tractive,” the report says. “Low-income clients may also offer limited opportunities for cross-selling or bundling of products.” Despite the unwillingness of some to engage, Mr Collins says a number of insurers and brokers are supportive of the idea, and the National Australia Bank has been a particularly keen partner in this work. “It is possible to get a home contents policy for less than $260 a year,” Mr Collins says. “In an ideal world we’d be able to produce a policy for far less than that.” Such a product wouldn’t have all the “bells and whistles”, but it would provide “a safety net to stop people falling into greater poverty and awful hardship”. For example, most home and contents policies include public liability coverage up to $20 million, he says. As claims are relatively rare, this could be reduced to, say, $2 million. He suggests the premium could then be reduced accordingly. Mr Collins also suggests contents insurance could include sub-limits, with defined amounts payable for different household items – perhaps a fridge, a laptop, cash, clothes, furniture, and so on. This would limit the exposure of the insurer but ensure the product is still useful to the insured. Insurance Law Service Principal Solicitor Katherine Lane agrees on the need for a basic product, but sees the situation differently. She compares it to a similar push for basic products in the banking industry. As a result banks have made access to ATMs free in some remote indigenous communities, for example. “The [insurance] industry is extremely resistant to any sort of cost subsidisation,” she told Insurance News. “The banking industry is not as resistant. They understand some products are not as profitable but are about giving back to the community.” Ms Lane says the insurance industry is very enthusiastic about supporting charity work, and this should expand to include insurance products for lowincome earners. “Part of your charity work has to be [insurance] products that don’t make money,” she said. “You get so much kudos from the community if you are doing things for them and delivering services.” As well as home contents, buying motor insurance is also a struggle for many. Veteran insurance consumer advoinsuranceNEWS
June/July 2013
cate Denis Nelthorpe notes what a hard sell third-party property motor insurance is to low-income consumers. They are obliged to pay a premium but aren’t able to claim if their own car is damaged. It’s cheaper to drive uninsured. Mr Nelthorpe, who is Director of the Footscray Community Legal Centre in Melbourne, says most third-party property policies now offer an uninsured motorist extension up to $3000 or $5000. “You could make relatively minor changes to third-party property and create a product that’s infinitely better for consumers. You’ve got comprehensive, so have ‘comprehensive lite’. It could cover all the damage to the other party’s car and a maximum of $5000 for their own. “The insurance industry is accepting that people drive around uninsured and aren’t contributing to the insurance pool or the cost of the accidents they may cause,” he says. But this could easily change with an appropriate product. “If you had a substantial increase in the number of insureds who had low-value vehicles I think there would be savings both in an increased pool of revenue and also some contribution to the cost of the accidents.” He suggests an industry that offers pet insurance is capable of being more innovative in other areas. “If I can get coverage for a $5000 pet or a $3000 pet, why can’t I get coverage for a $3000 car?” The problem of bills that consumers cannot pay is discussed in the General Insurance Code of Practice. It provides for the postponement of payments or extensions to the period of repayment when someone “is experiencing difficulty repaying a debt due to illness, unemployment or other reasonable cause”. But consumer advocates say that in many cases this provision doesn’t go far enough. A joint submission to the code review, authored by the Insurance Law Service and contributed to and endorsed by 14 other organisations and individuals, says “illness, unemployment or other reasonable cause” should have other criteria added – like low income, disability, homelessness, mental health and language and literacy problems. It also submits that the code should provide for the permanent waiver of debts, not only postponement, in cases of demonstrated long-term financial hardship and inability to pay due to low income.
“Hardship should apply here. Insurers should be willing to let people enter into reasonable hardship arrangements to try and keep them in their policy.”
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“Very often our clients suffer extreme disadvantage, have no significant assets and are unlikely to ever have the capacity to repay the debt,” the submission says. “In some cases, demands for payment are futile, and a waiver of the debt is the only prudent way to resolve the matter. “What is required is the implementation of a standard process that will be adopted uniformly by all insurers rather than simply relying on the arbitrary discretion of insurers.” The submission also says insurers should be required to provide clear written confirmation when an agreement on such a debt has been reached. “A persistent problem arising from our casework was the failure of insurers to explicitly confirm in writing that third-party debts had been waived,” the submission says. “We have come across numerous examples of community legal centre lawyers being forced to make multiple unnecessary follow-up telephone calls and emails in an attempt to confirm the status of these debts.” The Insurance Law Service’s Katherine Lane says she’s looking forward to improvements to the code. “For the consumer movement it’s really critical that this new code delivers good outcomes for consumers. The last one was a failure.” It may seem that insurers are being asked to be excessively generous in cancelling debts, but the Consumer Action Law Centre’s David Leermakers says that for many low-income consumers, “there’s no extra money in the budget and there’s just no ifs or buts about it”. “They don’t have any assets and getting a judgement through the courts – or sending debt collectors out or bankrupting that person would be absolutely fruitless. “From what I hear over and over again from the stories from the legal practice and the financial counselling practice, almost down to a person, these people want to pay these debts and they feel rotten that they can’t.” Sometimes writing the debt off is the best outcome for both sides, he says. “We hear some pretty terrible stories about debt collection conduct. And harassing someone through a debt collection agency, if the person does not have the ability to pay – it’s fruitless.” He also suggests tweaks to the practice of cancelling policies for non-payment, saying it’s important to have plenty of notice and a reasonable amount of time before cancellation – insuranceNEWS
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ideally two notices after non-payment 14 days apart. “Then somebody’s got two pays or two periods of receiving social security benefit to remedy it. “Hardship should apply here. Insurers should be willing to let people enter into reasonable hardship arrangements to try and keep them in their policy.” If someone has had trouble making a payment it can be really difficult to pay two the next month, he says. Those arrears could be spread over the rest of the year to make it more affordable. And he believes call centre staff should let consumers know about hardship provisions during this kind of conversation. The industry is aware of the problem. ICA declined to provide an expert to be interviewed for this story, but a spokesman provided Insurance News with a statement. “For some time the Insurance Council has been liaising with consumer advocates, community organisations, financial counsellors and other nonindustry representatives on issues of financial inclusion, principally through meetings of the council’s National Consumer Reference Group. “In January, ICA convened a financial inclusion committee which will consider financial inclusion objectives within the Australian community in relation to general insurance. “Our committee will engage with key stakeholders to better understand the insurance needs of low-income Australians, and it will work to raise awareness of this matter across the industry in Australia.” In the council’s annual report for 2012, Chief Executive Rob Whelan says insurance affordability will continue to be a “hot-button issue”. And the risk of government intervention looms. At the ICA Regulatory Update Seminar in Sydney this March, Ian Harper of Deloitte Access Economics advised the industry to work with the Government on affordability issues or face being regulated in a way that damages competitiveness and innovation. Katherine Lane agrees the industry needs to act first. “You always want to avoid legislation – you act before. That’s about making sure you’re a best practice industry. “You shouldn’t need a threat to get things sorted.”
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Online, easy and categorised: Protecsure and Chubb strengthen their partnership with launch into marine IT’S PROBABLY MORE RISKY TO transport a container of glass than one full of books. So Chubb and underwriting agency Protecsure have come up with a user-friendly online system that offers marine cover for 1700 items ranging from glass to books, but adjusts the price accordingly. Protecsure has launched three new marine transit products underwritten by Chubb with the online quote and bind solution – annual accounts, single transits and household removals. It covers all modes of transport on land, sea or air. “We believe this is the easiest online system in the market to obtain a quote,” Chubb’s Ocean Marine Practice Leader Australia Richard Grant told Insurance News. The system will differentiate between risks with competitive prices. For anything that isn’t on the list, brokers can refer the risk on. The Protecsure website also provides glossaries, frequently asked questions, tips for answering proposal questions and links to external websites with more information. Mr Grant says Protecsure recognises that marine is usually “only a small part of what a broker’s job is and often only a small part of the overall premium they are managing”. He says brokers often spend more time placing property and liability insurance, meaning the extra information for marine is much needed. The offer will be particularly useful for brokers who prefer to transact lower-end business online for clients with a turnover of less then $10 million a year, although the system allows for up to $50 million. Chubb is still very keen to deal directly with brokers who prefer not to use the online system, Mr Grant says. The annual transit product covers accidental loss of or damage to goods for transits in Australia, imports or exports. The policy period is usually 12 months. It offers a limit up to $1 million per location or transit, as well as full 58
deterioration cover for chilled goods. Available extensions include debris removal, damage to packaging, loss of data, resecuring goods and fumigation expenses. Single transit also covers accidental loss of or damage to shipments of goods. Clients can take out the policy for transits within Australia, imports or exports. Coverage up to $500,000 per transit is offered as well as chilled goods deterioration cover. The policy wordings have sublimits for debris removal, damage to packaging, loss of data and resecuring goods. The household removals product covers household effects, motor vehicles and pleasurecraft against loss or damage when moving from one place of residence to another. Household effects are valued at replacement cost up to a maximum of $500,000. Vehicles, pleasurecraft and caravans carried as cargo are valued at market value at the date of loss, up to $50,000. Fine arts and antiques are covered up to 25% of the total sum insured and $10,000 cover for loss of registered software is included. The cover is available for removals within Australia as well as imports and exports, and prices are based on distance bands. Clients have access to Chubb’s network of 120 offices in 27 countries to help with claims. The system has just launched and so far the feedback has been positive. “We’ve already had a tremendous uptake and a fantastic launch,” Protecsure Managing Director Tony Mitchell told Insurance News. “The new marine product has taken the mystique out of marine insurance and we’ve been able to work with Chubb to come up with a quick, efficient, competitive online solution for brokers,” he says. He says the two companies have been in partnership for 15 years, which explains why they work so closely together. insuranceNEWS
AIG’s Noel Condon: making insurance fit clients’ needs
AIG eliminates renewals: ‘Evergreen’ policy is aimed at big Australian corporations AIG HAS LAUNCHED A MANAGEMENT LIABILITY product with a difference. Because big organisations want efficiency over all else from their insurers, AIG has launched an “evergreen” policy that automatically continues year after year. The product is designed for ASX-listed and large private corporations with more than $200 million in revenue. AIG says the new policy eliminates the time-consuming and often complicated process of completing proposal forms and negotiating new terms each year. It also gives clients the assurance they are always covered and don’t have to worry about an impending expiry or renewal. The products included in Gold Complete are directors’ and liability’ liability (D&O) including Side A, crisis, excess, company securities, statutory liability, prospectus liability, D&O lifetime run-off, superannuation trustees liability, employment practices liability, comprehensive crime and kidnap, ransom and extortion. “Organisations are constantly seeking out more costeffective and streamlined business processes and insurance should absolutely fit these criteria,” AIG Australia Chief Executive Noel Condon said. Titled Gold Complete, the policy has a modular design that allows organisations to choose the covers required. Its set of shared terms and conditions between modules is designed to eliminate inadvertent gaps in cover. AIG Australasia Regional Manager of Financial Lines Michael Pryce says additional benefits include “a broad range of top-tier advisers, access to our claims service and a claims protocol built into the wording”. “Also new to the Australian market is our ability to offer unlimited reinstatements of D&O insurance as an optional additional cover.” This means that if a claim exhausts the primary D&O limit and there are additional claims, the reinstatements will provide further compensation.
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companyNEWS
QBE takes cargo cover online: New system offers simplicity and speed QBE IS LAUNCHING AN ONLINE SYSTEM to quote and bind cargo business. Called Cargo@QBE, it provides full policy lifecycle management, allowing users to administer and renew existing policies, and includes annual cargo, cargo single transit and home contents and personal property in transit policies. The system is designed for efficiency, with follow-up tools, system-generated renewal reminders, certificates of currency, shipment declarations and electronic referrals. The user-friendly interface will provide a formal quote with just three screens, and bind cover with one more. It has a $1 million limit of liability, although QBE’s underwriters will quote larger limits outside the system. The company has enhanced its existing cargo policy wordings to coincide with the system’s launch. Although the wording is based on the 2009 Institute Cargo Clauses, used globally by the marine market, it also contains additional benefits. These include cover while loading and unloading, as well as losses arising from insufficiency of packing when outside the insured’s control. The wording also includes enhanced cover for accumulation risk, exhibition/demonstration risk, buyer/seller contingent interests, theft from sealed containers and tools of trade/travellers’ samples no longer in transit. Annual cargo premiums are usually calculated based on annual turnover, then adjusted each year on receipt of actual figures. But QBE is offering non-adjustable deposit premiums. Under this arrangement premiums are based on estimated turnover with no adjustment at the end of the policy period. The system is supported by QBE’s experienced marine specialty risks team, with experts located in New South Wales, Victoria, Queensland, South Australia and Western Australia. The company says its decentralised approach to marine insurance “is unique in the industry”. Cargo@QBE will be available from this month.
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Australis moves into marine: Experienced underwriters and solid security were key to decision AUSTRALIS UNDERWRITING HAS expanded its product range to include marine and appointed two experienced people to manage it. The company has partnered with Great Lakes Australia, part of the Munich Re Group, and says this will provide “exceptional security”. Australis has appointed Paul Skene as Underwriting Principal – Marine. Formerly employed at Lumley and before that at Chubb, he has been working in insurance for 15 years, and has specialised in marine. His experience includes development and technical underwriting, as well as management roles for marine, personal lines and schemes. Kingsley Johnson has been appointed as Senior Underwriter – Marine. He has 28 years of experience in marine underwriting, marine claims and life insurance. Australis Managing Director Gary Marshall says the company had been planning to enter the marine market for a long time. “But it had to be with the backing of good security and specialist underwriters.” Australis Marine will initially focus on cargo-related covers. The policy will cover loss insuranceNEWS
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and damage to goods moved domestically or internationally by road, rail, sea or air. It aims to offer some additional benefits, including packing cover, removal of debris, tools of trade cover, travel sample cover and exhibitions. The company is set to launch an online quote and bind facility through Ebix in June. It then plans to offer a broad range of marine products including carriers, commercial hull and marine liabilities through regular broker channels. The company’s existing offerings include property, general and niche liability, construction and aged, child and in-home care. Australis will offer the new cover to existing clients and the general market. “We’re going to focus on cross-selling on existing property, liability and construction policies, as an added benefit to clients by providing them with seamless transition and certainty of cover,” Mr Skene told Insurance News. “In our property and liability markets we focus on more complex risks. With marine we are keen to write risks across the board.”
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peopleNEWS Brokers enjoy an amazing day with CGU Hug a stranger, do the YMCA dance and make some pizza dough from scratch… it’s not your average day’s work for most brokers. But that’s what young professionals from CGU’s broker partners across Australia found themselves doing in March. The insurer hosted annual “Amazing Race” events in Hobart, Melbourne and Sydney. Each team dressed in costume and had to complete a list of challenges, such as serving in a takeaway or posing with a wild animal. There was one big challenge for each city: pizza-making in Melbourne, 10-pin bowling in Sydney, and toy-making in Hobart. The winners took home a trophy, a bottle of wine each and plenty of glory. The event is an initiative of CGU’s broker and agency division. The company says the race helps build relationships and reward mutually beneficial partnerships.
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Axis Capital Holdings President and Chief Executive Officer Albert Benchimol was warmly welcomed on his recent visit to Australia. About 80 guests, mainly senior brokers, attended a reception in his honour in April, with employees, brokers and business associates enjoying drinks and canapés at the Park Hyatt Sydney. Axis Specialty Australia Chief Executive David Smith formally welcomed Mr Benchimol to Australia. The Bermuda-based Canadian says he’s keen to come to Australia as often as possible, so he is looking forward to continuing business growth from Mr Smith’s team. Axis Capital more than doubled its firstquarter profit this year.
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Photo courtesy of d’Albora Marinas Akuna Bay
Axis hails the chief
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Steadfast lights up Sydney The Steadfast Convention was held at the Sydney Convention and Exhibition Centre in April. Brokers mixed with personnel from insurers, underwriting agencies, wholesale brokers and premium funders at the biggest industry event of the year. More than 2500 delegates attended the convention and associated exhibition. The official dinners and late-night bars gave delegates a chance to do some afterhours business, get to know each other and sort out all the industry’s problems. There were plenty of top-quality presentations, including Credit Suisse insurance analyst Andrew Adams on the industry’s outlook; Natural Disaster Insurance
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Review Chairman John Trowbridge on the review’s impact on the sector; and Suncorp Chief Executive Personal Insurance and Insurance Council of Australia President Mark Milliner on reinventing the insurance business model. Experts from other fields also shared their insights. Broadcaster Alan Jones, social researcher Michael McQueen, non-fiction author Catherine DeVrye and leadership coach Rob Redenbach were among the variety of speakers who provided insights and inspiration. A broker panel, chaired by Insurance News Publisher Terry McMullan, gave practitioners from a variety of businesses a
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chance to share their views on the market, the industry, insurers and much else. It was the last conference before the group’s public float later this year – a fact that added poignancy to the occasion, with delegates wondering how a changed corporate structure might affect the way this popular annual get-together works. They needn’t worry. Next year’s convention will be held in Melbourne from March 1 to 4, and there’s no chance Convention Chairman Greg Stewart and his team would let anything diminish the spirit of fun, inclusion and personal development that makes this event a special one on the industry calendar. Images courtesy of Kevin Chamberlain
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Insight enjoys the best of both worlds
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There was time for learning and relaxing at broker group Insight’s 16th annual conference in April. The event at the Shangri-La Hotel in Cairns was themed “best of both worlds – work/life balance”. On the work side, the enthusiastic Andrew Morello, Yellow Brick Road’s Head of Business Development and 2009 winner of TV competition The Apprentice, gave presentations on making deals and building relationships, while Zurich Risk Engineer Peter Johansson discussed how risk engineering could support business. A discussion panel featured well-known industry figures such as LMI Group Managing Director Allan Manning and National Insurance Brokers Association Chief Executive Dallas Booth. “Life” sessions included a funny and honest presentation from Sally Cockburn – aka Dr Feelgood – titled Why We’re All Too Tired for Sex. Caricaturist Kevin Lindeberg broke the ice at the welcome drinks on Thursday evening. There were also chances to relax, mix with other delegates and enjoy live music at Friday’s Rainforestation Nature Park dinner and Saturday’s gala dinner. The Norm Dyer and Les McInerney awards were announced on the final evening. Next year’s conference will be at Crown in Melbourne. June/July 2013
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Centrepoint Alliance says ‘mahalo’ Centrepoint Alliance Premium Funding Chief Executive Bob Dodd said a big “mahalo” – that’s Hawaiian for thank you – to his clients at a special cocktail party in Honolulu last month. Centrepoint Alliance has a joint venture with IBNA for premium funding, and hosted pre-conference drinks on the evening before the Austbrokers & IBNA Member Services (AIMS) conference started. Held in the Edge bar at the Sheraton Waikiki, the function gave Centrepoint Alliance and IBNA a chance to celebrate their joint success. IBNA members and their partners rapidly got into the swing of things with Hawaiian shirts, maitais and other cocktails, great barbecue food Polynesian-style and local musicians. A great night, and it should be an annual event!
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Anticipation pays off for AIMS in Hawaii Austbrokers and IBNA Member Services, known in the industry simply as AIMS, likes to hold a destination conference every few years – a chance to get away from it all and enjoy something special. In May the joint venture between the two major broker groups brought together 520 members, insurers and service-providers at the Sheraton Waikiki in Hawaii. Both broker groups held pre-conference meetings before attending the three-day summit entitled “Anticipation”. They weren’t disappointed. Speakers included US Insurance Information Institute President Robert Hartwig, with a fascinating comparison of the Australian and American
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industries, and Qantas pilot Richard de Crespigny, who in 2010 landed an A380 jet when its engine exploded a few minutes after leaving Singapore. “Pop-up” sessions were very popular, with occasional 10-minute presentations covering subjects that intrigued and informed. Delegates enjoyed beach parties, outrigger races and dinner at Pearl Harbour aboard the USS Missouri, the World War II battleship where the Japanese Government surrendered on September 2 1945, bringing World War II to an end. Next year’s conference will be held in Adelaide. Images courtesy of Ray Lawler Studios
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AIG mixes Gold Complete with evergreen When you’ve got it, flaunt it. That’s how AIG has approached the launch of its new management liability product, which is causing a bit of a buzz with brokers. It’s called Gold Complete and has an “evergreen” feature that allows automatic renewal year after year. The company held launches last month in Sydney, Melbourne, Perth, Adelaide and Brisbane. AIG Australia’s Commercial Institutions Manager for Financial Lines Jeremy ScottMackenzie gave an educational seminar, briefing brokers on the features and benefits of Gold Complete. There was plenty of time for questions, followed by networking over drinks and canapés – or breakfast, depending on the event. AIG says feedback has already been very positive.
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AILA spins the wheel The Australian Insurance Law Association’s latest networking evening for young professionals sold out a month in advance. About 500 guests attended the Year of the Snake event at the Ivy Ballroom in Sydney. Guests enjoyed games of poker, roulette, blackjack and a money wheel – playing for chips, not sheep stations. The overall winner took home a $500 Apple voucher. Second prize was a $250 Ivy voucher and third was a $200 spa voucher. The association’s next young professionals networking night will be Oktoberfest at the GPO in Sydney in October. Those who missed the Ivy event can put their name on a waiting list.
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Information sheets available. Please email your enquiry or contact your nearest W. R. Berkley office.
Contact australia@wrberkley.com Sydney Level 7, 1 Market Street Sydney NSW 2000 Ph: 02 9275 8500 Brisbane Level 18, 333 Ann Street Brisbane QLD 4000 Ph: 07 3232 1166 Melbourne 454 Collins Street Melbourne VIC 3000 Ph: 03 8319 4080 Adelaide Ph: 0450 324 115 Perth Suite 5, 531 Hay Street Subiaco WA 6008 Ph: 08 9380 8327
W. R. Berkley Insurance Australia
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www.wrbaustralia.com
WRB6186-1-13
• An APRA Regulated Insurance Company • Underwriting Australian business since 2003 • Part of W. R. Berkley Group – Global Presence – 2012 GWP in Excess of US$5Bn – Global Strength S&P “A+”
W. R. Berkley Insurance Australia | ABN 81 126 483 681 | W. R. Berkley Insurance Australia is a trading name of W. R. Berkley Insurance Europe Limited.
6186 WR Berkley Press Ad 3.indd 1
6/03/13 2:45 PM
peopleNEWS
Allianz sets new goal for brokers Sydney’s Allianz Stadium was the perfect setting for a soccer-themed afternoon for the insurer’s most valuable brokers during the Steadfast Convention in April. Former national coach and current Sydney Football Club boss Frank Farina had a question and answer session with 47 brokers and 27 Allianz employees. He told stories about his career and warned his audience not to “confuse ambition with ability”, because he has seen some corporate tournaments end with injuries. After a light lunch, attendees competed in a round-robin contest with four teams dubbed Arsenal, Chelsea, Liverpool and Manchester United. Following two rounds and several hard-fought matches, Arsenal defeated Liverpool in the final. The group then took a tour of the adjacent Sydney Cricket Ground Museum and enjoyed drinks and canapés on the turf. Dinner was served in the members’ dining hall. Tell-tale limps the next day revealed which players took Mr Farina’s advice to heart.
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peopleNEWS Gen Z has that conversation Zurich held another series of Generation Z forums in April, offering younger brokers a chance to mingle and gain industry insights from some of the older hands. A panel discussion themed “Insurance – the conversation we have to have” – featured LMI Managing Director Allan Manning, Millens lawyer Keith Hanslow, business strategist Michael Harrison, corporate trainer Nikki Heald and Zurich National Intermediary Distribution Manager Nick Cook. The expert panel played television news clips where the insurance industry had been criticised for its response to natural disasters, then discussed whether the criticism was fair. They showed “good news” examples of how insurance had protected consumers and concluded that the industry needs to get better at telling this story. Zurich informed guests about several of its products including business interruption, marine, directors’ and officers’, industrial special risks and security and privacy. Guest speaker Mick Colliss told the story of his dream to represent Australia, trying out several sports before managing to make the world championships with the Australian Sudoku team. Some 700 brokers attended the forum in 11 locations across Australia. These pictures are from the Sydney event at Doltone House.
Construction Constr uction Liability Looking for for a policy that can provide your our client automatic automatic contractual contr liability? We W e don don’t ’t need to tell you you how how complex complex some building projects can be. Our broadf broadform orm liability liabilit y facility facilit y provides provides you you and yyour our client certainty, cert aint y, with a wording wording tailored t ailored to suit a broad range of projects and contracts. Automatic A utomatic $20M capacity. capacit y. Higher limits available. available. For more information, For information, or a quotation quot call Roy R oy McClelland on 07 3374 337 2022 or visit www.indemnitycorp.com.au www .indemnit corp.com.au .indemnity
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acn 0 002 02 785 426 abn 1 12 2 085 1 157 57 684 afsl 234578
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June/July 2013
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Nice day for a white wedding Lumley treated staff and brokers to a range of exciting prizes in the latest round of my.club events. In Brisbane, competition winners enjoyed climbing the Story Bridge, while Melbourne guests battled it out in a go-kart race. The Sydney group had dinner on a tall ship, complete with lasershooting at clay pigeons. While waiting to board the boat, the group ran into a bride and groom who had been married at a nearby hotel. The couple had their wedding photos taken at Circular Quay, then hammed it up with the Lumley crowd. There was barefoot bowling in Perth and arcade games in an indoor fun park in Adelaide. The insurer offers my.place@Lumley users the chance to win a ticket to the events each time they create a quote. Lumley likes to keep the events exclusive â&#x20AC;&#x201C; 40 or fewer brokers and administration staff attended each. The company says it is great way to reward their partners and provide networking opportunities.
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STEP UP …to a higher level of professional risks liability cover and service with NOVA Underwriting.
We have the experience and expertise that you and your clients deserve. Our products provide excellent cover, are easy to read, competitively priced and include some offerings not often available in Australia. They include: Professional Indemnity Directors & Officers Liability Management Liability Super Trustees Liability Business Expense Protection IT Liability Unauthorised Trading Association Liability Commercial Crime
For more information contact Malcolm Fletcher direct on 02 9226 7802 / 0405 736 024 or email malcolm@novaunderwriting.com.au
No matter the size of your account, we provide a high level of professional service to all intermediaries and their clients.
Phone: 02 9226 7888 Fax: 02 9223 9440 Suite 58, Level 11, 88 Pitt Street Sydney NSW 2000
Visit our website for an overview of NOVA, our policy wordings tell a great story... then call us to compare the level of service. You’ll find NOVA shines!
Nova Underwriting Pty Ltd ABN 42 127 786 823 | AFSL 324767
www.novaunderwriting.com.au
NOVA 2883
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Through certain underwriters at Lloyd’s, NOVA have substantial capacity across all liability product lines and can write cover for most occupational sectors operating within Australia, New Zealand, PNG and the Pacific Islands.
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Anonymous
The writer is a senior industry manager who is obliged by his employer’s compliance rules to remain anonymous
NOT A DAY GOES BY WITHOUT ANOTHER HEADLINE appearing in the mainstream press or a flurry of hysteria on talkback radio about the lack of affordability of insurance in this country.
Joe Average might have heard some say that it is due to the impact of an unprecedented run of catastrophes across the region of late. Others might have suggested that it’s the lack of government action on flood mitigation that’s to blame; or perhaps the rising cost of reinsurance across the globe. It might be the fault of lawyers or even organised crime syndicates (and is there a difference?). Stephen Mayne will probably have told Joe that it’s due to the enormous and unwarranted salaries paid to insurance company executives.
Doubtless all of these arguments have some merit, but I can’t help but wonder what Joe would think if he understood where all the money he e betterment debate) for our neighbour in need.
In its purest form, insurance is a socialist concept wherein lots of people all pay a little so that the few who need a lot can get it when they need it. Rather than just standing on the street corner warming our hands from the radiant heat and saying “You poor bastard” as we watch our neighbour’s barn burn down on a cold night, we get to feel warm inside as well knowing that he’ll be okay because we have all made our own contribution to raising a lovely new barn (not too lovely; we don’t want to have to have the betterment debate) for our neighbour in need. It’s not remarkably dissimilar to how I imagine the discussions might have gone around the table in Ted’s Coffee House back in 1688. But those were simpler times, when men wore tights and wigs and knew how to add up in their heads. If there were 100 shipowners who each threw in a thousand pounds to create a pot, there would be 100,000 pounds in the pot to refloat the boat when the worst happened. But in the ensuing three centuries we seem to have lost not only our sense of fashion but also our way. We’ve created a marketplace full of markets, where the pirates outnumber the shipowners, and the numbers no longer seem to add up. 90
And so this year when Joe Average and 99 of his mates all pay their $1000 premium they might be alarmed to know how much of their money actually makes its way into the pot. First we’ll have to pay the intermediary. He might be a broker, an AR, a sub-agent or a spotter. Or, worse still, he might be a spotter to a sub-agent of an AR of a broker. And they all have to get some. Our broker might have placed the business through an underwriting agency acting on behalf of the insurer, or she might have dealt through a wholesale broker – all of whom have to take their cut. It’s increasingly commonplace that the insurer owns the underwriting agency or even the brokerage, but they’ll still all take a cut on the way through.
Of course we can’t forget to make our contribution to Consolidated Revenue, so we will have to pay some out to various levels of government along the way; and because we are really clever, in some cases we will charge a tax, then add a levy and finally another tax on the tax and the levy as well. The insurer gets most of what’s left, although before they pay any claims they will have to give a bit to their reinsurers, and the reinsurers’ reinsurers – and don’t forget the reinsurance brokers. The actuaries, the loss adjusters, the claimshandling agents, the compliance and dispute resolution consultants will all need some, too.
And then the insurer can pay their own expenses of running the insurance company, and finally a few dollars should make their way into the pot to pay some claims. But not too many claims, because otherwise the insurer’s shareholders will get cranky and he’ll have to get Joe and his 99 mates to chip in $1500 each next year. It’s no wonder everybody is worried about the affordability of insurance in this country, Comrade. Expensive, inflexible, unattainable: Why aren’t we working harder to provide insurance for lowincome earners? See page 51 insuranceNEWS
June/July 2013
Goal
Maintain your ge. d e e iv it t e p m co
Adam Farr, National Sales & Development Manager
Allianz Blue Eagle Program: better than ever. We launched the Blue Eagle program in 2009. This Allianz initiative was designed to further amplify our relationships with premium partners by listening to their feedback and addressing their individual needs. Since then, Allianz has been committed to ongoing improvements in this program based on premium partner input. We rely on this to protect our position as one of Australiaâ&#x20AC;&#x2122;s leading insurers so if you have some feedback, we encourage you to contact your Allianz Representative. We are listening.
Our team is our difference. We are committed to being your first choice. Review. Refresh. Reinvigorate.
Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL 234708 MKT 44 05/13IN
YOUR CUSTOMER’S BUSINESS AND ADVICE IS WORTH PROTECTING.
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CGU Insurance Limited ABN 27 004 478 371 AFSL 238291. This is general advice only and does not take into account your customers’ individual objectives, financial situation or needs. When making decisions about the product your customer should consider their personal circumstances and the product disclosure statement available at www.cgu.com.au CumminsRoss CGU0150