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FIRE BRIGADE: ICA’s disaster aid strategy
ON THE TURN: Why rates will fall next year
MONOPOLISED: Insurers want workers’ comp
EXCLUSIVE: No game for small players How Martin Senn is using global power to grow Zurich
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FOR THOSE WHO TR
This is a general description of insurance services and does not represent or alter any insurance policy. Such services are provided to qualified customers by affi IL 60196, in Canada, Zurich Insurance Company Ltd, 400 University Ave., Toronto, ON M5G 1S9, and outside the US and Canada, Zurich Insurance plc, Ballsbr Limited, ABN 13 000 296 640, AFS Licence No232507, 5 Blue St., North Sydney, NSW 2060 and further entities, as required by local jurisdiction.
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WE GET PEOPLE ON THE GROUND WHERE YOU NEED THEM.
When you’re passionate about what you do, you protect your company as best as you can. But you can’t do it all from your headquarters. Zurich International Programmes provide a team of 2,000 professionals who work with you in over 200 countries. And because they understand local cultures, they can best help protect you on the ground. Contact your local Zurich representative for more information on International Programs.
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omers by affiliated companies of the Zurich Insurance Group Ltd, as in the US, Zurich American Insurance Company, 1400 American Lane, Schaumburg, e plc, Ballsbridge Park, Dublin 4, Ireland (and its EU branches), Zurich Insurance Company Ltd, Mythenquai 2, 8002 Zurich, Zurich Australian Insurance ZU22440 - V1 08/14 - CSPS-008602-2014
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www.aig.com.au AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. In Australia, products and services are written or provided by AIG Australia Limited ABN 93 004 727 753 AFSL 381686. Not all products and services are available in all jurisdictions and are subject to actual policy language and underwriter discretion. For additional information on AIG Australia Limited products and services, please visit our website www.aig.com.au
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Contents 6 Newsmakers » 10 No game for small players » Zurich chief Martin Senn explains the problems – and global opportunities – flowing from the market’s flood of capital.
16 On the turn » Peak profits look set to roll in for a while longer, but a cyclical shift may be on the way.
22 Smoke signals » The industry has earned plaudits for improved communication around bushfires, but the issue of underinsurance smoulders on.
30 Time for a change? » Government workers’ compensation monopolies are under challenge from insurers.
34 Star performers » LMI’s claims comparison website is widening its scope, and some insurers are reaping the benefits.
38 Austagencies rising » Whether it’s acquiring a business or building one from scratch, the underwriting agency specialist focuses on the fine economics of niches.
42 Beyond compare » Major insurers are resisting a forced marriage with comparators.
44 Heading for trouble » Sports clubs that fail to protect their players from the effects of concussion could pay the penalty in court.
48 All inked up and ready to write » Gallagher’s new Pen Underwriting operation is hitting the road running.
52 More pros, fewer cons » Regulators have turned the spotlight on professionalism in financial services – and the industry is beginning to respond.
lawNEWS 66 Move and counter-move » D&O insurers are racing to deal with threats to company directors from investigations and legal action.
73 Catlin ready with product recall cover » Quality and safety rule as consumers put increasing pressure on suppliers.
73 Direct combat » Premium Funding’s corporate product takes the fight up to the banks.
74 No genius, no work » What happens when the key person gets sick? SUA’s new business continuity product has the answer.
76 Smoothing the career path » Leader or technician? Suncorp has designed a pathways program that puts the best skills in the best places.
79 AIG ingenuity ensures a happy Bledisloe clash » 80 Claims specialists set a record » 83 Vero helps brokers with expo series » 84 A moving experience for young professionals » 86 Sunshine and learning as CQIB gathers » 88 Quill Club writes a cheque for spinal research » 90 Centrepoint celebrates with a lot of famous dummies » 92 Ausure opens up with a Steadfast surprise » 94 Professionals flock to APIG gathering » 96 Fun and celebration at ANZIIF awards »
58 The front line » Meet the regional managers who drive the company where the real business happens.
98 maglog »
64 Is corporate Australia’s head in the cloud? » The threat from cyber crime is growing and there’s no room for complacency, an expert warns.
Cover: Martin Senn, Chief Executive, Zurich Insurance Group Cover image: David Russell
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65 Local 81 Corporate 64 Regulatory & Government 51 Financial Services 73 The Professional 74 International 9 Analysis 6 Breaking News Some 16,924 news articles – including 158 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. Access to articles and other services provided by insuranceNEWS.com.au are free.
Sinodinos: doubts on suitability Assistant Treasurer Arthur Sinodinos has done nothing to reinforce his suitability for the role during his latest appearance at the NSW Independent Commission Against Corruption (ICAC), informed sources have told insuranceNEWS.com.au. Senator Sinodinos, whose portfolio has been vacant since he stood down in March while ICAC heard allegations related to Australian Water Holdings, a company he chaired, appeared again at an ICAC hearing on Friday. He fielded questions about his time as chairman of the NSW Liberal Party’s finance committee – during which prohibited donations were funneled to the party – telling the commission he did not take personal responsibility for the matter. Senator Sinodinos has previously told ICAC he knew nothing about large donations to the Liberal Party by Australian Water Holdings. On Friday he said he was not aware of the Free Enterprise Foundation, which forwarded $700,000 in prohibited donations to the NSW party. Following the hearing in Sydney on Friday he told media he is now looking forward to returning to the ministry.
Sinodinos appearance raises questions about management, 15 September
13 years on, 28 HIH firms wait for liquidation Companies in the collapsed HIH group continue to pay out to creditors and are now closed to new claims. HIH became the country’s largest corporate collapse when it went broke in 2001 and its 82 companies were put into liquidation. Liquidator McGrathNicol is administering schemes of arrangements for eight of the Australian companies. Its annual report to creditors say 53 company liquidations have been finalised, with another due next month. That will leave 28 Australian subsidiaries to be liquidated, of which 10 are FAI Insurance companies. Final claims had to be made by September 2 last year. Australian creditors of HIH
Casualty & General have received 39.97 cents in the dollar, and administrators estimate the final payment to all creditors will be 31-47%, depending on intergroup cross claims. The company had a $1.86 billion deficit at June 30. HIH Underwriting and Insurance (HIH U&I) paid $11.7 million to the Asbestos Injuries Compensation Fund during the year for claims against building products manufacturer James Hardie relating to a facultative reinsurance arrangement. So far $19.1 million has been paid to the fund. Creditors are likely to get 29-35 cents in the dollar, but there are cross guarantees between HIH companies that complicate the administration.
HIH U&I had a deficit of $374 million at June 30, with a liability of $469.29 million from other companies in the crossguarantee group. FAI creditors could receive a payout of 11-71%, with Australian creditors at the highest end of the payment. The business had a deficit of $618.78 million at June 30. FAI General Insurance is facing a $162 million claim from other group companies, which is being disputed. It expects a 60-68% payout and has a $717.85 million deficit. CIC Insurance estimates a total payout of 65-91% and has a $198.33 million deficit. It has total liabilities of $634.17 million but also holds assets of $435.58 million.
HIH liquidations edge closer, 29 September
Big Data is like iron ore: bulky and useless in its raw state. It has to be refined through several stages before it yields up actionable and consumable information. – Aon Benfield Insurance Risk Study, September
Rush hour: Rockhampton residents on a flooded street
If it ain’t broke yet, fix it Natural disaster funding arrangements should be reversed, to place the emphasis on risk mitigation rather than nationally funded relief and recovery after events, the Productivity Commission says. The commission’s interim report contains draft recommendations that are in line with insurance industry submissions to its inquiry into natural disaster funding. It recommends financial support to states and territories for relief and recovery be reduced and mitigation funding increased. “There is a long-standing concern that governments under-invest in mitigation and spend too much on recovery, leading to insuranceNEWS
higher overall costs for the community,” the report says. In the 10 years to 2012/13, the Federal Government has spent $8 billion on postdisaster relief and recovery. State and territory governments have spent an additional $5.6 billion, sourced from the Commonwealth through various eligibility criteria. The report says the current funding model creates a disincentive for state and territory governments to invest in mitigation and insurance. Commission calls for more mitigation spending, 29 September
insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 21,500 subscribers. In August and September we published 423 articles online. These were made up as follows:
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Why the US needs TRIA renewed The rise of Islamic State shows the continued need for a federal terrorism insurance backstop in the US, Insurance Information Institute (III) President Robert Hartwig warns. The Terrorism Risk Insurance Act (TRIA) was established following the September 11 2001 attacks, as terrorism cover became unavailable or very expensive. It has been extended twice but is due to expire at the end of the year. Renewal proposals are before both the Senate and House of Representatives, but time is running out for them to be implemented. “Recent and explicit threats to American interests around the world from new terrorist organisations, including Islamic State, demonstrate that the need for the program is greater than at any time in the past several years,” Dr Hartwig said. He says the scheme “costs taxpayers vir-
tually nothing”, yet provides terrorism insurance stability, affordability and availability. Global reinsurance broker Guy Carpenter says in 2012 more than 850 insurers participated in the scheme, writing $US183 billion in premiums. It says any increase in the current 20% deductible would have most impact on small and medium insurance carriers. Meanwhile, more than 400 businesses, including many insurers, have signed a letter from the US Chamber of Commerce to the House of Representatives, urging swift passage of the legislation. “Without the backstop TRIA provides, the private insurance market would simply be unable to provide adequate levels of terrorism risk insurance,” the letter says. Islamic State ‘highlights need for TRIA’, 15 September
Insurance News journalist John Deex has won the Engineers Australia journalism award for an article on fire risks in Australian high-rise buildings. The award includes a $5000 prize and was presented at the National Press Club in Canberra last week. The winning article, “Hot on a high-rise issue”, was published in Insurance News in June last year. National Press Club Vice-President and award judge Ken Randall says Mr Deex interviewed an internationally recognised expert on fire safety in building design, Jonathan Barnett. “The views he elicited represent a serious warning to Australian regulatory authorities, particularly in relation to high-rise buildings.” Award winners are selected “based on excellence in reporting, contribution to broadening awareness of engineering issues, originality, incisiveness, ethics, research and production”. Insurance News Publisher Terry McMullan says the award proves excellence in journalism is not confined to the mainstream media. “Insurance News journalists write on serious and complex subjects with great skill and objectivity, and it’s nice to have our professional approach to the insurance industry and its issues recognised,” he told insuranceNEWS.com.au. Fire risk article wins national award, 29 September
tall building focuses on keeping Jonathan Barnett a’s methods and – although Australi safe from fire him cold rules can leave
By John Deex
functioning and tion, in a properly never system we have role last year. designed sprinkler anywhere in the world Olsson in the same now and I have no loss had multiple life MAY BE AN “I’ve moved here says. says. JONATHAN BARNETT in fire anywhere,” he you since 1850,” he recognised expert a cup intention of going have sprinklers is happening in internationally “In the US if you he can’t make “I believe the future part of the world. aspects of construction. safety, but he reckons It is a great can save on other Australia now. – like you get an automatic of coffee. he “For example, fresh and exciting fire in the article,” It’s young and requirements for “Don’t put that close to a the 1950s.” reduction in the can go up “something America was in which means you complimentary so levels, house pleads, rustling not is resistance at the converted But Dr Barnett standards materials.” latte” after I arrive of and construction with much cheaper are present, US seaside suburb about fire safety in the Melbourne Fire & Where sprinklers nation. extend the is home to Olsson in his adopted and allow builders to Nevada also like Hampton that an states Director. authorities “In the US, is Technical must travel to reach in for sloppy construcRisk, where he distance someone the need from Massachusetts Florida are notorious even eliminate and New York are Dr Barnett hails Australia exit, “which may been drawn to tion, while Massachusetts exit stairway”. out the US, but has trip additional the an of says. for He has made exemplary,” he save vast amounts he’s to Nevada and since childhood. Both these can not 37 times but, finally, “Australia is closer the same does here a staggering money, but in Australia reguFlorida.” sparked here to stay. of this country’s apply. this country was The cornerstone to convince authorities His interest in posted Code of Australia, “Here it is hard level of fireRalph, who was lation is the Building the mid-1990s to need the same by his English father, in up dealerthat you don’t the 1950s to set which was reformed to Australia in approaches. firm Gestetner. allow different ships for stationery settling in the United Despite eventually people enthusiasm for – States, his father’s Under never dimmed and places Down to his family. this passion on and he passed instead of a stuffed “When I was three, says a stuffed kangaroo,” teddy bear, I had me to wander was natural for Dr Barnett. “It point.” this way at some a professor at Worcester uniDr Barnett was a private research Polytechnic Institute, which is one of a says. versity in Massachusetts soluwhich focus proofing,” Dr Barnett US universities Satisfy” with an alternative applied small group of the “Deemed to “You have to go in the Firstly, there is technical arts and or may not result te requirements on research into tion, which may solution – black-and-whi sciences. was a prescriptive code. same level of savings.”entirely happy with for 28 years, he based on the old Working there “Alternative Solution” Dr Barnett is not protection either, Then there’s the university’s fire designs solution” approach founder of the allows for different the “alternative which is the pathway, which department, not have the necessary are proven to engineering a specialisaas long as they saying that it does He developed and methods – requirements. largest in the US. and checks and balances. is often a lack of computer models meet the performance first option is still proption in writing the And he says there terms how to use them Dr Barnett feels the code goes in far engineers how of teaching and awareness too prescriptive. the safety of a building level of safety erly. of guaranteeing it. brought him to “There is an unknownrisk – it is based property within of In 1992 the CSIRO of the people and societal loss in he computer simulation an unknown level about and teach to worries experiences,” and Australia “The code what happens on historic precedents types of It doesn’t care and blazes to fire engineers. anticipate new to life is a global sense. courses in Sydney says. “It does not as long as the risk “I taught short the place,” to your property It fell in love with construction. Melbourne and cost-effective, either. acceptable. “It is not always if their building for he says. more than is necessary.” “People think that met their a project centre sometimes requires Barnett believes the then they have In 1997 he started meets the code, bringing groups okay. example, Dr that’s not For Australia, is in and buildings in his university various projminimum obligation out to work on authorifull impact of sprinklers need to be an awareness of US students by the planning “But there does so far.” taken into account code only goes ects. that the building here permabrought ignities. with finally was the He as involved “Other than people project group Aecom nently by major joining director, before June/July 2013 firm’s technical insuranceNEWS
is based this code which “We are stuck with hioned ise and old-fas on limited expert ues.” construction techniq
Award for fire risk article
for buildings have voiced concern are rare, experts high-rise fires escape systems in 2005. While fire control and ablaze in Madrid have inadequate a 32-storey buildingplastic cladding, while many Towering inferno: that use flammable June/July 2013 around the world insuranceNEWS
Lumley chief steps down as IAG moves in IAG has announced a new commercial insurance leadership team following its Wesfarmers acquisition and reorganisation of the Australian business. Commercial Insurance Chief Executive Peter Harmer says the new line-up “brings together people with extensive insurance experience, a deep knowledge of customer and partner needs and the right qualities to take our business forward to the next level”. Ben Bessell has been named Chief Commercial Officer, while Donna Walker becomes Executive General Manager (EGM) of Broker Business. Other appointments include: Phuong Ly, EGM Agencies; Stuart Chapman,
EGM Niche & Direct Business; Andrew Ziolkowski, EGM Underwriting; Jen Mitchell, EGM Claims; Andrew Jordan, EGM Strategy, Brand & Risk; Malcolm Freeman, EGM Integration; and Fiona Phillips, EGM Transformation. Leadership of the niche and direct business has also been confirmed, with John Ripepi continuing to lead WFI, Paul Ayton at Swann Insurance, Carl Johnson running retail business insurance and James How national adviser services. The appointments formalise the structure that brings IAG together with Wesfarmers Insurance Australian Underwriting. The acquisition of the Wesfarmers business was completed at the
end of June. Lumley Chief Executive John Nagle (above) and Wesfarmers Insurance Australian Underwriting Chief Executive David Brown will leave the company. IAG moved to a new operating model for its Australian operations from July 1, creating personal insurance, enterprise operations and commercial insurance divisions. IAG names commercial leadership line-up, 25 August
An “extremely competitive” insurance market is driving down premiums and putting consumer loyalty to the test, according to Aon. Its third-quarter Insurance Market Update says insurers are looking to attract and retain clients by refreshing their products and wordings, expanding cover and matching competitors’ pricing. Aon Managing Director of Broking James Baum says current market conditions may be here to stay. “Are we really just seeing the traditional hard and soft market cycles, or are we witnessing a fundamental change in the insurance market caused by the continued creation of alternative capital?” he said. “It would appear we are now moving away from the traditional cyclical market, with current market conditions likely to become the new norm.” Buyer’s market may be the new norm: Aon, 22 September
The Insurance Awards winners on stage with ANZIIF Chief Executive Prue Wilsford (centre)
Here we are again – companies repeat award success Several of the winners at last week’s Australian Insurance Industry Awards night in Sydney had additional reasons to celebrate their achievements. Allianz Australia was crowned best large general insurance company for the fourth year in a row, while Aon took the large broker of the year award for the third consecutive year. Brooklyn Underwriting Agency also made it three in a row with its win in the underwriting agency category. National Transport Insurance achieved a double-double, winning the small-medium insurance company and claims service provider categories for the second consecutive year. And Planned Cover won the medium broker award, having won the small broker award as IBL last year. Insurance lawyer Michael Gill, who is President of the International Insurance Law Association, won the lifetime achievement award. Mr Gill, a DLA Piper consultant and former
partner with 38 years at the firm, was recognised for his commitment to developing insurance law in Australia and abroad, his thought leadership and pro-bono work. Phil Hay, Head of Life Insurance at BT Financial Group, was named insurance leader of the year. Other winners at the awards night, which is organised and hosted by the Australian and New Zealand Institute of Insurance and Finance, were: • Best life insurance company: CommInsure • Small broker of the year: Parmia Insurance • Law firm: DLA Piper • Service provider to the insurance industry: Taylor Fry • Innovation: CelsiusPro (Aust) and Gratex International • ANZIIF Women’s Council employer of the year: Swiss Re • Generation i youth development and employer of the year: Sportscover.
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The traditional cycle that dictates the ebb and flow of the insurance industry’s fortunes has been skewed over the past few years by the inflow of massive amounts of investor capital. As Zurich Chief Executive Martin Senn notes in an exclusive interview with Insurance News, many things are changing, but the major global insurers are seeing growth opportunities where their smaller competitors can’t easily compete. To add some local balance to the equation, this issue features two analyses of our industry’s recent performance. The consensus appears to be that premiums have held up well so far, but by the middle of next year they will have succumbed to the pressures of overheated competition. The insurance industry has a long history of sharp price corrections caused by many factors. The only certainties are that what goes down will inevitably rise again, and vice-versa. This edition marks five years of Insurance News (the magazine). It was a bit of a gamble starting a magazine at a time when print was giving way to digital, but the steady growth in readership over that period to a position of prominence has vindicated our decision. As people so often tell us, there’s “something about a glossy magazine” that can’t be adequately replicated on a screen. And so say all of us.
History repeats for ANZIIF award winners, 25 August
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No game for small players Zurich chief Martin Senn explains the problems – and global opportunities – flowing from the market’s flood of capital By Terry McMullan
INSURERS HAVE RECENTLY BEEN AT PAINS TO POINT OUT that price shouldn’t be the sole determinant of an insurance contract. Yet price can’t be ignored in a business environment where capital is pouring into the market. As competition flourishes across the reinsurance sector, depressing premiums and encouraging fresh approaches to risk transfer, Zurich Insurance Group Chief Executive Martin Senn sees little reason to change course. Basically, he’s sticking to the tried-and-true precept that the value of the relationship is greater than the price of the product. He is also focusing Zurich on to a business it’s very big in, where the competition is fierce and players with sufficiently deep pockets few: global corporate. Mr Senn, a former banker who became the giant Swiss insurer’s chief executive in 2010, says the price of the insurance product is just a part of the relationship between insurer and client. He can’t think of any particular reason why the parking of unprecedented amounts of capital into the reinsurance sector by pension funds keen for a stable return would develop into a permanent thing. But only time will tell. In an exclusive interview with Insurance News in – Martin Senn on the Melbourne a few weeks ago, Mr Senn said the global reinsurance industry is experiencing a market softening, “but I would not say that it is a true market global trend. There’s certainly globally more capacity in the market.” Mr Senn was in Australia to meet with local executives and to speak with Zurich Australia staff following the company’s second consecutive win in the National Insurance Brokers Association’s annual General Insurer of the Year award. He was accompanied by Hong Kong-based Asia-Pacific Chairman Geoff Riddell, who tells Insurance News there are emerging signs that investors are now spreading their capital from the property market into liability. “I think what you’ve got to look at is the nature of reinsurance as well as the capital,” Mr Riddell says. “There’s a lot of mature play taking place around catastrophe capacity, which is what was first impacted. I think it’d be fair to say that people are now looking at capital inflows or capital growth. “So yes, some pressure is building on liability, but clearly property is where there’s a major impact.” Mr Senn says Zurich’s approach is, and has always been, to
approach the client relationship from the basis of value rather than price. While local business arrangements may be more complex than those the company has with global corporate clients, the emphasis remains the same: value. And he sees further significant growth in the global corporate market, where few insurers have the reach and wherewithal to compete adequately. “I was in Mexico last year, and at the time we had three Mexican companies which needed global coverage. They told me that in three years there will be 30 more Mexican companies needing global coverage. “They will need an insurance company which gives them the insights and the global coverage they will need to become international. “If you export, you are a potential customer of Zurich. Companies that want to go global can’t realise their potential in a local carrier. “So on the global corporate side of our business, we see the relationship in terms of being able to provide a range of services across the world.” Mr Senn agrees his company will always have to be competitive on price, in Australia and everywhere else. “But if Zurich just wants to comsoft, soft global market pete on price only, and it is not differentiating itself from its competition on the relationship and the service we’re giving to the customer, that would not be a good value proposition. “Customers are themselves competing for business and they know what we offer them. That is as important here in Australia as it is anywhere else. We have relationship leaders and risk engineers here in Melbourne, and we deliver our value proposition in Melbourne and Sydney as much as we deliver in Zurich, or Lisbon, or London or New York.” But even if there’s not yet any real evidence of the global property reinsurance markets undergoing dramatic and permanent change, Mr Senn does see the present situation putting pressure on some of his company’s competitors. “I don’t think it will change fundamentally the way we work,” he tells Insurance News. “But what it potentially will do is separate the leaders from the rest of the industry.” “Frankly, there are not that many companies which can truly cover global corporate – there’s only a handful.” With interest rates globally at very low levels as countries try to stimulate their local economies in the wake of the global financial
“What it potentially will do is separate the leaders from the rest of the industry.”
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Team players: from left, Zurich Australia Chief Executive Daniel Fogarty, Group Chief Executive Martin Senn and Asia-Pacific Chairman Geoff Riddell
crisis, Mr Senn is uncertain how much more of a soft insurance market can be sustained globally. “It’s about a sustainability of your pricing. And it’s about having a decent plan on how far you go and how you differentiate yourself. “I don’t think we have had a real hardening market in the last few years. We have pressures, but I don’t think that we’re going to have a continually softening market globally. “There is going to be more pressure in some markets than in others. There is now substantial pressure here in Australia without any doubt, which is probably different from larger markets. “The most profound rate pressure that we are experiencing at the moment also has given us a very high level of competitiveness. I consider that a normal cyclical development. “Some people will fall into the trap and start competing on the basis of uneconomical pricing, and that in the past hasn’t been sustainable either.” Mr Riddell notes that the cycle has changed very little since 2002, when it experienced a sharp hardening. “Several things have happened in the period since,” he – Geoff Riddell on the says. “Modelling techniques have improved dramatically, obviously most particularly in the property market. People know the limit they should go to in property. “But we’ve had capital come in and we’ve found ways of bringing capital in as an industry, which had much less frictional cost than they had in the past. Securitisation is much cheaper than it was.” Mr Riddell is one of the many senior international executives who believe that such innovations as sidecar arrangements will quit the market as swiftly as they arrived after financial markets stabilise. And he believes the present inflow of capital is dampening the normal behaviour of the insurance cycle. “It’s not a measurable market where you can bring in capital that dampens what might’ve been cycles in the past,” he tells Insurance News.
“Although interest rates mean that insurance is a much more attractive proposition when you’re searching for places to put capital than it would be in a high interest rate environment, will that capital stay if interest rates turn? Probably not. But that turn could be quite a while away.” He warns that low insurance premiums carry their own inbuilt risk for insurers, and that “really hard markets” usually come about very quickly and as the result of two simultaneous shocks. “One is something going wrong in the insurance market, and the other is something going wrong in the financial markets. Those risks have not gone – it’s just a matter of when they will happen. “If it happens when the insurance industry has lower capital buffers because of the way it’s been competing, the more dramatic those impacts will be. Capital coming in the way it is at present tempts underwriters to start writing below what they know is the technically correct price. The moment capital-providers believe the industry doesn’t know how to price a risk, then you’ll get a very hard market. causes of a hard market “When you have a really hard insurance market, people are genuinely scared. But I think the risk of a hard market is always there.” Mr Senn says what is changing in the market at present is not related to price so much as the need for global insurers to invest in the kind of services that will enhance their customer relationships. It’s no longer a case of what worked yesterday working the same way today. Zurich is investing considerable resources in understanding its major customers better, he says. “We are investing to maintain and continue the relationship; to look at all the forms of risk we can use to give advice to the customer; to continuously educate and build up our risk engineers; to make sure that the claims-handling process is effective and, wherever possible, automated.” He says the aim is to gain greater insights into the sort of risks these selected clients face, and to use that knowledge to serve them better.
“One is something going wrong in the insurance market, and the other is something going wrong in the financial markets... It’s just a matter of when they will happen.”
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Loving those Australians Martin Senn really likes the company’s Australian operation. He should. Zurich Australia General Insurance announced a record half-year operating profit of $99 million in August – a useful contribution to a group half-year profit of $US2.11 billion. The Australian result was thanks to a “benign catastrophe environment”, but it helped to underscore their second consecutive award of the National Insurance Brokers Association’s highly sought-after General Insurer of the Year. Mr Senn, who acknowledged both achievements when he addressed staff during his brief visit last month, says Australia is “still the biggest market in the region in terms of the operating profits you are generating here. General insurance is particularly strong.” Zurich has operations across Asia, but growth has sometimes been difficult, and he is resigned to taking a long-term view on the Chinese market. Nodding in the direction of Malaysia and Indonesia as Zurich’s best growth prospects, Mr Senn admits “regulation and market structures do not enable us to be an effective provider” in some Asian markets. He cites inhibiting factors as “market intensity and entry costs”, adding: “We would not think that the retail business in China is a very strong proposition for Zurich”. “So there is a little bit more opportunity in the southeast longerterm than the north of Asia – that is, China.” However, he adds, Zurich is still “very focused on continuing to invest into global corporates. That includes in a country like China.” Meeting of minds: Mr Senn with Zurich staff in Sydney
“We have identified corporates where we have taken distinctive positions into which we prioritise our investment.” While he does not define the programs Zurich is developing with global corporates as more akin to a partnership than anything else, the intimation is that being closer and involved is the desired end. “We’ve just had a conference in Europe, where we invited some 70 of these major customers from all over the world,” he tells Insurance News. “We brought them together to exchange their views on how they manage risk, and the emerging trends they see. “Zurich is playing a role to understand the risks better. Customer panels give us feedback on how we have to improve our service. It’s an ongoing process.” Mr Riddell says the Zurich risk conferences are not just adding to greater interactions with established clients, they are also attracting new entrants the global markets. He recounts how he was approached recently by an Australian mining executive who wanted to know how he could secure an invitation to what he had been told was “the best risk conference in the market”. This llustrates there is a value put by senior manage– Martin ments on what we are doing in terms of risk education. “We’re not selling Zurich, we’re explaining the context for the market. We have the confidence not to have to do a sales pitch, because we really do want to help them to know more about the business, being able to talk to whoever they report to in a different way than they did before.” Meanwhile, Zurich also takes leadership positions in global issues that it believes are important to it and its clients. Flood is a case in point. Mr Senn says Zurich decided about three years ago to focus on flood mitigation because flood is the natural catastrophe which is most harmful economically, as well as socially and from a humanitarian standpoint. “Floods create more economic and humanitarian damage than all other natural catastrophes put together,” he says.
“We have used the Zurich Foundation to engage fundamentally in flood mitigation, and in helping at different levels through our expertise in dealing with these disasters. “We are co-operating now in our flood resilience programs with international organisations. But it’s not just about writing a cheque – it’s about bringing our expertise and our time onto the table. “So we have launched a pilot in Mexico, where the local authorities deal with flood issues and find mitigation opportunities. We have rolled out a pilot in Indonesia as well, and we’re looking at how we can expand that program as we move forward. “Our engagement is a learning experience for us and our risk engineers, but it’s also a learning experience for our partners – local communities, governments, the Red Cross – in dealing with these programs. “It’s a very important part of what we are doing. He isn’t concerned by the noise generated by climate change deniers, saying the issue is “not about people accepting or not accepting”. “What is an issue is that we see that the frequency and severity of natural catastrophes in the past 10 years has been substantially increasing.” He gives the example of his Senn on climate change native Switzerland, where glaciers are melting, affecting the country’s permafrost. This leads to softer snow and more avalanches, all of which leads to greater river flows and deeper, faster-flowing rivers. “So there is an incredible number of interdependencies of small events that affect the stability and the balance of the ecosystem,” Mr Senn says. “Expand on a global scale, and one has to be aware of that, because for our business it has an impact on risks. And we have to deal with that. “So we take it all very seriously, whether we have the latest scientific evidence or not. We see the frequency in severity has changed. “Now, if you take that on a 10,000-year horizon you might come to a different conclusion than if you take a 10-year horizon. But we’re dealing with this at this moment, so we have to take that * very seriously.”
“The frequency and severity of natural catastrophes in the past 10 years has been substantially increasing.”
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On the turn Peak profits look set to roll in for a while longer, but a cyclical shift may be on the way By Andy Swales
AUSTRALIAN GENERAL INSURERS have clung onto peak profitability for longer than expected, but competitive pressures are building all the time, according to two industry reports. Actuarial consultant Finity says plunging reinsurance rates over the past year provided a pleasant surprise for primary insurers, contributing to another strong performance. But it warns a cyclical turn is on the way, with margins across commercial and personal lines likely to decline from the middle of next year. In a separate analysis, KPMG says primary insurers made $4.96 billion of profits last financial year – up 8.3% to a post-global financial crisis record. Its General Insurance Industry Review says rising premiums and a benign catastrophe environment drove the gains, but premium rises were slowing – and that trend looks set to continue. Both reports agree on the main threat to margins: growing competitive pressure. Finity’s Pendulum report, produced with Deutsche Bank, says one-off gains and below-average catastrophe claims helped insurers report a combined insurance trading result (ITR) of 17.3% of net earned premium last year – above its forecast of 14.3% and only slightly down on 2012. The industry’s underlying ITR margin – adjusted for one-off factors – grew to 14.5% (against a forecast of 13.5%) from 12.9%. Since then, reinsurance rates have tumbled, driven by capacity growth during a relatively benign catastrophe period and an influx of capital from alternative sources such as pension and hedge funds. 16
These rate reductions – up to 25% in Australia and 20% in New Zealand at the June 30 renewals – provide a “considerable tailwind” for this year’s ITR margins, Finity says. But with returns on equity remaining attractive last year – in the 30-40% range across commercial and personal short-tail classes – competition is growing and will soon take its toll. “While we expected underlying profitability to peak last year, the industry benefitted from a reduced expense ratio off the back of cost initiatives from the majors and improved scale leverage from higher earned premiums more generally,” Finity says. “Combined with the ‘free kick’ of significantly lower catastrophe reinsurance costs, this will extend peak earnings to this year.” It says these gains will flow through to results for next year too, but “in the
medium term, we think price-based competition is likely to push down margins”. Finity says a number of key expectations affect its profit outlook for 2014-16. They include falling premium rates in property classes, with home expected to slow to 3% growth this year and be flat next year. Motor rates are projected to fall 1.5% this year and next. In commercial property, price reductions of 10% were noted at the top end in the June renewals, while SME pricing is expected to fall 2% this year and 3% next. Increased competition across personal lines is also forecast to influence profitability. New entrants are eating into the market, with major banks and challenger brands such as Auto & General, Hollard, Youi and Coles increasing their combined share
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“Willingness to sacrifice premium revenue growth... appears to be a response to the increasing price competition from challenger brands.”
to about 16% in June from 10% in June 2011. Positive factors include further benefits from cost and claims initiatives – such as those under way at major players IAG, Suncorp and QBE – and the potential for more one-off gains such as reserve releases. For the whole general insurance industry, the report predicts an underlying ITR margin of 14.9% this year, slipping to 13.2% by 2016. Premium rates are expected to rise just 0.6% this year before dropping slightly next year and staying flat in 2016. Industry gross written premium (GWP) growth is projected to slow to 23% following several years of high-single-digit expansion, and returns on equity are expected to continue their recent dip, hitting the 15% mark generally sought by investors this year
before falling to 13% by 2016 – still above the 11% long-term average. KPMG says industry GWP grew about 3% to $32.58 billion last financial year, driven by gains in commercial insurance, while personal premium levels were relatively flat. The combined operating ratio improved to 87.7% from 89.8% and the loss ratio fell to 61.6%, its lowest in the past five years. The expense ratio dropped to 26.1% from 26.4%, driven by cost-cutting measures. “Some insurers offshored elements of their operations, while others focused on technological transformations to improve the customer experience through enhanced policy and claims management systems,” KPMG says. But the industry, while still growing, has experienced a sustained slowdown
that is expected to continue into next year. Like Finity, KPMG warns new entrants are a major threat to established insurers. “Several insurers have announced a strategic focus on underwriting discipline, electing to focus on higher-margin business with lower claims frequencies,” KPMG Asia-Pacific Head of Insurance Accounting Scott Guse says. “Willingness to sacrifice premium revenue growth for a higher-quality portfolio appears to be a response to the increasing price competition from challenger brands and products.” Online insurers, aggregators, “white labelling” of products and non-traditional providers such as supermarkets have grown from a small base, according to the report. A sample of challenger brands
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Drowning in money Finity’s Pendulum report features an indepth analysis of challenges facing commercial lines, which have been “flooded” with capital and capacity in the past few years. It says the influx has been driven by Lloyd’s and other foreign players, which were attracted by a tightening of capacity in financial lines and general hardening of rates after the global financial crisis and spate of natural disasters in 2010/11. In line with this, the number of underwriting agencies has continued to grow, rising to about 120 currently from about 70 in 2007. “In 2007 about half of the underwriting agencies were writing business purely for Australian insurers; this has reduced to about one-third this year,” Finity says. This proliferation of participants has softened the commercial lines market in recent years, with premiums growing just 25% since 2005, compared with 80% growth in personal lines. “Commercial lines insurers are currently making good profits – but only due to the absence of catastrophes,” the report says. “We estimate premium rates are currently not adequate to cover an average catastrophe year.” Finity predicts the soft market will persist “until poor profitability hits capital providers’ bottom lines in a significant way”. It says this softness will promote increased sophistication in the market, with major players making better use of data to identify profitable pockets of business and improve underwriting decisions. In commercial property, Finity expects gross written premium to drop about 5% this year after rises in recent years, while local insurers will continue to feel the squeeze from overseas competitors. The class was profitable last year – the only time in the past four years – “but
“We estimate premium rates are currently not adequate to cover an average catastrophe year.” this was reliant on better-than-average weather experience”. This year could also prove profitable thanks to good weather, but the report warns underlying profitability, allowing for weather outcomes, “is not there”. In liability, premium volume growth has been slow amid an abundance of competition and appetite for the business. Premium rates have been flat for five years and “we see no forces to push rates higher”. The liability claims environment has held steady or possibly
improved, meaning profitability has held up well. In financial lines, rates have fallen and coverage has widened amid intense competition from Lloyd’s, underwriting agencies and local players. Finity calculates directors’ and officers’ premiums are inadequate given the continuing risk of class actions. Financial lines gross written premium reported to the Australian Prudential Regulation Authority grew 6% last year after several relatively static years. This is “unexpected given the soft market” and may be driven by new covers such as cyber, privacy and gap. The trend “seems to be masking the overall reduction in rates”. Finity says the financial lines claims environment has deteriorated slightly in the past year, with tighter privacy laws and legitimisation of litigation funders among the negative pressures. Workers’ compensation claims frequency fell across privately and government-underwritten jurisdictions last year, but profitability remains low.
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found their GWP grew nearly 25% last fiscal year. Their growth rate slowed slightly compared with 2012/13 but has surged from about 15% two years ago. And KPMG notes another potential threat on the horizon – technology giants such as Google, Amazon and Facebook “dipping their toes” into the market. “If the major technology companies flex their corporate muscles in the insurance sector in a manner similar to their entrance into other industries, it could very well change the playing field
Profitable, but for how long? The Pendulum report notes the claims frequency in motor insurance has held “remarkably steady”, but warns of tougher times ahead. It says the motor claims frequency last year was 15.5 per 100 policies, while the industry loss ratio remains low, falling a few points to 64%. Motor is a major target for challenger brands, which are expected to write almost $1 billion of the $8 billion market this year. “While this is good news for consumers, it has an impact on the ability of the major insurers to fully reflect increased costs in premiums,” the report says. “Longer term, we expect loss ratios to increase if the major insurers continue to lose some pricing power.” In household, gross written premium grew 10% last year, mostly driven by building cover rather than contents. Claim sizes grew, but this was offset by lower frequency and premium increases, resulting in a flat loss ratio of 50%. Finity suggests the challengers currently targeting motor could turn their attention to home, but it warns the trend for more strata housing – where householders tend towards underinsurance – could create headwinds.
for all involved.” Mr Guse says. One option for squeezed insurers is innovation in emerging lines, and KPMG highlights the cyber-insurance market as an area of potential growth. It says cyber losses now cost society about $700 billion a year, compared with catastrophe losses of about $200 billion – presenting both a threat and an opportunity to insurers. “There’s still strong potential for Australian insurers to innovate within their businesses, both in terms of
product offerings and enhancing the customer experience,” Mr Guse says. “We believe cyber security insurance will grow as a product class, with more customers starting to pay attention to this aspect of their business and gain clarity on what they want to achieve from such a policy. “On the customer experience front, insurers are really only beginning to look at how they can better use their customer data to provide better service and drive efficiencies.”
“Longer term, we expect loss ratios to increase if the major insurers continue to lose some pricing power.”
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The industry has earned plaudits for improved communication around bushfires, but the issue of underinsurance smoulders on By Leo D’Angelo Fisher
AFTER A DEVASTATING bushfire, flood or cyclone, one word comes up again and again: communication. And the context is usually negative. There’s not enough of it, it doesn’t come when needed, the wrong information is being circulated, and so on. Which is why the Insurance Council of Australia (ICA) believes its response to natural disasters must be as finely honed as that of any emergency service. The Blue Mountains bushfires in October last year offer the latest example of ICA moving with near military precision to establish communication channels for policyholders and other stakeholders. ICA’s emergency relief directorate is led by General Manager Risk and Disaster Planning Karl Sullivan. Before joining the council in 2006 he was in charge of disaster planning, response and mitigation for Qantas, and he has also served as an officer in 22
the Royal Australian Air Force, where he specialised in disaster planning and “consequence management”. So ICA’s military precision is not entirely a coincidence. However, it was Mr Sullivan’s colleague on the ICA leadership team, General Manager Communications Campbell Fuller, who recently held delegates at the CC14 Claims Convention in Sydney spellbound as he outlined the response to the Blue Mountains blazes. Natural disasters are inherently unpredictable, and the insurance industry has to always be prepared to move quickly to start the claims assessment process and help victims pick up the pieces. In January and February last year the Tasmanian bushfires left 202 properties destroyed, with 1900 claims and $89 million in insured losses. In the same summer, floods and storms following exTropical Cyclone Oswald wreaked havoc, leading to insuranceNEWS
89,000 claims and $987 million of insured losses in Queensland and 8000 claims and $121 million of insured losses in New South Wales. In the middle of the year fire authorities and weather forecasters warned of a highrisk fire season. And in September – NSW’s warmest on record – ICA began its bushfire awareness campaign and stepped up liaison with emergency services and the Bureau of Meteorology (BOM). On October 10 the Rural Fire Service (RFS) issued a series of extreme danger warnings, and over the next week there were several bushfires in the state, including in the Blue Mountains. The State Mine fire – which started on October 16 during an army exercise with live ammunition at Marrangaroo Training Area near Lithgow – spread from Springwood to Winmalee and Yellow Rock. It was not declared extinguished until November 20. Mr Sullivan’s directorate October/November 2014
declared the Blue Mountains blaze a “catastrophe” on October 17, and a taskforce swung into action “to escalate the industry’s response”. By the following day ICA had set up a temporary liaison centre in Springwood and started fielding the first enquiries from displaced residents. Staff helped residents make contact with insurers and in some cases access emergency funds. There was also a consumer hotline for residents. Despite the impressive logistical achievement, Mr Fuller says this was not an unusual response. “This was standard operating procedure for us. “We’re ready at the drop of a hat to get our catastrophe response arrangements in place, and the process works. “The Blue Mountains bushfire was an example of how effective the process is. “But, that said, we are always finessing what we do and fine-tuning it, because there’s
Emotions run high and anger can boil: a Blue Mountains resident contemplates the wreckage
no off-the-shelf solution in these situations.” Being in a natural disaster relief zone means synchronising with other agencies on the ground. It is no time for stepping on toes or getting in each other’s way. Established relationships and agreed processes between participants make all the difference. Year-round liaison between Mr Sullivan’s directorate and emergency services, the Bureau of Meteorology, government, charities, community organisations and media outlets ensures there are no surprises when the groups come together in the chaos of a disaster area. In such fraught environments, emotions run high and anger can boil over. ICA staff members have received training on manning emergency information centres and dealing with distressed residents’ enquiries. “Almost every member of staff can be deployed to a catastrophe area to work in
“It’s important to be on the ground to help communities... When you can sit down with someone and talk to them one on one, it really does alleviate their concerns.” stakeholder-engagement roles,” Mr Fuller says. “That’s very important when we have to send out a taskforce at very short notice. Once the bushfire hit the Blue Mountains, we knew we needed to get a team on the ground. “As a trusted entity we were on the ground as part of the first response. We were able to negotiate and work with local authorities so insurance assessors and customer service teams could enter [the worst-hit] areas.” The ICA taskforce also included senior staff to liaise with local councillors and state and federal MPs. When a recovery centre insuranceNEWS
opened in Springwood on October 22, ICA was present and remained at the centre for eight weeks. “It’s important to be on the ground to help communities, to answer questions and deal with issues face to face,” Mr Fuller tells Insurance News. “When you can sit down with someone and talk to them one on one, it really does alleviate their concerns. “We consider that face-toface contact an essential part of our catastrophe response.” ICA and insurance companies attended a community forum in Winmalee on October 25, where Chief Executive Rob Whelan said policyholders were October/November 2014
already receiving payouts from their home and contents cover. A community insurance forum in Springwood on November 12 was attended by 300 policyholders. Issues ranged from simple enquiries about lodging claims to more detailed questions about bushfire zonings, rebuilding standards and underinsurance. Mr Fuller says the biggest area of discussion was rebuilding, and how soon it could start. “They wanted to know, once an assessor has been to the property, what happens next and how long will it take?” Policyholders were warned 23
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“Although ICA’s rapid response in the Blue Mountains initially won the insurance industry plaudits from residents, consumer activists and the media, much of this goodwill later seemed to go up in smoke.”
the rebuilding process could be long, given the complexity of building to new standards. For some, that turned out to be prescient advice. Mr Fuller has no doubt ICA’s mission to the Blue Mountains helped residents. As he told the Claims Convention, by October 28, 10 days after the taskforce’s arrival, more than 90% of damaged and destroyed properties had been surveyed by insurance assessors. By November 8 27% of residential building claims had been closed. By the time Mr Fuller addressed the convention in August this year, 1745 general insurance claims had been received from Blue Mountains residents, representing reserved losses of $183.5 million. Some 98% of claims were closed, with “a small number… open pending a decision from the policyholder about rebuilding”. However, the Blue Mountains fires raised questions that will hang uneasily over the 24
insurance industry and communities in bushfire-prone areas. How, for example, can such communities survive and prosper? Issues also remain that confront insurers and consumers alike, such as the financial impact of tougher building codes, land-use planning and improved property resilience. Although ICA’s rapid response in the Blue Mountains initially won the insurance industry plaudits from residents, consumer activists and the media, much of this goodwill later seemed to go up in smoke. The inevitable run-ins with insurers began to surface. A Sydney Morning Herald story headlined “‘Cruel’ insurers add to bushfire trauma” featured comments from then state attorney-general Greg Smith, who was furious with insurance companies that demanded residents provide photographs and receipts to support their claims. “People who have lost their homes and possessions in recent bushfires are already insuranceNEWS
facing a stressful situation without having to do battle with their insurers,” he said. When former NSW environment minister and RFS commissioner Phil Koperberg stepped down as emergency recovery co-ordinator for the Blue Mountains in February, he expressed concern about the effects of underinsurance. Some residents who lost their homes found payouts fell short of rebuilding costs by $80,000 to $200,000, he told the Blue Mountain Gazette. He estimated 30% of residents would choose not to rebuild. It is a no-win public relations dilemma for the insurance industry. It can hardly invoke the doctrine of caveat emptor (buyer beware) and criticise policyholders for not taking responsibility over their coverage. Consumer activists including Legal Aid NSW say insurers should give customers the necessary information when policies are bought. October/November 2014
Following changes to the national building code in 2010, properties in at-risk areas are given bushfire attack level (BAL) ratings, which impose mandatory design features and materials. insuranceNEWS.com.au reported in August that ICA insisted councils must tell residents about their BAL ratings and additional building requirements. Blue Mountains Mayor Mark Greenhill has hit out at the insurance industry. “The Building Code of Australia was introduced by the NSW Government in order to better protect the community… Insurance companies have known about them [since]… before last October,” he said in April. “They should have told people so that they had the option of adjusting their coverage. How local government can be held responsible by the insurance industry for NSW Government rules that are federally regulated, I am not sure,
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but it certainly looks like a case of sidestepping their responsibilities. “With huge annual profits, insurance companies must do better for the Australian community and… bushfire survivors.” La Trobe University researcher Jim McLennan has been studying bushfires since 2000. He was commissioned by the NSW RFS to study the Blue Mountains fires as part of a project to improve community safety. Dr McLennan surveyed residents in December and found only 1% had left their homes on the basis of predicted fire danger. About 44% had pre-fire plans with a “high level of preparation”. He says people in bushfireprone areas typically do not contemplate a Blue Mountainsstyle catastrophe. “In most people’s heads, they think, yes, bushfires happen, but they happen to someone else, somewhere else,” 26
he tells Insurance News. “From a strictly rationalist point of view, they’re right. The statistical fact is that for any given household, even in a bushfire-prone area, the probability of any household being threatened in a 20-year timeframe is vanishingly small. “There are lots of bushfires every year, but most of those fires happen where there are no people.” Dr McLennan says, on average, 95% of residents in bushfire-prone areas believe they have adequate house and contents insurance. However, the number of Blue Mountains residents who believed their homes were adequately covered was 90%. He says those who thought they were fully insured generally fell about 30% short of the amount required to rebuild under the BAL code. Insurance payouts also failed to cover the costs of demolition and removal of destroyed homes – another $20,000 on average. insuranceNEWS
“The picture I got was that this was a major source of anger,” Dr McLennan says. “They often complained to me that the insurance company or the broker should have informed them that it would take a higher premium to rebuild on the same site.” Brendan Pendergast, a senior partner with Victorian law firm Maddens, says underinsurance is a constant theme among people who lose homes and businesses in bushfires. “Our firm has significant experience with bushfire litigation and in almost every instance victims are underinsured or uninsured,” he says. “Many of them relied upon the sort of tables or calculators provided by insurance companies to determine what might be proper and full cover, but with the benefit of hindsight these projections were usually found to be inadequate.” Mr Pendergast is leading a class action against power company Endeavour Energy for residents and business owners October/November 2014
View from space: smoke from the Blue Mountains bushfires (marked in red) covers Sydney
hit by the Springwood/ Winmalee fires. Some 350 claimants have joined the action, which is expected to exceed $200 million and is scheduled to be heard in the NSW Supreme Court on February 16 2016. They will allege the fire started when poorly maintained trees fell on electrical conductors on October 17 last year. Meanwhile, with the next bushfire season approaching, ICA is determined to tackle the simmering issue of underinsurance before it flares up again. “As part of our normal pre-disaster-season messaging we’ll be going out to bushfire areas and encouraging policyholders to talk to their local council and local fire service about their bushfire zoning and to think about whether their coverage factors in the new building codes,” Mr Fuller says. When it comes to communication, ICA knows you can’t have too much of a * good thing.
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Time for a change? Government workers’ compensation monopolies are under challenge from insurers By Wendy Pugh LONG-RUNNING BATTLES OVER Australia’s varied workers’ compensation schemes are entering a crucial new round as private insurers step up campaigns to take the leading role in providing cover. Workers’ compensation over the past 50 years has swung between private and government control, leading to an assortment of state and territory systems that are a mish-mash of both. Insurers say the era of state-run monopolies belongs to the past, and current Federal Government inquiries into the financial system and competition policy are providing a platform to drive home their case. Suncorp Executive General Manager Statutory Portfolio and Underwriting Chris McHugh says state schemes have had finan30
cial problems and government budgets are under pressure, while national disability and injury reforms add to a favourable environment for change. “All of these factors combined create a window of opportunity which we probably won’t see for another 50 years,” he tells Insurance News. The stakes are large. The workers’ compensation market in 2012/13 was worth $11.5 billion in gross written premium nationally, Suncorp estimates in a submission to the Competition Policy Review chaired by Professor Ian Harper. The company, the largest personal injury insurer in Australia, is preparing a more detailed follow-up contribution to the review that will highlight potentially billions of dollars of wider economic benefits from pursuing a privatisation path for personal injury insurance. Challenges facing insurers in workers’ compensation can be tracked back to federal system hurdles that have produced a range of schemes, many of them formed around historical political ideologies. Battles over state and federal responsibilities and regional differences have confounded the search for common insuranceNEWS
ground in health, education and railway gauges – and programs to help injured workers are no exception. Currently, every state and territory has different workers’ compensation programs. Then there is a Commonwealth scheme that at times acts as a rival. Private insurers have a role to play in some cases, while the door is shut in others. It’s complex and challenging, and QBE has suggested to the Financial System Inquiry that there should be a national, or at least nationally consistent, compensation scheme. “QBE is strongly of the view that Australia’s federated approach to the management of injury compensation arrangements creates a range of efficiency, affordability and equity issues,” the insurer says. The recent creation of the National Disability Insurance Scheme and the National Injury Insurance Scheme highlight the potential for more consistency in workers’ compensation and compulsory third party motor, Mr McHugh says. “I don’t think you are ever going to get a federal scheme that covers all motorists and all employers and employees, but what
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Privatising workers’ compensation is no laughing matter: firearms inspector Geoff McLaren sees the funny side of things after an 11-hour operation in a Sydney hospital to attach his big toe in place of his thumb, which he lost in a workplace accident
you will see is far greater harmonisation and removal of inefficiencies and costs,” he says. Currently, Queensland’s scheme operates as a fully state-run monopoly insurer. Governments also underwrite workers’ compensation in New South Wales, Victoria and South Australia, but these states outsource claims management to the private sector. The Western Australia, Tasmania, Northern Territory and Australian Capital Territory systems are underwritten by general insurers. At the national level, Comcare is underwritten by the Federal Government. Private corporations that operate across several states can belong to the scheme and selfinsure. Workers’ compensation has proved a tug of war between private insurers and governments for decades, and insurers are still trying to reclaim ground in some areas that once was theirs. Meeting the financial and rehabilitation needs of injured workers has proved an emotion-charged issue dating back to well before more recent battles. States and territories introduced specific workers’ compensation laws from
“Privatisation has gathered pace across a range of sectors as the political and economic climate has again changed direction.”
around 1900 to 1916, a timeline from the Australian Council of Trade Unions shows. In a landmark decision, NSW in 1926 made it compulsory for employers to ensure coverage for people injured when travelling to and from work. Private insurers were major workers’ compensation providers for much of last century before their position was eroded as Labor governments came to power and the political climate changed. The reforming Whitlam government proposed a national public program, but couldn’t drive legislation through a volatile parliament before losing the 1975 election. It was then left to state Labor governments to later set up their own separate public schemes. Former Insurance Council of Australia (ICA) Deputy Chief Executive Philip Maguire, now a consultant, says the Victorian government was concerned that private insurers and lawyers were major beneficiaries of previous arrangements and wanted to see more funds channeled to workers through a public scheme. A focus on large lump sum payments awarded through the legal system also led to a lotto-style approach to claims and insuranceNEWS
increased calls for a cultural shift toward rehabilitation and returning people to work. Governments in NSW and SA took a similar public reform path, amid opposition from insurers, employer groups and political rivals, while Queensland’s system was already under state control. “It was very much a Labor-driven ideology,” Mr Maguire tells Insurance News. “They basically socialised the system and took it out of private insurers’ hands.” Victoria’s plans were so controversial that in 1985 some 3000 insurance workers, fearing job losses, staged a public protest. “They introduced legislation that we in the insurance industry fought against tooth and nail,” Mr Maguire says. “In fact, the insurance industry marched through the streets of Melbourne, and up to Parliament House. It was pretty big at the time.” Things have changed since then. Privatisation has gathered pace across a range of sectors as the political and economic climate has again changed direction. Water, energy, transport and telecommunications have come under scrutiny and this year the Federal Government decided to sell health insurer Medibank Private. 31
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Suncorp says key reforms in those industries include “privatisation, the structural separation of the commercial body and the regulator, as well as pricing reforms”. “Regrettably, the personal injury insurance sector has not experienced the same reform momentum over the past 20 years.” ICA says private insurers are best placed to underwrite well-designed workers’ compensation and personal injury motor accident schemes, avoiding risks to governments and taxpayers from financially volatile monopoly schemes. Examples include the NSW workers’ compensation scheme, which reached a $4.1 billion deficit at the end of calendar 2011 before recovering to report a surplus last financial year of $1.36 billion. Statutory scheme volatility can be driven by underpricing or overpricing of risk for political reasons, while investments in assets such as equities and listed property trusts are prone to swings, ICA says. Governments have also been prone to raid surpluses for a special “dividend”, effectively taxing scheme policyholders such as employers. ICA dismisses concerns that workers’ compensation is a public good that should be in state hands. It says insurer-underwritten schemes are subject to prudential oversight, public policy objectives such as fairness, efficiency and affordability and are controlled by regulation. It adds that private involvement also has wider efficiency benefits. “Ongoing exclusions of general insurers as underwriters of workers’ compensation and personal injury and motor accidents schemes have a significant effect on the scope of the insurance market in Australia,” it says. “If general insurers were underwriters of all these schemes, the size and strength of the insurance market would increase and improved economies of scale could be achieved.” Allianz General Manager Corporate Affairs Nicholas Scofield says his company is one of those actively promoting reform, and Comcare is one of the areas where private insurers could boost their involvement. Comcare mainly covers federal and ACT government and agency employees, while its involvement with companies has expanded from former state-owned enter32
prises such as Telstra to include corporations operating across several states. In December the Government lifted a moratorium on new corporations seeking to self-insure under the scheme as they pursue consistent arrangements and benefits for employees across state jurisdictions. Potential changes could include contracting-out public sector claims management and allowing private insurers to sell policies to a potential rising number of private company participants. “The ultimate nirvana is a single national privately underwritten scheme, but we are a long way from that so we have to basically approach it one domino at a time,” Mr Scofield tells Insurance News. Comcare’s reach into the private sector highlights competitive neutrality issues as it directly competes with private insurers underwriting state-based schemes, but is not subject to the same prudential and capital requirements, Suncorp says. Still, a benefit for insurers of the split arrangement among states and territories is that they can point to the successes of private underwriting in those regions where it’s already in place. The private markets “demonstrate an effective balance of efficient market participants and stable regulatory environments with high value outcomes for employers and their workers,” IAG says in its submission to the Financial System Inquiry. Wider opening of markets will drive innovation and more diverse approaches to improving safety and helping people return to work, it says. Differences between the existing privatised and non-privatised schemes also highlight potential business opportunities for intermediaries if competition barriers are breached. “Privatisation actually represents a huge fee revenue opportunity for the broking industry,” Suncorp’s Mr McHugh says. South Australian plans to open its CTP market to private insurers from 2016 may prove a wider catalyst for change in that sector, while current government inquiries will likely add to a pile of earlier reports promoting statutory reforms. “There have been consistent recommendations with respect to the benefits of privatisation,” Mr McHugh says. “The opportunity is here now to fully * embrace those recommendations.” insuranceNEWS
Making worst better SA workers’ compensation reforms delight Employers Mutual Workers’ compensation specialist Employers Mutual says reforms being introduced by the South Australian Government could become the model for other jurisdictions. The group, one of the WorkCover scheme’s two agents, has begun retraining staff for earlier intervention on workplace injuries before the Return to Work legislation takes effect on July 1 next year. The reforms include a legal distinction between seriously injured and less-seriously injured workers, with increased compensation for the seriously injured. Obligations on employers to provide work for those who are less-seriously injured have been increased, and case managers must meet workers and employers within 48 hours of an injury that is likely to require an absence from work of more than two weeks. Employers Mutual SA General Manager Declan Collins (above) says improved services for injured workers “is something that is missing in a lot of workers’ compensation jurisdictions. It provides us with a real opportunity to reshape our business.” Mr Collins says the new Return to Work legislation will allow it to be more mobile and engage earlier with stakeholders such as employers, injured workers and medical professionals. SA currently has the country’s highest workers’ compensation premiums – 2.75% of wages compared with 1.47% in New South Wales – and the Government says return-towork outcomes are the nation’s worst. Industrial Relations Minister John Rau launched the reforms earlier this year with a promise that average workcover premiums for businesses in SA will come down to 2% or less, “and the unfunded liability will virtually disappear”. Employers Mutual has formed a firstresponse team of health professionals such as occupational therapists to step in when notified of injuries. The team will gather information required by doctors and help employers to find suitable duties for injured staff while minimising disruption to business. Employers Mutual is also working with the SA WorkCover Corporation – which is to be renamed the Return to Work Corporation – on IT connections and communication improvements.
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Star performers LMI’s claims comparison website is widening its scope, and some insurers are reaping the benefits By Jan McCallum
LMI GROUP FOUNDER ALLAN
It isn’t all negative: LMI’s Allan Manning
Manning is fond of saying no one complains about the cost of their premium once they get a claim paid. It’s the importance of the claims process, the true value of insurance, that prompted Professor Manning to start a comparison website to rate insurers’ claims departments. In the year since its launch, claimscomparison.com has drawn both criticism and cheers. Insurers that don’t like their ranking have complained, but some have also asked Professor Manning for the data behind their score, so they can improve their claims departments. Bonuses have been tied to the ratings – on a scale up to five stars – and to movements in rankings. Professor Manning welcomes insurers’ calls, telling Insurance News he sees them as confirmation that most in the industry want to help customers and deal with claims as effectively as possible. The free website started with rankings for home and contents, small business and farm, private insuranceNEWS
motor and private travel insurance, but Professor Manning has added more than 20 other classes, including more commercial lines. He used Financial Ombudsman Service data to develop the site, but these statistics are published only once a year. So he began to design a survey to capture a wider range of sources. While the ombudsman gathers complaints, the survey also lets respondents commend claims departments – and many have been keen to express their appreciation. The survey was sent out earlier this year, and Professor Manning has used 1370 responses from claims no older than three months to update ClaimsComparison. “I’ve been overwhelmed by the number of responses,” he tells Insurance News. “And they have been quite balanced. “There have been positive and negative comments – it isn’t all negative.” About 80% of responses are from brokers, but policyholders and service-providers such as October/November 2014
restoration companies and smash repairers have also had their say. Service-providers asked to participate because they want to drive change within particular insurers. Professor Manning also receives comments via his blog. Underwriting agencies can comment too, while Professor Manning has seen a couple of spikes from insureds after consumer groups picked up the survey and alerted members to the site. Respondents can rate an insurer’s performance based on four categories: speed, proactiveness, accuracy and fairness. Speed relates to the time taken for initial acknowledgement, a decision on whether to accept or deny the claim, and final payment. Proactiveness measures the responsiveness of the claims department or loss adjuster. LMI has weighted the results, and Professor Manning says the wider input means the information will be more up to date. “QBE is clawing its way back,” he says.
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“People working in claims departments may be pleasantly surprised to hear how much brokers and insureds appreciate their efforts.”
Scores out of 5: the top-rated insurers in each category, and their scores. Full details for each category are published on www.claimscomparison.com
The insurer has drawn criticism for moving claims-handling to the Philippines, and Professor Manning believes it was a mistake to offshore open files. Respondents have complained about having to deal with new claims staff who don’t know their case, but QBE seems to be over this period. Lumley’s claims service is also improving, and brokers have made positive comments about Vero. Chubb retains its mantle as top for home cover, while insureds have made many positive comments about Allianz’s motor claims-handling. LMI updates the site every 36
quarter and will only take feedback on claims dealt with in the previous three months – either current claims or ones that have been settled. Although it will be interpreted by some as a way to criticise the industry, Professor Manning says the site actually serves to acknowledge the efforts of claims departments, and congratulate those that are doing well. It reinforces the message to consumers that insurance is not just about price, while people working in claims departments may be pleasantly surprised to hear how much brokers and October/November 2014
insureds appreciate efforts to process claims. Courtesy, understanding and speed aren’t taken for granted. LMI is working on linking claimscomparison.com to its policy comparison website policycomparison.com, a subscription service widely used by brokers when discussing various policies with clients. “This will enable brokers to talk about the quality of the policy and the quality of the claims service,” Professor Manning tells Insurance News. But he says the claims comparison site will still be available * at no charge to the public.
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Penalties may be hiding in statutory write offs When insurance companies sell statutory write off (SWO) vehicles through an auction house, it is important that refrigerant is recovered from the air conditioner prior to sale.
Vehicles that are recycled, dismantled or demolished without the refrigerant gas in the air conditioner being removed, risk having the gas discharge into the atmosphere. Discharging fluorocarbon refrigerant is illegal under the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 and subject to potential penalties of up to $255,000 for corporations. If released into the atmosphere, fluorocarbon refrigerant contributes to global warming and depletes the ozone layer. Only people holding an appropriate licence issued by the ARC are allowed, by law, to remove refrigerant. Contact the ARC and weâ&#x20AC;&#x2122;ll help you co-ordinate a recovery program. Itâ&#x20AC;&#x2122;s the right thing for the environment and the law. T. 03 9843 1601 E. email@example.com
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Whether it’s acquiring a business or building one from scratch, the underwriting agency specialist focuses on the fine economics of niches By Michelle Hannen
THE RISE AND RISE OF THE underwriting agency has been a key trend in the insurance industry over the past few years. Nowhere has it has played out in such textbook style as at Austbrokers’ agency arm, Austagencies. Under the guidance of Managing Director Craig Patterson, the business has grown its gross written premium (GWP) from $40 million in November 2009 to $280 million today. This ranks Austagencies as Australia’s largest non-insurer underwriting group – and the growth shows no signs of abating. Speaking to Insurance News, Mr Patterson is both modest about the company’s success and cautious about its growth trajectory. He should be neither. Austagencies was the stand-out performer in the Austbrokers Group during the 2013/14 financial year, increasing its profit by 33% and revenue by 40%. And with much of that growth attributed to the company’s strategy of investing in key personnel and launching new start-ups, its business model appears to be a very sound one. Austbrokers Chief Executive Mark Searles reinforced the mandate to grow the agency business using this familiar ownerdriver model, speaking at the time of the results: “If we can find the right underwriter to employ, then we build a business. We’ve been doing that for the past three years; we’ve just been doing it quietly. “We’re happy to invest in new underwriting start-ups because that’s proven to be very successful for us in the past year or so”. Mr Patterson says Austagencies prefers this “less risky” expansion model to one based solely on acquisitions. “Buying underwriting agencies isn’t like buying brokers,” he says. “If you get the wrong people or you get the wrong business, its longevity is going to be somewhat restricted.” In contrast, with start-ups “you can identify the individual a long way out, and the niche, and start to work up propositions”.
“If you buy something that’s already in a box, you’ve sometimes got to modify that shape and feel, whereas with the start-ups you can work with someone and build that proposition from scratch. “It’s an immediate P&L hit but it’s also a long-term financial benefit.” The key, of course, lays in attracting these talented specialists in what has become a highly competitive market for niche expertise. Mr Patterson says that many of these individuals come from large corporations. They have an entrepreneurial spirit and a desire to have a shot at making it on their own. Austagencies provides them with a solid framework, support and guidance. It adopts a collaborative rather than overbearing approach to its shareholding in its joint ven-
absolutely we’ll look at it. But it’s got to be niches that we’re already in or which are complimentary, or where we can make better value with that partner.” For Austagencies that means meeting a strict rule: it will not enter a new niche unless it believes it can become a top-three player in that segment. “We look to hire the sort of expertise that will give us an advantage, and we provide product and offering that differentiates us from our competition,” Mr Patterson explains, adding that the strategy often involves “finding niches within niches”. “For me, it’s more palatable to play in that space than to try to play down the middle of a niche where everyone else is playing. We have some business in that situation, and it can be really tough.”
“If there’s a good one that comes along, absolutely we’ll look at it. But it’s got to be niches that we’re already in or which are complimentary.” tures. “We are a true partner in trying to support their growth and their ambition.” But despite the emphasis on starting up new businesses, acquisitions certainly aren’t off the table entirely. “With a shareholder that is an acquirer we’re always going to look at acquisitions,” he tells Insurance News. “While we’ve done nine start-ups, we’ve also done nine acquisitions in the same timeframe. “But I think they’re getting more difficult to do in a market where we’ve got a massive flow of capital at the moment. We’ve got capital chasing smaller returns. “So – on the agency side anyway – acquisitions are going to be more difficult to do and make the economics work.” “If there’s a good one that comes along, insuranceNEWS
Independent operator Despite the majority of its business coming from what he characterises as “the open market”, Mr Patterson says he still gets asked about Austagencies’ independence from Austbrokers. “Some people get polarised around who the shareholder is, and I don’t think that’s healthy. At the end of the day, in every broker network – it doesn’t matter if it’s Austbrokers or Steadfast or Gallaghers – there are really good people that you want to deal with. “If we don’t provide the product and the service, those people will find alternatives.”
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“There’s so much capital washing around that you’ve got to pick the right partner.” So how can Austagencies find new opportunities to continue the growth trajectory? Patience and persistence are the keys to success, Mr Patterson says. “People either get complacent about their niche or they haven’t identified something in there. We just keep looking, turning over every stone to try and understand where the opportunity is. Because there’s often something that you can take more advantage of than the mainstream.” He says underwriting agencies also act as an “incubator” for the mainstream insurers who provide the capital. “They might not have the mandate to go and put on a range of people to build product or build a niche in a particular area, so I see us as providing an incubator for start-ups in particular niches. I think that’s quite a valuable proposition.” Financial support from insurers is obviously key to an underwriting agencies’ success, and with historically high amounts of capital currently in the market looking for returns, Mr Patterson says it has never been more important to ensure the relationship is based on the right values. “There’s so much capital washing around that you’ve got to pick the right partner. It’s not just about saying someone’s cheap and cheerful, it’s about making sure that the partner fits and understands your strategy. “We haven’t used some security because in my view it’s been a grab for cash, and we’ve got to be careful.” He says matching the right capital to each product in order to build a long-term and mutually prosperous relationship is vital. As evidence, he points to relationships between Austagencies businesses and major 40
Australian insurers that date back 35 and even 40 years. “We’re both investing in what it is we do and so there’s a high level of trust.” Not that it has passed up on all of the opportunities currently on offer. While tight-lipped, Mr Patterson admits a number of new start-ups are in the works, some of which will be unveiled during the next quarter. “We’ve got multiple security-providers wanting to partner with us, which is great. They’re not mainstream things and they’re going to take us some time to do.” Aside from branching out into new niches for growth, Austagencies is also consolidating its agencies in order to maximise their potential. Earlier this year it brought together four of its specialist hospitality underwriting brands – the Guardian hotels, pubs and restaurants agency, licensed sporting clubs specialist Celestial, leisure, entertainment and tourism insurer Dolphin and snowfields business Alpine – under the new umbrella brand Sura Hospitality. Mr Patterson tells Insurance News the broader agency will allow Austagencies to “punch properly in that segment” and meet its target of holding a top three position. The amalgamation gives the agency a wider geographic spread and three times more capacity than the sum of its parts had previously. “We’ve got really top-end Lloyd’s security on that, and for us it is definitely a growth vehicle.” More recently it has rebranded its professional indemnity operations Mint Plus and Austagencies PI as Sura Professional Risks, while Mint Taxis has become Sura insuranceNEWS
Austagencies in numbers Number of agencies: 21 Number of product lines: 50+ Gross written premium: $280 million 2013/14 total net profit: $13.3 million
Taxis. And with a multitude of separate brands remaining, Mr Patterson says that over the next six months the organisation will amalgamate other business lines under the Sura brand. For example, the professional indemnity operations Mint Plus and Austagencies PI will soon be rebranded as Sura PI. The advantages, aside from maximising business potential and increasing capacity, include a reduction in brand support costs and less confusion for brokers. “By the end of June 2015, we’ll have a big number of our segments under the Sura brand,” Mr Patterson says. While the growth of Austagencies looks set to continue unabated, the core strength of underwriting agencies lies in their specialist nature and ability to adapt and evolve quickly to the changing needs of clients. Mr Patterson dismisses suggestions that consolidating its businesses into larger agencies could see those business become unwieldy and top-heavy – organisational traits more often associated with traditional insurers. And with its strategy for growth and expansion taking on multiple fronts, the rise and rise of Austagencies may soon beg the question: how big is too big for a noninsurer underwriter? In response, Mr Patterson is philosophical. “It’s a good question and I’ve thought about it a lot. I think when it gets too big is when you lose the entrepreneurial spirit, your ability to be flexible in a market and move in and out of things. “We are trying to operate as very much as a non-corporate body as we can be in a * listed environment.”
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Beyond compare Major insurers are resisting a forced marriage with comparators By Jan McCallum
POLITICIANS AND PUBLIC SERVANTS seem determined to get insurers to participate on comparison websites. But insurers are saying this is easier said than done. Some insurer objections to aggregators are well known, but the latest submissions to the Financial System Inquiry, led by former banker David Murray, also question the practicalities of the task. The inquiry has proposed two options for getting home and contents and car insurance onto aggregator sites, but it acknowledges there are regulatory issues and a cost to insurers in adapting their IT systems. Mr Murray’s interim report, issued in July, suggests giving aggregators access to product information and ensuring they can then use automation to retrieve quotes from general insurance websites. “This would not give aggregators direct access to pricing models, but may provide a route to discover them,” the report says. It calls for feedback on ways aggregators might secure automated access to quotes from insurers. The other option is to develop representative consumer categories based on key characteristics. “Insurers could disclose their policy premiums for each category and consumers could then, potentially with the assistance of aggregator services, compare premiums from different insurers for the category that best represents their characteristics.” The report acknowledges the difficulty of developing categories. There would need to be enough for most people to identify with one, but not so many as to create complexity for consumers and compliance costs for insurers. It notes the wide variation in policies and says even if consumers can compare premiums “they may still struggle to compare coverage and overall value”. For IAG, this is the big issue. It says aggregator models provide a simplistic and often inaccurate overview of policies, focusing on price rather than the cover required, exclusions and claims service. “Due to the variation in business models, covers and pricing approaches, it is difficult for online aggregators to accurately and fairly make ‘like-with-like’ product comparisons, although this is what they purport to do,” IAG says in its response to the inquiry. The inquiry says insurers’ reluctance to 42
allow access to policy information has slowed the growth of aggregators, making it harder for consumers to compare products and reducing price competition. Comparethemarket.com.au says Suncorp and IAG’s refusal to allow access “contributes to a lack of transparency, reduced competition and difficulty of comparison for the Australian consumer”. The company says its website is similar to those of insurers and compares policies by features and benefits, as well as price. It also notes that insurers often provide introductory discounts for new customers but exclude current customers from the deals. “Without the ability to quickly compare their existing policy to these special discounted policies or to other providers in the market, consumers are denied the right to easily access the competitive environment that ultimately exists for their benefit,” it told the inquiry. But the Insurance Council of Australia argues that, despite ownership concentration, there is plenty of competition in the sector, with new challenger brands and the major banks increasing their market share to 16% from 10% three years ago. It rejects government intervention to insuranceNEWS
create sites or force insurers to share information, arguing the overseas experience shows aggregators can grow without such assistance. Insurers are particularly concerned that aggregators will access their pricing models and commercially sensitive information. Although the inquiry considered this argument, it notes “these concerns have not prevented aggregators from successfully assisting consumers to compare products in the life insurance, travel insurance and private health insurance markets”. But Allianz says health insurance is community-rated – and therefore the same price applies for all consumers – “which means it is effectively not risk-rated at all”. People buying travel insurance online must answer only five questions, including their age and where they are going. Home insurers typically ask about 30 questions and offer options on excess, cover and multi-policy discounts. An aggregator might have to ask 100 questions. Allianz raises regulatory concerns around a situation in which insurers must give an aggregator the ability to bind the policy, because insurers will be responsible for the conduct of the “agent” without having the right to terminate the arrangement. “This would be a totally unworkable situation,” it says. Allianz warns comparators could extract insurers’ pricing structures by setting up automated quote-generating programs to harvest tens of thousands of quotes, then deconstructing them. It also raises the threat of the Government undermining insurers’ intellectual property rights. Not that insurers are the only ones finding difficulties with the comparator system. The Australian Prudential Regulation Authority says forcing insurers to provide their products through aggregators “is potentially problematic, since there are no barriers to entry for aggregators and insurers need to be satisfied with the associated commercial arrangements for each one”. Comparison categories may be helpful, but they don’t solve the underlying problem of comparing differences in policies, it says. The regulator says comparators work best for products that are homogenous and where price is the key distinguishing feature, * which is not the case for insurance.
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Heading for trouble Sports clubs that fail to protect their players from the effects of concussion could pay the penalty in court By Wendy Pugh
OUR UNDERSTANDING OF THE RISKS related to concussion in sport is growing, but there remains great concern over player safety and whether proper protections are in place. And for sporting groups, it could be a liability time bomb. Reducing concussion rates in Australian sport has become a major issue, with legal battles over brain damage to American footballers shaking codes here and prompting tougher protocols for assessing players and deciding when they can return to contests. This year the US National Football League (NFL) agreed on funding for players who develop neurocognitive conditions such as dementia, Parkinson’s and depression, raising potential payouts from an earlier proposed $US765 million settlement. The long-term effects of concussion remain up for debate, but the risks are potentially serious and the possibility of head injuries will not disappear from sports including Australian rules and the rugby codes. “From a liability perspective, we foresee that there will be an increase in claims against sporting clubs and administrators who let players come back too quickly,” Sportscover Chief Executive David Lamb tells Insurance News. “That is not going to materialise in a personal accident claim during the season. That is going to materialise down the track, and that will be a liability claim against a sporting club or association that didn’t have the best practices in place.” Once the danger is known, the duty of care increases. Improved tools and management practices are now promoted, and organisations that don’t do enough to protect players face legal and insurance risks. “Potentially, concussion could be sports insurance’s James Hardie’s asbestos; it could really hurt that much,” Mr Lamb warns. Large claims would cause liability policy premiums to soar, potentially threaten the availability of cover and undermine organisations’ ability to stage sporting events. “The problem is not that they don’t have the cover now, but that if these claims materialise and 44
are substantial then cover will become uncompetitive or unaffordable and potentially, in the worst case, withdrawn, and that doesn’t help sport,” Mr Lamb says. Concussion is a risk wherever there is potential for falls or knocks to the head, including individual events such as cycling and equestrian. In Australia the issue is a priority for high-profile contact sports such as Australian rules, rugby league and rugby union, which have strong participation rates from professional leagues down to the grassroots level. The National Rugby League (NRL) estimates there have been five to seven concussions per team per season in the past four to five years, and the rate seems similar at all levels of competition. The number of incidents across all sports at all levels is not known due to a lack of data; hospital figures are the tip of the iceberg, because many cases go unreported.
“My biggest concern is the junior sports, because there is just no medical supervision on the sidelines.” Often there is uncertainty about what constitutes concussion, which can be triggered by any blow that causes the brain to shift inside the skull, disrupting normal function. A person may lose consciousness, but other signs include confusion, dizziness, amnesia, headaches, loss of balance, impaired judgement and general discomfort. Greater awareness has changed management practices and led to stricter procedures in the Australian Football League (AFL), NRL and Australian Rugby Union. Peter Larkins, a specialist sports physician and a spokesman for Sports Medicine Australia, says: “While we have known that concussion has been insuranceNEWS
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part of sport for many years, there really was a pendulum swing probably three or four years ago at an international level, where there started to be concern as to whether concussion had long-term consequences.” In the past, groggy footballers might rest briefly before running back onto the field as soon as possible. Sitting out longer could be viewed as weak, particularly if there was no obvious physical injury. Now, game-day doctors use the Sports Concussion Assessment Tool, or SCAT3, which takes about 10 minutes to implement and includes balance, memory and recall tests. Players who fail do not return to the contest that day. Follow-up assessments are compared with baseline cognitive tests completed before the season, and many players miss at least one week before they are judged fit to resume. But best-practice baseline testing and matchday assessments and exclusions are not always filtering down to community competitions, where the same risks are faced. “I don’t think the exclusion below professional level is being well policed or well managed at all,
and therefore there are lots more concussions in the community than we are going to see in professional sportspeople,” Dr Larkins tells Insurance News. “My biggest concern is the junior sports, because there is just no medical supervision on the sidelines.” Proper management is crucial for youngsters, whose developing brains are vulnerable to trauma. Children are more susceptible to concussion, take longer to recover and should be treated more conservatively than adults. Sportscover is working with the Sports Concussion Program to provide a web-based baseline test for local sporting groups. The objective assessment would reduce the chance of players returning to games before they are ready and address the lack of baseline preseason testing in many community clubs. “It is not happening at suburban level, and their brains are no more robust or stronger than the brains of people who are running around on the weekend in the NRL and the AFL,” Mr Lamb says. Swiss Re rates concussion in sport as one of 26 emerging insurance risks. Its analysis points to the US National Football insuranceNEWS
The players are getting bigger, stronger and faster, so the concussion risks are growing, too: Australian Wallabies and British Lions players clash in Melbourne last year
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Sportscover’s David Lamb: clubs that bring players back too quickly will face more claims Sports physician Peter Larkins: concussion does not necessarily lead to long-term problems if it’s managed
League lawsuit launched in 2011 that alleged the league and helmet manufacturer Riddell knew of the long-term risks of concussion and failed to warn players. Lawsuits have also been filed against North America’s National Hockey League, while in July the US National Collegiate Athletic Association agreed to provide $US70 million for concussion testing and diagnosis as part of a class action settlement. Clashing helmets was once a defining image of American football. Now, autopsies on several former players have found evidence of chronic traumatic encephalopathy (CTE) – a degenerative disease associated with repetitive brain trauma that has been linked to boxers since the 1920s, according to the Boston University CTE Centre. In Australia football codes are played differently, but they have their own dangers. Past players including Carlton premiership champion Greg Williams have spoken of memory problems and their history of head injuries. Last year Deakin University in Victoria published a study of brain functions in 40 retired elite and amateur Australian rules footballers who suffered concussion while playing. Overall, the footballers performed worse at fine movement control and reaction time tests than age-matched people who had never played contact sport. The study showed no difference in memory and association learning. The AFL has teamed up with the Florey Institute of Neuroscience and Mental Health to study the issue in current and former players. Dr Larkins says many experts, including neurologists and neurosurgeons, believe concussion was probably previously underestimated but does not necessarily lead to long-term problems if correctly managed. However, more information is required on issues such as the effect of repeat incidents. “What we are trying to establish is, if you have two concussions or three concussions and they are managed properly, is that fine – is there not going to be a problem?” he says. “There is no magic number… that says, if you get this many concussions you are going to have some form of permanent effect on your cognitive function.” 46
Football administrators now take a tougher approach to head-high contact on the field and, compared with past decades, there is closer scrutiny of players by umpires and via video. However, any perceived softening of contact sports can prompt protests, while the evolution of football codes and the athleticism of participants can lead to playing styles that increase the dangers. “It’s all about getting bigger, faster and stronger, and the collisions are getting bigger,” former Australian international rugby union player Elton Flatley told a recent sports summit in Sydney. “With rugby [union], they are trying to keep the ball in play to make it more entertaining, like they are doing in rugby league, so it is going to be quicker and there is more scope for those concussions to happen.” Mr Flatley, who retired due to concussion, says the potential for incidents will not go away and the key is management and wider education, particu-
“If you have two concussions or three concussions and they are managed properly, is that fine – is there not going to be a problem?” larly at the community level. Sportscover’s Mr Lamb says testing programs should be viewed like any other requirement, such as the right boots, clothing and protective items including mouth guards. But it can be difficult to convince players of the necessity. “The person at the centre of this is the person who runs on each week to play and that person could be nine years old or 69 years old,” he says. “We want to make sure they have the best possible care, and managing their time out of the game due to potential brain injury has got to be * number one.”
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ARTHUR J GALLAGHER IS NOW A MAJOR PLAYER IN ONE OF the most competitive insurance sectors in the Australian market – underwriting agencies. The US-based global broker is ideally placed to take a considerable slice of the underwriting agencies’ market, despite “competitive friction” with other large groups that are also accumulating underwriting agency forces. After a lengthy period working around the edges of the Australian market with a specialised broking operation set up in the 1990s by the legendary Frank Earl and an underwriting agency presence since 2005 built around Australis Underwriting, last year Gallagher took the big plunge into the Australian underwriting agency market. It acquired the country’s largest Lloyd’s agency, Brisbanebased SRS, and is now moving to establish a new “collective identity” for its various underwriting agency brands in Australia and the UK. That brand is Pen Underwriting, which will be rolled out first in Australia, in November. Gallagher says Pen Underwriting will represent the full spectrum of underwriting services offered – “from the e-trading managing general agencies specialising in auto-rated quotes without referral for standard and non-standard risks, to the teams dealing with large, complex risks that require individual underwriting and processing”. Paul Lynam, the founder of SRS and now Pen Underwriting Australia Chief Executive, says the drive to unite the various underwriting operations under one name has been driven by customers, “who told us that having multiple brands is confusing”. “In bringing together all of our underwriting agencies under a single brand we can now make it easier for customers and insurers to understand what we do, and create a strong platform for us to promote our position as a ‘one-stop shop’ for specialist October/November 2014
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All inked up and ready to write Gallagher’s new Pen Underwriting operation is hitting the road running
Paul Lynam: creating a platform to promote Pen’s services
underwriting products and services,” he tells Insurance News. The UK businesses – e-Underwriting, Ink, IRS, Keelan Westall, Dallas Kirkland, OAMPS (the managing general agency arm of the Australian broker), Think, Vela, Woodbrook and Zennor – will move over to the single new brand next year. Mr Lynam says Pen’s Australian operation is on the lookout for likely acquisition opportunities, and concedes that the challenge is a bigger one than it was a few years ago. “Pen Underwriting has a vision to grow in the Australian market through both organic and acquired growth,” he tells Insurance News. Organically, they’re primed and ready. “We believe we can obtain significant scale by promoting our product offering and concentrating on the distribution methods we will introduce to the market over the next 12 months,” Mr Lynam says. For acquisitions he’s seeking agencies that meet the Gallagher formula of right products, size, profitability and – importantly – fit. “Culture to us is paramount.” He concedes the Australian underwriting market is “not brilliant” at present. “Pricing is flat at best, and in all likelihood it’s heading south. Excess capacity is being driven by poor financial returns in most quarters.” He says the strengthening US market – a very slow process where GDP last year grew by 3% – will have an impact on capital availability, and hence the price of insurance Australia. “The US market will continue to turn. As it does, the capital that moved into the property insurance sector will gradually move out and back into investments,” he says. “Premiums globally are only competitive in many classes because foreign investors see at least some profit flowing from the insurance sector,” he says. “For underwriting agencies the harsh competitive climate can mean only trouble.” He says when premiums are low, insurers are more easily able to
compete with the leaner and more nimble agencies. Mr Lynam says “the smart seller” planning to realise the value of their underwriting agency “will look at the whole package on offer”. “We have a track record of completing deals and integrating businesses and retaining the resources which fit the culture.” Mr Lynam is wasting no time putting together a team that will be aggressive in its pursuit of new business. Among the first to be recruited to the new Pen Underwriting business are two underwriters, one from the UK and one from Canada. “I think we’re going to have to look further afield if we want the very, very best people who will bring a different perspective on ways to grow our business,” he says. Alex Tarantino is joining Pen in Australia from Toronto, where he was senior underwriter casualty at QBE Canada. He formerly worked in the London market. Alex is migrating to Sydney with his family to be National Manager Long-Tail Business, which will include professional indemnity,” Mr Lynam says. The other new underwriter is John Cowell, who will be Technical Underwriter, specialising in product design and e-trading. He was formerly technical product director at OIM Underwriting in London. Mr Cowell has worked in the London market for around 25 years as a broker and underwriter. Pen Underwriting is backed by the $US8 billion-plus market capitalisation of its parent, which could give the operation a long-term advantage in the drive for acquisitions. Mr Lynam admits Pen Underwriting’s sister company, OAMPS, could be seen as a source of new business, but he’s adamant this would go against the Gallagher grain. “The broking business is simply another client,” he tells Insurance News. “We have to work hard for any business they may place with us. “But OAMPS has been a good supporter of the underwriting busi* ness for the past two decades, and I don’t see this changing.”
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More pros, fewer cons Regulators have turned the spotlight on professionalism in financial services – and the industry is beginning to respond By Shelley Dempsey
NOT SO LONG AGO, IT WAS ABSURDLY easy to call yourself a financial services professional. In jobs such as insurance broking and financial planning, all you had to do was a bit of sketchy training, then hang out your shingle and off you went. While much has changed, the level of training for advisers – and also for brokers – remains a bone of contention with consumer advocates and some regulators. And calling yourself a professional is becoming a very difficult story. The regulatory landscape is changing, with more than one government inquiry addressing what it means to be a professional in financial services, how much education and training is needed, whether “bad apples” should be named and shamed and what penalties should apply to those who rip off clients, break the rules and give the industry a bad name. And, to its credit, the financial services sector is starting to fight back against a somewhat tarnished image. In the wake of financial planning scandals at the Commonwealth Bank and Macquarie, AMP and the big four banks have independently moved to lift education standards for planners and back a public register of advisers. Things are changing for better and, possibly, for worse. Regulators have turned the spotlight onto financial services through the Financial System Inquiry, and the Abbott Government’s winding-back of the Future of Financial Advice (FOFA) reforms is seen by its many critics as easing the pressure on advisers to act in the best 52
interests of their clients. While the idea of lifting standards has been welcomed, the insurance industry has warned that higher costs may be involved. The Insurance Council of Australia (ICA) has rejected calls for higher educational standards for some junior financial advisers in call centres, warning that insurers’ training costs may rise by between $3000$4000 per adviser.
“This could be an unsustainable cost in the call centre operating environment and we understand may lead to some insurers adopting a no-advice operating model throughout their general insurance operations,” ICA warns in a submission to the Parliamentary Joint Committee on Corporations and Financial Services, which is reviewing professionalism in financial services and other issues.
Commissions hinder drive for professionalism: ASIC Intermediaries’ efforts to be recognised as true professionals like accountants or lawyers are hindered by the fact that they receive commissions from product-issuers. That’s the view of the intermediaries’ peak regulator, the Australian Securities and Investments Commission (ASIC). While its submission last month to the parliamentary joint committee inquiry into adviser standards focuses on financial advisers rather than insurance brokers, its comments could be regarded as encompassing the wider intermediary field. ASIC says while there are people working in the financial advice industry who are professionals, “the financial advice industry as a whole is not currently a profession”. “We consider that significant changes are required to shift the culture of the industry from a transaction-based sales force to an advice profession, offering trusted advice that has the confidence of society.”
Describing the payment of commissions is “a hindrance to professionalism”, the regulator says such remuneration structures are legal, but “they are not consistent with the characteristics of a profession”. It also says professionalism in the financial advice industry is being hindered by too many differing associations competing for members and overlaps in membership confusing consumers. “Fragmented representation is inconsistent with a common identity,” it says. Competition among industry bodies for members creates a disincentive for them to place sufficient levies on their membership required to conduct rigorous compliance investigations. “Self-regulation is not an appropriate model for increasing professionalism of the financial advice industry, but there may be scope for a well-designed system of coregulation,” ASIC says.
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The Financial Planning Association (FPA) has also called for the law to restrict use of the term financial planner/adviser under the Corporations Act to those who are best educated and who belong to a professional association accredited by the Australian Securities and Investments Commission (ASIC). Much the same argument has been mounted in the past by insurance brokers. According to ASIC data, there are 50,276 Australian financial services licence-holders. Submissions to the Parliamentary Joint Committee on Corporations and Financial Services, which monitors and reviews corporations legislation and ASIC, closed on September 5. The inquiry is considering whether ASIC should recognise professional bodies, and the National Insurance Brokers Association (NIBA) says it for one is ready to discuss what is required. Amid all the official hearings, the association has been quietly polishing its own image, adopting a new code of practice. Chief Executive Dallas Booth says more changes may follow. “In terms of representing the industry, there’s a question as to whether we should take a larger or more significant role on professional competence, standing and behaviour,” Mr Booth tells Insurance News. “That would change the philosophical basis of NIBA.” NIBA represents 360 member businesses and some 2600 individual brokers. While professional education, representation and communication are its major
responsibilities, Mr Booth says it may need to broaden its scope in line with other bodies. “The Law Society has its own disciplinary committee and has taken control of that process,” he says. “It takes a very strong role on professionalism from the regulatory point of view. There’s a question as to whether NIBA should start to move in that direction.” The Law Society is one of 20 organisa-
Mr Booth says there is currently much discussion about self-regulation with the Federal Government and ASIC. “Discussions are happening at the moment with the [Financial System Inquiry] on the terms of reference of the role of regulators and advisers in terms of industry self-regulation. “They’re trying to re-establish what may be the appropriate approach for the 21st
“Payment of commissions is ‘a hindrance to professionalism’ [and] not consistent with the characteristics of a profession.” tions, covering 60,000 professionals, that have schemes registered with the statebased Professional Standards Councils (PSC), including accounting body CPA Australia, the Institute of Public Accountants, Engineers Australia and the Association of Taxation and Management Accountants. The PSC supports strong corporate governance standards, and each of its schemes meets minimum criteria on professional indemnity, continuing professional development, complaints, discipline and codes of ethics. NIBA meets these criteria but its complaints process and management of its code of practice are outsourced to the Financial Ombudsman Service (FOS). insuranceNEWS
century. A lot of work is being done and we need to be part of that conversation.” NIBA has already enhanced accountability through its code, creating a new independent code compliance committee that can impose sanctions for breaches. “That part of the process has been taken very seriously,” Mr Booth says. Under the old NIBA code alleged breaches were meant to pass to the FOS adjudicator – but for the past few years there has been no adjudicator. “There was really no formal process to resolve disputes for alleged breaches,” Mr Booth says. The association now also has the power to name and shame members who do the wrong thing. 53
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“At the end of the day, we think a selfregulatory approach is better than an externally imposed regulatory regime.”
Mr Booth says no brokers are currently listed on the NIBA website as suspended or penalised because there have been no code breaches since July 2011, when he became chief executive. The new process brings NIBA into line with CPA Australia and the FPA, which names offenders on their websites. “Some brokers have been struck off by ASIC for fraud or related activity,” Mr Booth says. “But brokers in Australia are dealing with $18 billion a year in premium. It’s human nature that every now and then someone loses control and does crazy things. “In my time here not one person has lost money or any financial position because of the actions of brokers. If brokers don’t do their job, then our professional indemnity process or FOS steps in and consumers have their remedies. The whole process works.” He says NIBA receives a limited number of complaints about brokers. “ASIC and Federal Treasury do not see insurance brokers as any sort of a problem in financial services at the moment. But [with the new code] we want to be in front of the game and want to have our processes and procedures on professionalism up there and meeting or exceeding what might be regarded as best practice.” This maintains a self-regulatory approach to professionalism. “At the end of the day, we think a selfregulatory approach is better than an externally imposed regulatory regime.” Brokers already face significant regulation, and NIBA has made clear its belief 54
they should not be burdened by regulatory reforms that are developed for other financial services sectors. In a submission on the Financial System Inquiry’s interim report, NIBA says brokers were caught up in FOFA regulations despite there being no concerns about their performance. FOS receives few complaints about insurance brokers; they account for about 2.5% of all general insurance disputes. While the fact that commissions are paid by insurers to brokers might be seen as a significant barrier to brokers’ ability to ever be classified as professionals, the issue of payment is not one of the criteria applied by the Professional Standards Council [see panel]. Besides that, Mr Booth says commissions are not an issue in insurance broking. “The Government has seen fit to give brokers an exemption under the FOFA commissions ban. Commissions are not driving improper broker behaviour. There’s no evidence of that in Australia.” However, consumers view things very differently. Only 16% of people surveyed by Roy Morgan Research this year rated insurance brokers either “high” or “very high” for ethics and honesty, while 28% viewed financial planners this way. The results compare with 52% for accountants and 91% for nurses, who top the list. Transparency on professional licensing and qualifications is a growing trend in financial services, with the Federal Government in July announcing an industry insuranceNEWS
Commissions aren’t an issue for brokers: Chief Executive Dallas Booth
Checklist for professionals • As recommended by the Professional Standards Council
• Commitment by members and their organisations to high standards of professional practice
• Continuing professional development of members
• Organisation has admission requirements • A publicly accessible complaints and discipline process
• A code of ethics • Compulsory professional indemnity insurance for members and/or business assets to cover a specified level of liability
• Risk management systems that track claims made against members, complaints and members’ discipline
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usiness M ore b More business M ore o ften More often M ore value value More
working group that will look into a public register of financial planners. Financial Services Council Chief Executive John Brogden says the register will increase security for consumers, allowing them to check advice provider credentials. And FPA Chief Executive Mark Rantall says the register, plus the new parliamentary inquiry, will advance the profession and help weed out bad apples. FPA General Manager of Policy and Conduct Dante De Gori tells Insurance News the ASIC-maintained register will, for the first time, list all financial advisers in Australia. “Consumers will be able to verify who they work for and whether they’ve been subject to any ban or disciplinary action,” he says. The FPA has about 9000 members, 5500 of whom hold the Certified Financial Planner (CFP) accreditation – the “ultimate gold star” – recognised in 24 countries. “In our view 5500 is not a high enough number,” he says. There are 18,000 planners in the industry. The designation differs from a degree, according to Mr De Gori. CFP holders must complete 120 hours of continuing education over three years, and “you can lose that designation if you don’t maintain it”. While moves by AMP and the banks to lift educational standards are “fantastic”, the FPA wants to make the minimum entry standard industry-wide from 2018 a university degree, plus industry experience and ongoing professional education, along the
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“We hope the inquiry will recognise the role of professional associations in fostering development standards.”
lines of the model used by CPA Australia in accounting. “We hope the new inquiry will accept our recommendations,” Mr De Gori says. Last year the FPA introduced a minimum qualification – a degree – for its own member planners. “We also hope the inquiry will recognise the role of professional associations in fostering development standards,” he says. This will involve co-regulation between ASIC and professional bodies. The FPA recommends amending the law so ASIC can approve and list professional bodies it recognises, similar to legislation under the Tax Agent Services Act and in the UK under the Financial Services Authority, where approved bodies can audit members on professional ongoing education, ethical standards and codes of conduct. For its part, ASIC has joined calls for a national exam for financial advisers, and for them to hold university degrees. In a submission on the Financial System Inquiry’s interim report, ASIC says it supports such moves because investment products are “complex and not well understood by consumers and investors”. While the number of planners expelled by the FPA for misconduct or other reasons is quite low – FPA members account for less than 5% of ASIC enforcement actions each year – consumers are still incurring losses. Nine planners were expelled in 2011, seven in 2012, none last year and three so far this year. The FPA received 32 official complaints about planners last financial year, with 16 so 56
far this year. However, FOS says between January 2010 and June this year, 22 financial services providers were unable to comply with 105 determinations exceeding $10.5 million, mostly due to insolvency. ASIC proposes creating a compensation scheme to address “relatively high levels of uncompensated loss” among victims of fraud and misconduct. Mr De Gori says changes to professionalism in the industry are a “natural progression” that has grown out of an insurance sales culture. “Like any other profession, if you think about accounting or medicine or the law, there’s been a progression over time. “These professions have been in the making for hundreds of years, but arguably the financial planning and advice profession is relatively young, only 20 to 30 years old. “So the FPA wants us to mature now into a recognised profession like accountancy or medicine.” A PSC white paper says steps have been taken to professionalise financial services, but they have been limited. It recommends legislative reform on licensing and regulation, and development of a professional registration system. It says the real problem is a lack of industry-wide understanding and agreement on the essential elements of professionalism. The parliamentary inquiry is due to report its findings in December and no doubt many, including NIBA, will watch this * space with interest. insuranceNEWS
Weeding out the bad apples: FPA Chief Executive Mark Rantall
Time to mature into a recognised profession: the FPA’s Dante De Gori
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The front line Meet the regional managers who drive the company where the real business happens By Terry McMullan
Managers on the front line: from left, Leigh Stalker (Queensland), Christine Bell (NSW/ACT), Andrew Borden (Victoria/Tasmania), Jenny Bax (SA) and Peter McLachlan (WA/NT)
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REGIONAL MANAGERS ARE THE UNHERALDED DYNAMOS OF insurance company management. They’re the link between the head office captains who set the course and the crews who have to make it happen. They run a region – usually a state, but sometimes encompassing two or more geographical areas. They are the eyes and ears and all too often the interpreter of decisions from high up the managerial chain. In many ways they know more about the company’s day-to-day operations and issues, products and clients than their bosses. Everyone relies on the regional managers – from the local staff who see them as their ultimate “go-to” authority, to the corporate executives who need their support and, just as importantly, their input. You’ll find regional or state managers in any large insurance company. To examine the issues and challenges of their roles, we chose QBE, simply because of the regional management group’s mix of age, experience and gender. Overall, the five QBE regional managers (often referred to as “the RMs”) come across as an independent and very confident bunch. What becomes obvious as we talk is that each has different challenges in their job and even some different ways of doing things. QBE recognises that every state or territory is different, with a bewildering variety of unique local regulations, issues and even cultures requiring the regional manager to always be on a learning curve. Like most insurers, QBE doesn’t pick its RMs from a common mould, but unlike many insurers it doesn’t hold tight reins over its regional operations, either. They’ve put these people in there to run the place, and they give them the things they need to achieve it. Our hour-long conversation during one of their regular twomonthly group meetings ranges over subjects such as the peculiarities of each region’s business, staff development, recruitment initiatives that are starting to produce what one calls “superstars”, the breadth of career opportunities in a multinational company, and even the value of picking up a phone to discuss a problem. They’re enthusiastic and confident. And thanks to communications technology and their wide remit for decision-making, none of them feel isolated from the Sydney head office. Of course, Sydney-based New South Wales/Australian Capital Territory Regional Manager Christine Bell sees some of her bosses around the place every day, but she believes the close proximity of the executives and broader corporate team is a benefit rather than a handbrake. “I have that management network I can draw on when I need it,” she tells Insurance News. “But our head office is pretty mindful of the need to not draw on me for my perspective on things because I’m closest. We try to share that around, because there’s different relevance for different geographics. “If there’s a need to talk about a particular issue that’s more pertinent to Queensland or South Australia, our corporate team will go to them, not me.” Western Australia/Northern Territory Regional Manager Peter McLachlan is the furthest from head office. He says his Perth-based job is “very challenging but also very empowering”. “We’ve got a lot of autonomy, and being in Perth probably gives insuranceNEWS
us the best opportunity to be that much different. Our customers say that I’m the only [state manager] in WA with such a high level of autonomy, and it’s really rewarding to be able to work with total confidence. “The WA/NT operation is a little bit different because we’re very involved with the workers’ compensation business. We have two divisions, where we handle workers’ compensation and also have both claims and underwriting authority. “That means I can speak to our customers about the whole picture. I don’t spend a lot of time thinking about that, but I can make decisions across all of those three elements, and that’s what I get called on to do fairly regularly.”
“In the past two years we’ve pushed more authority to the front end, delegating as much as possible to them. It makes for a much more streamlined and effective operation.” Autonomy is an important point to the group, and it’s one they come back to several times in our discussion. As QBE’s Executive General Manager Intermediary Distribution Tony MacRae sees it, the regional managers’ ability to negotiate and settle claims and their delegated underwriting authority are important differentiators for QBE. “Most companies don’t do that,” he tells Insurance News. “But in the past two years we’ve pushed more authority to the front end, delegating as much as possible to them. “It makes for a much more streamlined and effective operation. It gives the managers authority to immediately sort out any problems and pushes them closer to the customer.” Being able to make decisions on the spot has taken some getting used to, admits QBE’s newest regional manager, Jenny Bax, who moved from Brisbane in May to take up the management of QBE’s South Australian operation. “But having a close relationship with the other regional managers, knowing that I can call on them at any time for advice, and having staff that are capable and knowledgeable and really passionate about doing their job makes it easy for me,” she tells Insurance News. Victoria/Tasmania Regional Manager Andrew Borden agrees that the QBE hierarchy leaves him and his peers to get on with the job. “There’s not a huge demand for attention from head office. A lot of our planning is focused regionally, so we align with central plans, October/November 2014
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but we do run a decentralised model. “We’re running a book of business that we have a responsibility and an accountability for, and also a fairly long rein in terms of the amount of decision-making ability we’ve got. “In running that book of business we’re maintaining a large team of people, we’re dealing with a big customer base, and we’re dealing with a number of products, we’re liaising internally with a whole range of different product managers and other functions within QBE. “Our job is to bring all of that together to drive a profitable result and grow the business.” Mr Borden joined QBE in November 2012 from Vero, and says that in his relatively short time at the insurer he has learned that “here the customer base is everything”. “I think the balance in this job is really much more about trying to be equally as externally focused as you need to be internally focused. You need to keep the people management stuff in mind at the same time as you’re driving service levels and moving things in the right direction. “The biggest trade-off is trying to spend time with customers when you know you need to also spend quality time with your people. “It could certainly be a lot worse. I know from talking to some of my peers at other companies that they suffer a lot more from head office pressures than I think we do at QBE.” With 10 years running QBE’s Queensland business, Leigh Stalker is the longest-serving regional manager of the group. He says the regional managers’ ability to meet every couple of months in the various regional offices “gives us a sense of each other’s markets”. “We almost always catch up with the local leadership team, so we’ve got a pretty good idea of who’s who and how things are going. “Some of us have been in our roles longer than the others, so we benefit from a great mix of historical knowledge and new ideas, and the way we do things now or in the future does alter as a result. “That’s been one of the benefits of having new people coming into the regional manager role; it’s changed the way we do some things. “So meeting regularly means some of the traditional ways have changed and other things have stayed the same. It sort of brings a bit more diversity to it.” What are the qualities that a good regional manager needs to have? Mr MacRae says the job calls for professionals “with a broad depth of knowledge and proven capabilities”. “There’s a certain obvious level of emotional maturity about our RMs,” he says. “I’m delighted to see how well the team has come together with such a mix of different experience. They really work as a group. They’re as good a group as any in the market.” Ms Bax says emotional intelligence is an important attribute for regional managers. “I think you really need a big ‘people’ perspective to do the job well. Listening, empathy… the usual soft skills. “Market-facing, having your presence in the market and being open and confident to get out in the market and talk to your brokers – being new in the role I’m doing all of that in a very short period of time. “It’s really just getting the feel for what’s happening and not being reactive, to try and anticipate what’s going to happen next and the best way to deal with whatever’s around the corner.” Christine Bell joined QBE from Vero in 2008 as national relationship manager. She became NSW/ACT Regional Manager last year. She says the role of the regional manager in QBE is subtly changing as the business changes. “It keeps you energised and gives you new things to focus on.” Mr Stalker learned the ropes in QBE’s Hobart office. He agrees 60
Leigh Stalker, Queensland: Mr Stalker has worked for QBE for 27 years and has managed the Queensland operation since 2000. He has been involved in the insurance industry for more than 30 years, holding a variety of underwriting, distribution and management roles around Australia. He joined QBE in Tasmania in 1987, and is highly regarded in the Queensland market.
Jenny Bax, South Australia: Ms Bax moved from Brisbane to take up the Adelaide-based regional manager role in June, She had been distribution manager at QBE in Queensland since 2010. Prior to that she spent 17 years with CGU in a variety of operational and management roles.
“We benefit from a great mix of historical knowledge and new ideas, and the way we do things now or in the future does alter as a result.” the level of autonomy he and his peers in QBE enjoy is a vital point of difference. “I’ve always had the opportunity to largely be autonomous. We’ve got the responsibility for distribution, so we run the whole operation. We’ve also got responsibility and accountability for the top and bottom line, and the organisation gives us the tools so we can make decisions at point of sale. “It’s one of the best things that I could have in my role. I think we collectively work really hard at our relationships and we try to make sure the customer is at the centre of our decision-making processes. “We all understand that we do run big operations and we’ve got October/November 2014
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good people, so we can invest a lot of time in our people as well. “We try to make sure that authority is shared with the people who answer to us so they can make decisions at point of sale. We try to flatten the authority as much as possible to get to as many people as possible to improve the customer experience. “That’s why I’ve enjoyed the roles that I’ve had in QBE. There’s been consistency with how I’ve been ‘tooled up’ to make it work.” Mr Borden sees great value in the company’s willingness to give the regional managers “the responsibility to do what’s right for our customers, even if that does sometimes mean that we’ve got to do things that are a bit out of the ordinary”. “When we’ve got a broker relationship that we know has been very supportive of us over a long period of time and someone needs a hand to do something that’s a bit different, we’ve got that capability to look at the issue in the context of the whole relationship and say, okay, let’s do it. “We can see the bigger picture and we’re confident we’ll get the support across the board. “One of the bits of feedback we get from brokers is that this is something that does set us apart – their confidence that if they need a bit of help, we’ll help them.” Mr McLachlan says WA brokers are more relaxed about taking him to meet their clients than their eastern states counterparts would be. “It can make resolving a claim or sorting out something about underwriting a lot more enjoyable. “I think it’s the remoteness and I think the brokers in WA are pretty comfortable in their own skin, so they’re comfortable to introduce the insurers to their clients. When I worked in Sydney it was not as common.” Ms Bell says delivering consistency of service across the business is a major challenge for her. “Given the transformational change that we’ve gone through, the opportunity’s there now for us to really drive consistency in our business in terms of what our brokers are feeling and what their customers are feeling. “So that’s the bit that we’re really aspiring for – service excellence.” Ms Bax says she is concentrating on building a greater understanding of the South Australian market and its perception of QBE. “I’m talking to the brokers, developing those relationships with all our intermediaries and understanding what works from a QBE perspective. I also want to see what isn’t necessarily working. “There’s a lot of stuff to do, but I’m also prioritising it down to make sure I don’t try and do everything in the first 12 weeks. I’m working through it all, but not trying to make a million changes in a short period. “Every day is a different challenge. This is what I expected and it’s what I was looking for.” Mr MacRae says the collegial approach he has been seeking in his regional managers is in line with the company’s determination to move away from the industry’s more traditional “silo” approach. At QBE the regional managers may be working a long way from each other, but they are nevertheless a team. “We’re all tied to the same Australia-wide results,” he tells Insurance News. “That’s what our incentives are aligned to, so there’s an acceptance that the group is all in it together and working to make the whole company more successful.” Mr Stalker says QBE’s transformation program has not moved the focus away from maintaining consistent growth. “One of the exciting bits for us now is that we did fundamentally shake up the business last year, and now it’s all about us having a business model that’s both efficient and very customer-friendly. 62
Andrew Borden, Victoria/Tasmania: Mr Borden started his career as an occupational therapist before moving into workers’ compensation and then insurance. With more than 15 years’ experience in insurance markets across Australia – including Sydney, Melbourne and Perth – Mr Borden joined QBE in 2012 from Vero, where he was executive manager, middle market underwriting. He has wide experience in claims, underwriting, operations management, workers’ compensation and distribution.
Christine Bell, New South Wales/Australian Capital Territory: Ms Bell spent the first 10 years of her insurance career in workers’ compensation before moving into mainstream general insurance in 2000 as national distribution manager for retail products at Royal & SunAlliance. Following the group’s rebranding to Vero, she was appointed in 2005 to lead the company’s broker relationship management team. She joined QBE in 2008 as national relationship manager, working with some of QBE’s largest customer groups. Ms Bell was appointed Regional Manager NSW/ACT last year.
Peter McLachlan, Western Australia/Northern Territory: A 30-year veteran of the industry, Mr McLachlan began his career in workers’ compensation, working across both claims and litigation. He joined QBE in 1994 as national corporate manager in Sydney, moving to Perth in 2001 to take up the role of state manager workers’ compensation. He has been based on the West Coast ever since, and has been Regional Manager since 2004. Prior to joining QBE, he spent seven years with Sedgwick, providing workers’ compensation and risk management consulting services.
“We have to be able to deliver a high-volume service that’s reliable and repeatable, while we still have the people who can deal with complexity and can meet brokers face-to-face.” He says the regional managers as a group must “take the changes that we put through the business last year and capitalise on those with a customer service model that really stands out”. “We’re the senior people in the region that people look towards to say what the future looks like, what we need to do to get there and how we can act and behave now to bring that about. “If we’re not providing that vision then they’re not going to * get it.” October/November 2014
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Is corporate Australia’s head in the cloud? The threat from cyber crime is growing and there’s no room for complacency, an expert warns By Wendy Pugh
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THE INTERNET CELEBRATES ITS 25th anniversary this year, and while its gains may vastly outweigh its drawbacks, cyber security threats are increasing and businesses must be prepared. US class actions against companies including Sony and Target and the theft of celebrities’ private photos have highlighted security risks and sounded alarms in Australia. “Australia has suffered its fair share of breaches and losses and they are growing,” Aon Global Practice Leader for Cyber & Network Security Risks Kevin Kalinich (pictured) tells Insurance News. “What it hasn’t had yet is the perfect storm.” Such a storm could involve a hack attack that is devastating for a company, its customers and shareholders – and that could result in class actions. A symposium hosted by Aon and law firm DLA Piper recently was told the average cost of a data breach in this country is estimated at $2.16 million, while 85% of Australians say they would stop dealing with an organisation if information was hacked. In 2010 and 2011 2.95 million cyber attacks were detected in Australia. The Financial System Inquiry’s interim report says cyber crime affected 5 million Australians last year at an estimated cost of $1.06 billion. The internet’s relatively short history leads to problems quantifying insurance risk and assessing action to reduce exposure and premiums. Chicago-based Mr Kalinich says underwriters want many decades of actuarial data to draw upon, but with cyber risk it is necessary to study individual cases to better understand the dangers. Examples include the 2011 Sony breach, when the theft of PlayStation customers’ credit card details led to costs of more than $US280 million. US retailer Target is now fighting class actions after about 40 million credit card numbers and 70 million personal account details were stolen.
Mr Kalinich says most cyberrelated data breaches lead to losses below $US1 million and only 5% exceed $US20 million, but companies should be aware of the potential for major costs. “People have to start thinking of it in terms of comparing it with other catastrophe modelling,” he says. In Australia the areas of particular concern include threats to large-scale mining and construction projects. Increased automation and use of robotics raises the risk of computer viruses, worms or Trojan horse programs causing malfunctions that damage property or endanger lives. In Iran the Stuxnet worm – suspected to have been launched by Israelis – affected centrifuges in the country’s uranium enrichment program, highlighting the potential for cyber attacks to harm infrastructure facilities. Mr Kalinich says Aon is working with Australian companies to draw up coverage for large-scale operational cyber risks that previously have not been covered. “We are in the process of customising insurance for specific exposures,” he says. “The cyber insurance that has been available to date has been primarily to address personally identifiable information.” Multinational mining, construction and industrial companies may want coverage of up to $US1 billion compared with more typical top limits of about $US200 million or $US300 million. Tougher Australian privacy rules that took effect in March are expected to increase public awareness and raise the data security stakes for businesses. Companies can now face a $1.7 million fine for repeated or serious breaches, and the Office of the Australian Information Commissioner (OAIC) has stronger investigative powers. The changing environment also increases the chance of directors and officers being held responsible if hackers cause problems ranging from
financial loss and identity theft to customer embarrassment. DLA Piper partner Alec Christie says cyber issues are now widely known. “It is clear it will be a breach of directors’ duties not to have considered and thought this risk through and actually charged someone in the company to deal with it,” he told the Melbourne symposium. Most US states have mandatory breach reporting, so victims are told of security problems involving their names and sensitive data such as credit card details. Australia does not have an equivalent rule, but Privacy Commissioner Timothy Pilgrim says voluntary reporting is increasing. In a submission to the Financial System Inquiry the OAIC says it supports mandatory notification. Aon says all companies should examine their potential exposures and assess the possible limitations of policies that were written without cyber issues in mind. General liability policies may specifically exclude privacy exposures, while property, crime and professional indemnity policies also fall short on cyber matters. Mr Kalinich told the Melbourne symposium that for mitigation plans to be effective, departments including IT, legal and human resources should assess risks. “You can’t just keep the IT security guys in the basement with the door closed, like companies are apt to do,” he says. “It is not just an IT security issue.” It is still early days for cyber insurance, with the internet’s influence likely to widen in its next 25 years. Mr Kalinich says innovations such as cloud technology and new forms of social media keep changing the landscape. “That is going to continue to be the trend in this area. It is not static. If you look at it in terms of a five-day cricket match, we are in the morning * of the first day.” 65
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Move and counter-move D&O insurers are racing to deal with threats to company directors from investigations and legal action By Jan McCallum
COMPANY DIRECTORS AND EXECUTIVES have been calling for increased protection from shareholder lawsuits, but there is no sign the Federal Government is paying them any attention. Directors have some justification for feeling under siege from shareholders and regulators – suing companies has become so mainstream the Victorian Supreme Court recently heard of an enterprising lawyer who set up a business to launch shareholder class actions so he could earn the legal fees [see breakout]. The insurance industry has responded to the growing threat by expanding the cover available, to the extent that it’s hard to see what isn’t covered. Marsh New South Wales Manager of Financial and Professional Services Craig Claughton says Australia “is an enormously difficult territory for directors in particular”, with a large amount of legislation imposing personal liability on them. Henry Davis York partner Louise Cantrill says directors and executives are increasingly worried about being held personally liable for breaches of regulations – and the fines and penalties that may arise. Changes to workplace health and safety acts have broadened the scope of personal liability, and regulators globally have flexed their muscles following the global financial crisis. They are talking to each other more and pushing for cross-border regulation, while launching more investigations. Ms Cantrill says it is common for directors’ and officers’ liability (D&O) policies to exclude investigation costs, which can mount even when a prosecution does not follow. When regulators start looking into a possible breach, huge amounts of time can be involved and insureds will want legal advice. “It is not a claim, although it looks like it might lead to a prosecution,” she says. “They are just investigating, but the costs can be significant.” Mr Claughton says directors and officers can be required to participate in inquiries even though there is no allegation of wrongdoing. Until recently this would not have triggered a D&O policy. While insurers have expanded cover, he says it is still important to look beyond 66
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Class act Why a lawyer devised a tandem built for one The story of an entrepreneurial Melbourne lawyer who set up a business to sue listed companies will make insurers’ blood run cold. Mark Elliott created Melbourne City Investments (MCI) to start shareholder class actions so he could earn fees as the solicitor running the cases. The Victorian Supreme Court threw a spanner into the works in July, when it ruled Mr Elliott and MCI could not operate in tandem on cases. The number of class actions has soared recently, largely because of litigation funders who operate on a no-win no-fee basis. Proponents say the actions have improved corporate governance and business integrity. They have certainly increased access to justice, allowing small investors to challenge large corporations. Companies are usually sued for failure to disclose – for example, neglecting to warn investors that business is not as rosy as previously suggested. For example, there is speculation QBE may face a class action over its profit warning last December which caused the share price to plummet more than 20% in a day. But the MCI case bears out criticism that class actions have become an industry for entrepreneurial lawyers. Treasury Wine Estates and Leighton Holdings asked the court for orders restraining MCI after it started proceedings against them and WorleyParsons late last year, having bought about $700 of shares in each company. Mr Elliott made allegations of failure to disclose and misleading or deceptive conduct. MCI bought small shareholdings in about 20 companies in November 2012, when it was incorporated. In February this year it bought shares in another 145 companies for between $600 and $900. Justice Anne Ferguson agrees with Leighton that Mr Elliott, MCI’s sole director and shareholder, created it to bring class actions against listed companies for breaches of continuous disclosure obligations. MCI would be the representative plaintiff and Mr Elliott would earn fees from acting as its solicitor. “While Mr Elliott is acting on a no-win no-fee basis, it is common knowledge that most litigation settles before judgement and that this is treated as a ‘win’, such that the lawyers’ fees are paid,” the judge said. As a small shareholder MCI would not receive much compensation if the class actions succeeded, but the costs awarded in its favour would be substantial. Its only risk would be that costs could be awarded against it. Justice Ferguson says group proceedings are lawyer-driven and will not, because of this, be brought to a halt. But the risks of “entrepreneurial lawyers” acting in class actions are exacerbated when the plaintiff and solicitor are not independent of each other, because self-interest might overshadow group members’ interests. Lead plaintiffs usually have the benefit of independent legal advice, and the solicitor does not risk having costs awarded against them. “Mr Elliott is simply not in a position to give detached advice to MCI,” Justice Ferguson said. The judge refused to rule that the class actions are an abuse of process, but she ordered that while Mr Elliott represents MCI, the cases should not be allowed to continue.
He says inquiries are stressful for those caught up in them. “It can be daunting. It is almost like you have to prove yourself innocent.” the “headline” of the policy, to see what it really provides. A policy might be triggered at the inquiry stage, but Mr Claughton warns clients can be caught up in significant amounts of time and work even before then, having to find and compile documents and needing to consult a lawyer. When regulators start looking around “they tend to be quite vague”, and they will not be specific when they write requesting attendance at an inquiry. “It can be difficult to prepare because you are not sure what direction it is going to take and what their angle is,” he says. Another potential pitfall is the level of legal representation. When the reputation of a director or chief executive is on the line they will want to call in the major partner of a top law firm, and not have arguments about what constitutes reasonable legal costs. “The better policies provide cover for preagreed legal panels,” Mr Claughton says. “If you use one of these firms there will be no argument over the hourly rate.” He says inquiries are stressful for those caught up in them. “It can be daunting. It is almost like you have to prove yourself innocent.” The heat on companies has grown with the entry of litigation funders and legal firms specialising in shareholder class actions. The Australian Institute of Company Directors (AICD) argues that current protections are inadequate. It is leading a push for the introduction of a new “honest and reasonable director” defence, to protect those who act with integrity and commitment. The AICD says directors should be able to pursue and harness opportunities, drive performance and create jobs without being overly focused on personal liability concerns. Disclosure issues often involve difficult and complex questions of judgement for directors. They may put the company at risk of a misleading or deceptive conduct claim if they release information too early that is later found to be wrong. But if they wait, they risk the company being sued for failing to meet its continuous disclosure obligations. Directors also risk being held personally liable if they allow their company to trade while October/November 2014
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Covers have expanded so much “it’s difficult to see how they can actually get much broader. They really go to the edge, as far as the law will allow them.”
insolvent, but the AICD says this effectively forces them to raise the white flag as soon as the company encounters difficulties, rather than take sensible risks so it can trade out of trouble. The institute has held talks with the Government on its proposal. Spokesman Steve Burrell tells Insurance News these “have proved constructive and we will continue to put the case for reform, because the benefits of the proposal flow not just to directors but also to investors and the economy at large”. Australia’s D&O market is very competitive, despite the high likelihood of claims. Mr Claughton commends the insurance industry for its response to new threats, saying D&O insurers have acted promptly. “The marketplace really does have an ethos designed around protecting the personal liabilities of individuals, and the good products – and they don’t all fall into this category – constantly update and evolve to ensure they meet the needs of individuals,” he tells Insurance News. Covers have expanded so much “it’s difficult to see how they can actually get much broader. They really go to the edge, as far as the law will allow them.” D&O insurance clashed with the law and public policy last year in the South Australian Industrial Court when steel erection specialist Ferro Con and its directors were prosecuted over the death of a worker. The magistrate said insurance for the penalty undermined the court’s sentencing powers, and in light of this he would not grant a reduction in penalty, despite a guilty plea. The $200,000 fine is thought to be the largest workplace health and safety fine in the state’s history. Ms Cantrill says it makes the case an issue for insureds and insurers alike. She says there is a view that the class action regime is not serving its intended purpose, and is stifling risk. “There is nothing on the radar at the moment, but I would not be surprised if within the next 12-18 months there was not agitation to try to review the class action regime,” she said. Mr Claughton is not so sure. He has observed the pushback from the top end of town, “but I don’t sense there is any desire by government to curb legislation or produce legislation that gives * enhanced protection to directors”. October/November 2014
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Catlin ready with product recall cover: Quality and safety rule as consumers put increasing pressure on suppliers CATLIN HAS RELEASED NEW WORDING FOR its consumer durables product recall insurance as the demand for cover increases. Product recalls typically cover electronic and electrical items, homewares, building materials, toys and components. Specialty Lines Underwriting Manager Steve Ward says recalls are driven by contractual obligations from wholesalers and retailers as well as increased consumer awareness of quality and safety. “An increased focus on product safety from both consumers and various government authorities has meant that product recall insurance for consumer durables is more important than ever before,” he said. Mr Ward says Catlin’s enhanced product offering will help companies across the supply chain to protect their brand and reputation, as well as provide balance sheet protection. The cover is tailored to the needs of the consumer durables market and offers comprehensive defect cover, with product design and manufacturing error covered up to full policy limits. Expanded government recall cover has no onus on the insured to prove a defect has actually occurred. Catlin’s line size is up to $US25 million, and Mr Ward says the insurer “has a much broader appetite” and can consider all consumer durables and component business on a case-by-case basis * Pretty cute, and potentially dangerous: this doll was the subject of a product safety recall last month because its button nose could detach and become a choking hazard. Over a period of 30 days the Australian Competition and Consumer Commission recorded 42 recalls of products ranging from a water tank at risk of corroding internally and collapsing, to a bus with insufficient emergency exit stickers and a badly placed emergency release valve on the passenger door
Direct combat: Premium Funding’s corporate product takes the fight up to the banks PREMIUM FUNDING HAS DEVELOPED A PRODUCT FOR BROKERS
to offer large corporates in order to combat direct competition from banks. “Our supporting brokers were screaming for a product they could offer to their larger corporate clients who were under attack from banks going direct with low cost premium funding options,” Premium Funding Director Ross Hayward says. “We’ve taken the necessary steps to assist these requests. We have the capital and capacity to fund these larger loans at reduced competitive rates.” The new product, Premium Funding Corporate, became available to brokers from the middle of September for loans over $250,000. The rates include 1.8% for 30-day settlement and 10 installments. There’s no limited time period for the offer, which is planned to continue indefinitely. insuranceNEWS
“I wanted something that would stand out and give our brokers more flexibility in their price offering to their corporate clients,” Mr Hayward said. Privately owned Premium Funding has been established since 1992 and isn’t aligned with or financially linked to any insurers or broking businesses. The company wrote more than $250 million in insurance loans last financial year to more than 35,000 businesses. It forecasts it will write more than $300 million this financial year. Premium Funding also recently employed two more staff, bringing the number of business development managers to 14. Previous innovations include signature-free contracts, electronic settlement reconciliation, online customer acceptance and smartphone applications. Mr Hayward says the business is growing quickly and further * product releases are planned for later in the year. October/November 2014
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What if he’s the company's best brain? SUA’s new product helps protect companies who lose a key person through illness or accident
No genius, no work: What happens when the key person gets sick? SUA’s new business continuity product has the answer IN SMALLER BUSINESSES RUN BY ENTREPRENEURS, brilliant individuals count. So when the boss or a leader working on a crucial project is unable to work for some months due to accident or illness, the whole operation can go into a tailspin. By the time he is she is fit again, there may not be a company to come back to. That’s precisely the situation that a new product offered by Specialist Underwriting Agencies (SUA) is designed to avoid. SUA is offering business continuity cover for the first time to businesses to protect key staff members against unexpected illness or accident. The cover protects the company and offers financial assistance to keep the business running and to replace the key staff or person who cannot work. “This is a US product that we’re introducing into Australia,” SUA Director John Iles tells Insurance News. “It’s been around overseas for probably three to four years in different guises. “It’s a distinct product and it’s not generally available in the local market, so we felt it fitted into our line of being a niche provider. “Think of it as entrepreneurial cover.” The product allows the recovery of some costs towards getting a replacement for the key person who is unable to work. “If a business owner is injured and unable to work for six to nine months, the product allows the company to go out and find someone who can at least manage that portfolio of business while they are off work,” says Mr Iles. In protecting the company, the cover is different to income protection, which protects the individual. He says the policy will be available online in November on the SUA website to brokers who will then be able to log in, quote and place the cover for clients within a few minutes. Key person limit options are $50,000, $100,000 or $200,000 and up to four extra people can be added with the same or lower limit. The cover can be offered to people who are under 64 at the inception of the cover, who work a minimum of 25 hours a week and who don’t engage in manual labour as part of their normal employment. There are minimal occupation restrictions and the minimum premium is $200. * Security is provided by Lloyd’s. October/November 2014
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Smoothing the c Leader or technician? Suncorp has designed a pathways program that puts the best skills in the best places By Jan McCallum VERY FEW PEOPLE START OFF IN insurance thinking it’s the ideal industry in which to build a career. Then again, few people leave once they’ve discovered the diverse career opportunities insurance offers. But starting with low expectations means many haven’t thought out their preferred career path. People who prefer to work in technical jobs can find themselves being moved into leadership roles, and people who prefer to act in leadership roles can find their options narrowing because they don’t have the technical skills to manage some specialised groups. At the same time the industry faces “pockets” of talent shortages, such as for underwriters, claims specialists and actuaries. That’s a good reason for insurers to go the extra mile to retain their best staff, and according to a Suncorp Commercial Insurance research paper published earlier this year, employers are going to have to source talent from pools of people with increasingly diverse ranges of preferences and desires. The company has put its own response into practice by setting up a specialist career pathways program to offer alternative ways for employees to progress through the company, either as a technical specialist or in a leadership role. The program allowed Debbie Hunter to become manager of a claims assessor team six months ago, despite not having a background in loss assessing. Ms Hunter has worked in the industry for 20 years, of which the last 11 have been in leadership positions with Suncorp. She says she would have struggled to combine leadership – her passion – with the claims assessor job as it was traditionally structured. The position was originally only available to a qualified claims assessor, but 76
Leader first, technician second: Suncorp's Debbie Hunter
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e career path under the pathways program Ms Hunter can bring her people leadership skills to the job and is supported by specialist claims staff. Since the specialists collectively have a wealth of experience and expertise, their manager does not need to be an expert in the field – but must be a highly skilled leader. In Ms Hunter’s case, she was appointed to a job usually held by a man, so the program has also opened up opportunities for female employees. She tells Insurance News the specialist career pathways program enables employees to work to their strengths and means Suncorp does not lose highly skilled staff. “It is about not pigeon-holing people in their careers but finding where their passion lies. It says both technical and people leadership skills are important.” Ms Hunter says the program also boosts creativity by mixing people with different skills and backgrounds. Her team has implemented “some great changes” and is now working on an assessment project looking at how to implement feedback from customers, brokers and advisers. The aim is to improve assessing processes.
“The program shows there are career development opportunities for people with different aspirations, and there are options for people who enjoy their work but don’t want to become a manager – plus those who want to work from home or new parents returning to the workforce part-time. “This is being put in place to retain the best people.” The program has been embraced by Suncorp staff because they can see new opportunities opening up. Ms Hunter says she has been able to find more career opportunities for the people in her team who don’t want to go into leadership roles. “Previously for people to advance their career they needed to take on a management or people leader role to step up their career,” she says. Suncorp Commercial Insurance Chief Executive Anthony Day says it makes sense for an employer to offer career paths that best suit each individual’s talents and abilities. “This is a mutually beneficial arrangement that will position the company for future growth,” he said. “This initiative has been absolutely critical in building a strong competitive and commercial advantage for Suncorp Commercial Insurance, and helping to dif-
ferentiate the company in the market.” Ms Hunter says a formal program enables people to consider and plan their career progression, because the opportunities are clear and visible. “If you want a role as a specialist in marine claims you can go to the career campus and it will tell you what skills and capabilities you need in that space.” There will be opportunities to train and to “buddy up” or work with a mentor. It also sends a message that the company is open to providing new opportunities to staff, she says. “I don’t have a technical background and it is a mainly male-dominated space in the assessing world, but I didn’t blink in applying for the role.” Was she concerned about facing criticism that she lacked claims assessing skills? Ms Hunter thought there might be resistance, but says Suncorp has done a great deal of work on encouraging diversity of thought and the benefits it can bring to the organisation. “I believe leadership skills are totally transferrable across all lines of business,” she tells Insurance News. “I have proved I am a leader, and I think it is about having con* fidence in your ability to lead.”
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AIG ingenuity ensures a happy Bledisloe clash It was a very big night in Sydney in August when AIG welcomed 150 brokers, clients and business partners aboard the Blue Room cruise boat on the way to the first 2014 Bledisloe Cup rugby international. AIG is the official insurance partner and major global sponsor of New Zealand Rugby, which includes the legendary All Blacks. While that arrangement might work well everywhere else in the world, AIG Australia Chief Executive Noel Condon is well aware of the ultra-competitive Bledisloe Cup clashes between the All Blacks and the Australian Wallabies. In deference to the Australians, the AIG team came up with a unique double-sided scarf so fans of either side could wear them with pride. The cruise took guests from Sydney’s King Street Wharf to ANZ Stadium in Homebush for the match. Some guests preferred the comfort of corporate boxes, while others enjoyed their platinum-class seating to watch the thrilling 12-12 draw between the Australian Wallabies and the All Blacks. After that nail-biter it was back to King Street Wharf, where AIG’s guests were able to relax with drinks and canapés and a spectacular view of Sydney Harbour.
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peopleNEWS Claims specialists set a record Record numbers attended Augustâ&#x20AC;&#x2122;s Claims Convention in Sydney, and the conference dinner was a time to remember friends and discuss the themes of looking to the future. The Carey Bird scholarship was presented to Cerno property loss adjuster Christopher McAuliffe, who will be flying to Hong Kong next year for the Asian Claims Convention. The scholarship remembers Marsh employee Carey Bird, who died in the February 2011 Christchurch earthquake. The Sydney conference, run jointly by the Australasian Institute of Chartered Loss Adjusters (AICLA) and the Australian and New Zealand Institute of Insurance and Finance, drew more than 350 delegates this year. Daniel Ong won the Diploma of Loss Adjusting Prize and the Syd McDonald Young Adjuster Award and AICLA life membership was awarded to Paul Oâ&#x20AC;&#x2122;Sullivan. Mike Brady provided the entertainment.
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peopleNEWS Vero helps brokers with expo series Former Victorian premier Jeff Kennett kicked off this year’s series of Vero expos around Australia. The expos give brokers training, tips and ideas to help them grow their businesses. Mr Kennett, who is now the Chairman of Beyondblue, gave the keynote address. Beyondblue is the national initiative to raise awareness of anxiety and depression in Australian communities. The Vero events, which are attended by hundreds of brokers, are staged in most Australian capital cities over several weeks. Other guest speakers included marketing expert Tim Reid, social researcher Mark McCrindle and insurance fraud experts Martin Latimer and Paul Breen. “Vero Expo is an annual highlight for many brokers, and this year’s program has been better than ever,” Suncorp Executive General Manager of Distribution Andrew Mair said.
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A moving experience for young professionals Young professionals are often on the move, and that was certainly the case at a recent Australian Insurance Law Association (AILA) dinner. The AILA Young Professionals Network Luminaries event, held at Rose Bay in Sydney, was run as a progressive dinner â&#x20AC;&#x201C; although some bright sparks say they see it as more akin to speed-dating with decent food. After drinks on arrival guests shifted tables at the end of each course, providing greater networking opportunities as participants sat with different industry executives during the evening. The invitation-only annual dinner usually attracts between 55-60 industry executives, who each bring along a young professional from their own organisation. Participants include brokers, insurers, lawyers and loss adjusters. This year the event was at Catalina restaurant, named for the famous flying boats that were once a feature of the area.
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peopleNEWS Sunshine and learning as CQIB gathers A golf morning, charitable fund-raising and plenty of technical learning attracted a record number of delegates to the Council of Queensland Insurance Brokers annual convention in August. More than 400 insurance professionals attended the convention at the Twin Waters Resort on the Sunshine Coast, which had a strong focus on technical training. A two-day learning program covered topics such as aviation, social media, corporate travel and understanding financial reports. CGU and SUU got delegates competing in a team event that required mind coordination and teamwork to solve puzzles and challenges, while Veroâ&#x20AC;&#x2122;s dinner took everyone on a trip back in time to Las Vegas. Delegates raised more than $24,000 for Brisbaneâ&#x20AC;&#x2122;s Mater Hospital Foundation.
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Quill Club writes a cheque for spinal research Insurance-based networking group the Quill Club raised more than $18,000 for the Neil Sachse Foundation at this year’s annual charity luncheon held at Melbourne’s Docklands. The money raised will help the foundation’s work supporting research into spinal cord injuries and educating the public on the causes and effects. Mr Sasche, who has been a quadriplegic since he was injured in a VFL match in 1975, was interviewed at the event by football legend Kevin Bartlett. This year’s luncheon, attended by more than 350 people, was held at the Central Pier Peninsula Room. The Quill Club was established in 1977 and supports a different charity each year. Its monthly lunches promote industry relationships through networking.
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Brokers celebrate with a lot of famous dummies Centrepoint Alliance Insurance Premium Funding has had a very good year, and Chief Executive Bob Dodd (above) marked the achievement by inviting more than 100 New South Wales brokers to Madame Tussaud’s at Sydney’s Darling Harbour. The invitation promised a glittering “evening with the stars”, and Madame Tussaud’s delivered. Among the stars on show were John Farnham, Rihanna, Michael Jackson, The Beatles, Leonardo Di Caprio, Oprah Winfrey and Madonna. And the stars were not limited to stage and screen. Leyton Hewitt was on hand (pumped, of course), enticing a number of guests to try their best “Come on!” The royal family was also present in all their regal splendour. Political heavyweights included John Howard and Barack Obama, and for the more spiritually inclined His Holiness the Dalai Lama had a smile for all – but unfortunately offered no insight into the meaning of life. The more adventurous took a ride with ET or braved the menacing jaws of a killer croc. While most of the evening was free for memorable photos with the famous, Mr Dodd took the opportunity to thank the brokers for their support and looked forward to a promising year ahead.
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Ausure opens up with a Steadfast surprise
Ausure Insurance Brokersâ&#x20AC;&#x2122; conference opened with a buzz, coming a day after the announcement that Steadfast was buying a majority stake in the network. Delegates got an impromptu question and answer session from Ausure Managing Director Troy Brown and Steadfast Managing Director and Chief Executive Robert Kelly on the first morning of the conference, with the two men providing further details of the new partnership. More than 320 delegates attended the conference in Surfers Paradise. Some 40 insurers, underwriting agencies and premium funders presented in the trade exhibition space, giving Ausure authorised representatives the opportunity to learn more about their products and build business relationships. Ausure General Manager Scott McCarthy says it was the largest and most interactive gathering the company has had, with plenty of networking opportunities at the trade show, poolside party and gala dinner. Next yearâ&#x20AC;&#x2122;s Ausure Conference will be in Darwin.
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Professionals flock to APIG gathering The Australian Professional Indemnity Group’s (APIG) annual conference goes from strength to strength, with this year’s event a sellout attracting more than 300 delegates. Coinciding with the group’s annual dinner, the conference is regarded as a major networking and information-gathering event for insurance and legal professionals. This year the event saw some notable changes to arrangements, with share tickets offered for the first time and expansion and separate pricing of the “fundamentals” sessions to cater for new entrants to the industry. The keynote speaker was Zurich Chief Executive Daniel Fogarty, who gave delegates a rundown on the global state of the professional indemnity and directors’ and officers’ liability markets. NSW District Court Judge Judith Gibson also addressed the conference, noting that social media is throwing up new risks – and opportunities – for insurers. A big change in the conference program this year was the timing of APIG’s associated annual dinner, which this year was held on a Thursday rather than a Monday night. After feedback from insurance professionals and lawyers who “don’t like Mondays”, the switch saw the number of attendees at the dinner reach a record of more than 500.
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peopleNEWS Fun and celebration at ANZIIF awards It’s the night of nights on the insurance industry calendar and this year was no exception, generating a small storm on social media. More than 700 guests turned out to attend the Australian Insurance Industry Awards held in August at the Star Events Centre, overlooking Sydney Harbour. This year the event marked 130 years of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), which hosts the awards. Directed and encouraged by MC Sydney media personality Adam Spencer, the crowd jumped at the chance to engage with each other during the event via social media, sharing group selfies, Tweeting updates on happenings throughout the night and tagging photos from Facebook for days after the event. Organisers say that such was the enthusiasm generated by the chance to “share”, “like” and “retweet” that within 24 hours, more than 71,000 Twitter accounts had been reached. It’s this spirit of fun, celebration and community that ANZIIF Chief Executive Prue Willsford says drives the annual event. “These awards are about recognising excellence, but they are also about celebrating being part of a collegial, supportive professional community that does its utmost to produce great results.” For a list of winners, see Newsmakers on page 8.
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Sam Pentecost Contributor
BY NOW EVERYONE HAS ONCE AGAIN SETTLED into daylight saving, where Queensland is an hour behind its southern neighbours and Western Australia is two hours behind Queensland but three hours behind the other eastern states, and South Australia is… you get the picture. It seems like a bit of a mess, with most states embracing the opportunity to have long evening twilights while Queensland, Western Australia and the Northern Territory, wary of curtains fading and cows going off their milk, stick with time The Way God Intended It To Be. New Zealand complicates things by starting its daylight saving on the last Sunday in September, whereas Australia starts on the first Sunday in October, but both finish on the first Sunday in April. Kiwis, they’ll do anything to be first. The contigious United States and Canada share timezones, while Alaska and Hawaii have their own. Daylight saving in North America ends on the first Sunday of November although Alaska and Hawaii don’t bother with all that stuff. Neither does Arizona, although it’s a lot further behind than one hour. Have you ever been to Tucson? And in Canada, some parts of rebellious Quebec, most of Saskatchewan and Southampton Island in Hudson Bay (population 834) don’t save daylight and apparently nobody cares. Australia only has three timezones to stuff around with, whereas Russia has nine. Considering how much those crazy Russians in Moscow like to screw with people’s heads, you shouldn’t be surprised to know that in 2011 they decided to impose daylight saving across all nine time zones. And then they applied it for the whole 12 months. In December the sun doesn’t rise in Moscow until 10am – and elsewhere even later – so many millions of people have spent the past few years getting up in the middle of the night to go to work in icy darkness. And you wondered why they drink so much vodka? Anyway, three months ago the Russian Parliament voted to ban daylight saving entirely. The vote was 442-1. That lone parliamentarian must own a lot of nightclubs. So timezones can confuse people, and daylight saving only makes it worse. Forget about the New Yorkers who call the Insurance News advertising manager at 4am because, after all, “it’s nearly lunchtime”. We’re talking normal, run of the mill confusion. Anyway, let’s change the scene. We take you now to a quiet Monday morning in September in sunny downtown Adelaide, where the NIBA Convention is in full swing. The time is 10am-ish. It’s awards time. 98
First award up is the NIBA General Insurer of the Year, around which much champagne gets drunk or put back in the cupboard, managerial careers rise or fall and staff 3hope for an extra day’s annual leave. Until it’s announced, the winner is a closely held secret shared by only a few NIBA executives. And, of course, selected (ahem) members of the media. Yes folks, for many years Insurance News has been let in on the secret early so we can prepare our reports and have them ready to tell the wider industry within a few minutes of the announcement. Such matters are handled routinely by a chosen few at Insurance News, with the news “embargoed” – which means the information is withheld until it has been announced. It’s a mutually beneficial arrangement because it gives the journalists time to put it all together. It’s also a trust you hold sacred in news publishing because if you break it and publish before the fact you risk losing the trust and co-operation of the aggrieved party. The NIBA information reached Insurance News with an embargo until 10.30am. And that’s where it starts going wrong. It’s commonly accepted that media releases from the eastern seaboard – this one was from Sydney – state the time in Australian eastern standard or daylight time. Sometimes they say AEST, or AEDT, and sometimes they don’t. Me, I’d do both. This one just said 10.30am. And so it was that in Melbourne, where Insurance News is produced, the news rolled off to the online edition’s subscription list of more than 21,000 subscribers at exactly 10.30am. Which was, of course, 10am in Adelaide. And the event was also running 30 minutes behind schedule. Most of our subscribers seem to have their mobile phones hooked up to the Insurance News Breaking News service. Just a few moments before Zurich’s win was announced from the stage, discreet beeps and hums started going off around the hushed NIBA Convention hall and faces lit up as they stared at their screens. For there, in the crisp, clinical upstrokes and rotund curves of the font named Verdana, were the names of every winner for every award. It rather spoiled the surprise for those in the audience with their phones on. It was just one of those things. Nobody to blame. Move along, nothing to see here. Everyone understands what happened, our directors were horrified and apologetic and NIBA was unhappy but understanding and sympathetic. Thank god NIBA’s in Melbourne next year. No * bloody timezones to worry about.
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