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BIG DATA: Finding the needle In the haystack HANDS-FREE: How driverless cars will affect insurers TOO SHALLOW: Digging deeper in the talent pool
INFLUENCERS AND INFLUENCES: Mike Wilkins and Robert Kelly top our list of leaders changing the dynamics of Australian insurance December 2014/January 2015
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Contents 6 Newsmakers » 10 UFIs: A hop into the unknown » Insurers are at odds with the Federal Government over a scheme to let unauthorised foreign insurers back into the domestic market.
14 Under many microscopes » Responding to a wave of inquiries has kept the industry busy this year – and the scrutiny won’t let up any time soon.
16 The top 20: The influencers and influences driving general insurance » Our annual round-up of the people and organisations that affect the industry and make things happen.
24 Growing together » IAG’s Peter Harmer says the merged CGU and Lumley commercial operations are making the most of their common ground.
31 Into the cloud – and beyond » Catastrophe modeller Risk Frontiers has come a long way in the past 20 years, but its biggest advances still lie ahead.
36 FOS forward » Dispute resolution is about to get faster, and the industry must learn to keep pace.
40 Big Data: Needle in a haystack » Big Data promises unparalleled insights for insurance companies – but to reap the benefits, they must first identify them.
48 Benefits worth billions » Research finds that reforms of state-based personal injury schemes could deliver widespread economic advantages.
52 Turbulent times » A spate of big losses has rocked the aviation insurance industry. What market impact can we expect?
56 Mutual attraction » Client partnerships and building resilience are at the heart of FM Global’s business, says new chief Thomas Lawson.
66 Digging a deeper talent pool » The insurance industry is finally taking steps to become a career of choice, rather than a job people ‘fall into’.
72 Reef revelation » Our Catlin Seaview Survey competition winner found inspiration on Indonesian coral reefs. And yes, she had a great time.
74 Oiling the wheels of deals » Warranty and indemnity insurance can make corporate takeovers more comfortable for buyer and seller alike.
lawNEWS 78 Fighting fire with water » The Queensland Supreme Court has ruled in favour of brokers following a major chemical factory blaze.
peopleNEWS 80 Playing the long game » Eight years of succession planning has ensured a smooth leadership transition at Perth-based brokerage EBM.
84 IAA hosts sparkling Gold Coast conference » 86 Adjuster takes a 360-degree view for launch » 88 Young eagles do good business » 89 AILA young professionals go incognito » 90 Berkley’s night at the museum » 92 Inspiration and fun power Resilium conference » 93 AIG hosts All Blacks brunch » 94 Catlin puts reputation in the spotlight » 96 What a smashing, positively dashing spectacle » 98 maglog »
62 Look! No hands » With driverless cars almost ready to hit the road, could the motor insurance industry be heading for a crash?
December 2014/January 2015
Cover: IAG and Steadfast Managing Directors Mike Wilkins and Robert Kelly Image: Cameron Ramsay
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insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 21,900 subscribers. In November we published 382 articles online. These were made up as follows: Local Corporate Regulatory & Government
annually over the past 20 years,” institute President Robert Hartwig said. “This year insured losses from severe winter events will be at least double that amount, likely exceeding $US2.5 billion by year’s end.” It would make this year the fourthcostliest for winter storms. Winter storms to cost US insurers $2.9 billion, 1 December
Financial Services The Professional International Analysis Breaking News
Some 17,258 news articles – including 169 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.
Lloyd’s local chief moves to Steadfast Lloyd’s Australia Managing Director Adrian Humphreys has resigned to join Steadfast as General Manager Business Development. Managing Director and Chief Executive Robert Kelly said that Mr Humphreys will join the company on January 19, and will be responsible for working with Steadfast network brokers to improve their operations. Mr Humphreys has run the Lloyd’s Australia operation for four-and-a-half years. The business has grown by 84% from $1.1 billion to more than $2 billion in that time. He has more than 10 years’ experience in the insurance industry working for both Lloyd’s of London and Aon UK. Prior to insurance he worked at KPMG as head of sales operations in marketing and communications. Humphreys moves to Steadfast, 29 October
Insured losses from winter storms in the US this year are tipped to exceed $US2.5 billion as parts of the country again shiver under an Arctic blast. The Insurance Information Institute says Munich Re data indicates $US2.4 billion of insured losses were incurred in storms from January to March. “Losses from snow, ice, freezing and related causes averaged $US1.2 billion
Digging deep: the scene in late November in Buffalo, New York
I am sure that to people down south it will seem strange that Territorians have a deep affection for an insurance company.
– NT senator Nova Peris explains why Territorians feel possessive about TIO, the country’s last government-owned insurer until Allianz Australia bought it in November for $230 million
Shaky results for failed insurer The estimated size of earthquake claims against failed New Zealand insurer Western Pacific has increased as assessments are finalised. A previously predicted $NZ49 million in claims from the September 2010 and February 2011 quakes grew to $NZ58.7 million at September 30. Liquidators David Ruscoe and Richard Simpson of Grant Thornton say this is “highly unusual” but they expect the figure to increase as assessments are completed. Mr Ruscoe told insuranceNEWS.com.au the original sum was derived from initial assessments and company records in 2011, but a claim for substantial damage has risen after a structural engineer inspected the affected property. The liquidators also say they have completed their investigation into the company’s affairs and do not believe it will serve creditors’ interests to pursue legal action against the directors – MelbourneinsuranceNEWS
December 2014/January 2015
based Jeff McNally and his brotherin-law property investor Graham Smolenski. The small insurer collapsed in 2011, and its only significant asset to compensate Canterbury quake claimants is $NZ32.19 million in reinsurance. The liquidators say preferential creditors – the Inland Revenue and employees – are likely to get a distribution in the next year, but that will depend on recovering outstanding debts, including unremitted premiums held by brokers. “Claims have been served on the relevant brokers and we will be continuing with the court process in the coming months,” the eighth creditors’ report says. The liquidation will continue until at least 2016 as the Canterbury claims are processed. Unsecured creditors, including those with non-earthquake insurance claims of $NZ15.41 million, are likely to get nothing. Failed insurer’s claims blow out, 3 November
72 62 52 49 53 75 8 11
US experiences a blizzard of claims
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Low scores on a matter of trust Australians’ regard for insurance companies is among the lowest in the world, according to a global consumer survey by Ernst & Young (E&Y). People here trust insurance companies less than banks, the Reimagining Customer Relationships report says. The poll of 24,000 insurance customers in 30 countries scores Australia’s trust level at 53%, compared with a global average of 70%. This puts Australia on a par with the UK and Germany, while only South Koreans are less trusting of insurers, at 47%. The most trusting consumers are from Latin America (81%) and the Middle East and India (79%). E&Y Insurance Strategy and Customer Advisory Lead Walter Poetscher says the industry must rebuild trust or “risk losing market share to newer competitors and disruptors”. “Balancing the changing expectations of consumers while finding new ways to increase loyalty and confidence is key,” he says. The report says what matters most to consumers in relationships with insurers is value for money (64%) and the insurer being easy to deal with (57%) and easy to understand (49%). Cost is the main reason for closing or replacing policies: 74% of Australian motor customers, 72% of home insurance customers and 52% of life customers cite this as a leading driver. Mr Poetscher says insurers should be wary of “alumni” customers, who leave their previous insurer for a “non-emotional reason” such as a high price but still hold it in high regard. Banks outperform insurers on trust, 17 November
Australian insurance profits grew 8.3% last financial year to a post-global financial crisis record of $4.96 billion amid escalating competitive pressures, according to KPMG. Rising premiums drove the gains, despite a slowdown compared with previous years, while the New South Wales bushfires were the only catastrophes to cost the industry more than $150 million, the group says in its annual General Insurance Industry Review. “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,” AsiaPacific Head of Insurance Accounting Scott Guse said. Commercial business drove a 3% gain in surveyed insurers’ gross written premium to $32.58 billion, while personal lines remained relatively flat. The report also warns of future competition from technology companies such as Google, Amazon and Facebook. Insurer profit rises despite growing competition, 29 September
Leader and innovator Roy Ellis dies A leading light in the Australian underwriting agency sector, Roy Ellis, died last week in Sydney after a long illness. He was 67. Mr Ellis was a senior manager in local and international insurance companies and more recently a leader in underwriting agencies. His long career in insurance covered most areas of operations. An engineer who switched to insurance early in his career, he worked in a wide range of senior management roles with Australian and international insurers and reinsurers before establishing InterPacific Underwriting Agencies in 1997. Mr Ellis was a founding member of the Underwriting
A long, hot and dangerous summer The southeastern states of Victoria, South Australia and Tasmania could face a “major” fire season as unseasonably dry spring conditions continue to grip the state, experts warn. “Climatic signals indicate the continuation of warmer and drierthan-average conditions,” the Bushfire and Natural Hazards Cooperative Research Centre (CRC) says. “The outlook has changed to a potentially major fire season.” The CRC’s latest outlook says record warm weather in October means the three states face a higher risk in the coming fire season. Above-normal fire conditions are expected to hit a larger area of the southeastern states than initially thought. “In these areas, it is more likely that the resources required to fight bushfires from within a region will be insufficient,” the CRC says. The warning follows a forecast from the Bureau of Meteorology that an El Nino system is expected to affect Australia in the next few months. Its latest outlook puts the likelihood of an El Nino event at 70%. The bureau’s climate models indicate current El Nino-like conditions will persist or strengthen, while above-average ocean temperatures have intensified in the past fortnight. “The Pacific Ocean has shown some renewed signs of El Nino development in recent weeks,” the bureau says. “For many parts of Australia, this suggests below-average rainfall and aboveaverage temperatures in the months ahead.” Southeast faces higher fire threat, 24 November
More bushfire danger on the way: a firefighter in blazing bushland near Sydney late last year
Agencies Council (UAC) and served as its chairman from 1999 to 2002. He received a lifetime achievement award from UAC in 2012. After selling InterPacific to Arthur J Gallagher in 2005, Mr Ellis worked in a consulting role for the US company’s Australian operations and later at Sportscover.
Profits up, but so is competition
Underwriting agencies leader dies, 24 November
December 2014/January 2015
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OUR ANNUAL ROUNDUP OF THE Top 20 most influential people in the insurance industry has been running for six years, which is impressive for something that started out as a one-off tongue-in-cheek exercise. It was not intended to be repeated, but reader pressure kept us working away at it year after year, enduring lobbying by public relations and other support staff as December draws near. This year we’ve mixed it up a bit. To be frank, we could have published last year’s list with a change here and there and most people would have been happy. But that’s not the Insurance News way. This year we decided to make the Top 20 list the most influential people “and organisations”. This enables us to recognise a few organisations with roles that impact on the industry and managers who collectively pack a punch. And we have added a new section, highlighting the influences forcing change in the industry. Plenty of change is happening, but much of it isn’t totally obvious. So we thought the influences deserve mention as well. Of course, this slight change of emphasis means some industry leaders who featured in last year’s and previous lists aren’t there this year. Fear not; we’ll probably go back to the old format next year. The uproar last month over unauthorised foreign insurers being allowed access to the north Queensland property
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insurance market – and by default the entire country – demonstrated not only the Federal Government’s willingness to grab a convenient solution but also the value of an informed and independent industry media. Our weekly online bulletin carried the information without comment in its news section, which is as it should be. But we felt less constrained from being critical when commenting on the Government’s initiative in the Analysis section. The commentary said things that industry managers and lobbyists couldn’t say publicly. They pointed out some terrible shortcomings and unknowns in the new policy, and questioned the Government’s motives in adopting them. insuranceNEWS.com.au is very widely read in the industry and the various groups that exist around it. One of those groups is government. We have subscribers in every key government department in the country, and the percentage of “opens” – individuals who click through to the news each Monday – is pleasingly high.
Our objective has always been to provide a professional news and information service, run by experienced journalists who research and write the articles rather than merely republish media releases without question or care. Today we employ nine experienced business journalists, and it’s their ability
Our drive for as large a readership as possible enables us to provide our advertisers with what they want – a big audience. Their continuing support of Insurance News is what pays the bills and the salaries, and enables us to keep everything not only independent but also free. Our sincere thanks to our advertisers – they deserve your support. At the end of another long and gruelling – but always totally interesting – year, the team at Insurance News join me in wishing our readers a happy festive season. Thank you for your support and encouragement. Stay safe. Terry McMullan
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to understand insurance that has made us the largest and most effective publication in general insurance. We set out seven years ago to build a “trade” publication online and in print that is immersed in insurance, presenting the industry and its issues without the cynical approach the mainstream media seems to instinctively adopt. We determined that Insurance News should be atypical of the normal trade publications by holding ourselves to the reporting standards of the mainstream media – and in many cases our checking processes are more rigorous. In that we have been very successful. insuranceNEWS.com.au today has more than 21,000 subscribers, and many more “casual” visitors who use us as a trusted source of information.
December 2014/January 2015
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UFIs A hop into the unknown Insurers are at odds with the Federal Government over a scheme to let unauthorised foreign insurers into the domestic market By Jan McCallum THE FEDERAL GOVERNMENT’S MOVE TO ENCOURAGE unauthorised foreign insurers (UFIs) is a bureaucratic solution to a problem that brings to mind the cane toad. In 1935 the toad was introduced from Hawaii into north Queensland sugar fields to control the native cane beetle. Nearly 80 years later there are an estimated 200 million of the ugly and poisonous immigrants moving gradually across the country. And the beetles continue to eat the cane. That’s an analogy with a clear warning as the industry mounts its case against the introduction of UFIs to provide lower-priced cover for north Queensland residents who can’t afford the high premiums Australian insurers are demanding for property insurance. Critics expect the UFIs, like the cane toad, to see better opportunities elsewhere – such as high net worth customers living in the leafy suburbs of our major cities. If foreign insurers go to Queensland, it will be to cover modern buildings with the best cyclone-proofing, and that will reduce the risk pool and raise the cost to everyone else. Finance Minister Mathias Cormann announced in late October that the Federal Government will establish a comparison website for home and contents insurance in north Queensland and allow UFIs to operate in the market. He says the initiatives will address insurance affordability in the region. Mostly the large insurers aren’t going public, but behind the scenes they are lobbying politicians and bureaucrats about the dangers of allowing in insurers that are not regulated by Australian laws. Regulators too have told Insurance News privately they are worried about what will happen if consumers have a dispute with a UFI or buy a policy out of desperation and then find their claim is not covered. 10
December 2014/January 2015
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There is also the matter of an uneven playing field for local insurers complying with the supervision requirements, and incurring the costs, of the Australian Prudential Regulation Authority (APRA). The responsibility for placing business with a foreign insurer not covered by Australian regulation will fall on brokers, and the longer-serving of them can remember battles over UFIs more than a decade ago. Innisfail-based Doug Olsen, Director of Rivers Insurance Brokers, tells Insurance News that whether UFIs will give access to a broader range of products remains to be seen. “Such was the abuse hurled at brokers not so many years ago for using foreign insurers, you were considered to be a dodgy operator [if you used them],” he says. The industry had problems with what were then also known as direct offshore foreign insurers (DOFIs) in the early 2000s, leading to legislation in 2007 to regulate them. In the tight liability market that followed the collapse of HIH Insurance in 2001, some brokers could only get clients covered through a DOFI. In 2003 then-National Insurance Brokers Association (NIBA) chief executive Noel Pettersen said clients demanded cover from where they could get it, as many trades and professions could not work without insurance. “With many higher-risk occupations, insurers in the local market won’t cover them,” he said, noting that brokers themselves would not be protected by their professional indemnity (PI) insurance if a UFI failed to perform. NIBA warned members that if they placed business with an insurer that became insolvent, the customer would seek to recover from the broker – whose PI cover was unlikely to cover the risk. Brokers would also need to demonstrate they had shown a reasonable degree of skill in determining the UFI was able to pay claims. They could have ongoing obligations to warn clients of any changes in the insurer’s financial position. NIBA’s 2005 annual report notes “some unlicensed foreign insurers cause concern because of their uncertain security or because they are based in countries with low levels of prudential regulation”. But it also said foreign insurers that came from a strong regulatory environment and had high ratings played an important role in the market. During that period local insurers and brokers were expressing frustration at the Federal Government for its tardiness in regulating DOFIs. insuranceNEWS
December 2014/January 2015
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“Even if they go to Queensland they won’t write what the Government wants – the older body corporates. They will want to pick the eyes out of it and remove all the good business.”
Insurance Brokers Network Australia Chairman Gary Gribbin told Insurance News there were problems at the time with insurers operating out of “less well-regulated Pacific islands”, that did not pay claims. The DOFIs had no office, staff or assets in Australia, so even if a dispute went to court and the claimant won, there was no company to serve a suit against. Brokers’ PI insurers responded by refusing to cover any liabilities associated with DOFIs, or only providing cover if the broker had documentation proving the risk had been explained to the client and the client had signed a letter saying they understood the implications of using an insurer not regulated in Australia. The issue has arisen again in 2014 because premiums in north Queensland have surged following cyclone claims and some insurers have withdrawn from the market, raising affordability and availability issues. Brokers already place $1 billion of premium a year with UFIs, for sophisticated clients with unusual and high-value risks. Until the Government’s announcement in October, rules around UFIs have been designed to prevent retail consumers accessing them. The rules under which brokers can use UFIs have been built around commercial lines, and are deliberately worded to ensure the focus of UFI activity is on “sophisticated” business. The cover that brokers do arrange with UFIs is also for highly specialised risks that local insurers don’t have the appetite to deliver. North Queensland brokers would welcome more capacity, but say they are unlikely to use UFIs. They say that not only will their PI insurance not cover the risk, they don’t want to arrange cover with a company that isn’t there for clients when they have a claim, or that cannot muster the large-scale response needed for a catastrophe. Brokers are also unimpressed at being nominated as the “gatekeepers” for UFIs. While they are experienced in handling property insurance, brokers do not deal extensively in domestic lines, which is dominated by the direct channel. A reputable UFI will be able to compete with local direct insurers by not having to recover through the premium the costs of compliance, advertising or staffing. The hazard exists in the fact that less desirable UFIs will also exist in a place where they don't have the same regulatory obligations or capital requirements as Australian insurers. The broker will have to add the cost of state and federal taxes on the premium. 12
Senator Cormann told a Senate inquiry that UFI-written insurance has to be placed with a broker, and the broker has to be satisfied “that the terms, including price, on which any authorised domestic insurer will insure against a risk are substantially less favourable to the insured than the terms on which an unauthorised foreign insurer will insure against such a risk”. Senators were told that if a consumer had a problem with the insurance, they could take their broker to the Financial Ombudsman Service. But Mr Gribbin says the law is clear that while brokers have a duty to exercise reasonable care and skill, they are not responsible for insurer failure. No broker was found to be liable for negligence following the HIH failure. The Government intends to clarify that where an Australian insurer prices the risk at relatively high levels “a risk can be placed with an unauthorised foreign insurer if the UFI is willing to provide a substantially lower price”, Senator Cormann says. “But what’s a better price?” one insurer representative asked Insurance News. “If it’s the premium, a house in Toorak or Hunters Hill could have a higher premium than one in north Queensland.” The Government cannot limit UFIs to operating only in Queensland and the industry view is that UFIs will ignore the north in favour of large cities where properties are more valuable and not dispersed down a long coastline exposed to cyclones. “Even if they go to Queensland they won’t write what the Government wants – the older body corporates. They will want to pick the eyes out of it and remove all the good business. “In doing so, the prices for the other risks will rise considerably. The whole thing is counter-intuitive to anyone who understands insurance,” the insurer representative tells Insurance News. Senator Cormann acknowledges there are risks with using UFIs, but says they are worth taking to get downward pressure on premiums. The Insurance Council of Australia has warned that north Queenslanders should have the same level of protection in buying insurance as consumers in the rest of the country. “This is particularly important given the very high exposure households and businesses in this region have to cyclones and floods,” General Manager Policy Risk & Disaster Karl Sullivan says. *
December 2014/January 2015
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Under many microscopes Responding to a wave of inquiries has kept the industry busy this year – and the scrutiny won’t let up any time soon By Wendy Pugh
POLITICAL CHANGE AND THE FALLOUT from natural disasters and financial planning scandals have fuelled numerous inquiries that have affected insurers this year and will continue setting the agenda next year. The Coalition returned to power last year with election promises to examine the financial system and change the Future of Financial Advice (FOFA) reforms, while also taking steps to wind back government involvement in some areas and increase competition. At the same time, soaring north Queensland premiums following floods and cyclones and the repercussions of rogue advice at a Commonwealth Bank financial planning arm have had wide implications for general insurance. Financial system oversight, disaster funding, competition, rules for giving advice, educational standards and the role of aggregators were among the issues examined by occasionally overlapping investigations. Several reviews have reached conclusions, others are set to deliver final reports and some inquiries have prompted offshoot investigations. Looming over them all has been the Financial System Inquiry (FSI), chaired by David Murray, which in July posed numerous questions in a wide-ranging interim report covering banking, superannuation and insurance. Australian Centre for Financial Studies Executive Director Deborah Ralston says insurance received less focus than expected, and issues surrounding technology, its impact on specific risk pricing and premium affordability are likely to face further scrutiny. “I would expect to see a lot of discus14
sion over that during the next year,” she tells Insurance News. “The whole issue of disaggregation of insurance ratings has implications that are not well understood.” Competition and affordability were the focus of a Treasury review of home and strata title insurance costs in north Queensland in the wake of cyclones and flooding. In a response criticised by insurers, Finance Minister Mathias Cormann announced the Australian Securities and Investments Commission (ASIC) will set up a comparison website by next March to help consumers compare home and contents products. The Government will also allow brokers to sell policies from unauthorised foreign insurers prepared to offer cheaper policies. Meanwhile, a Productivity Commission review of national disaster funding arrangements, prompted by cyclones, floods and bushfires since 2009, has recommended a rebalancing toward risk mitigation rather than nationally funded post-catastrophe relief. The draft report – released before a final version that is due by year’s end – calls for collaboration between insurers and governments, more information for customers on household policies and phasing out of state insurance taxes. Insurers made use of other inquiries to campaign for state and territory statutory workers’ compensation and personal injury motor accident schemes to be opened up. The issue was highlighted by the FSI, while a separate Competition Policy Review, chaired by Ian Harper, is scheduled to deliver a final report by the end of next March. A National Commission of Audit – set up by the Coalition to look at eliminating insuranceNEWS
December 2014/January 2015
waste and cutting government involvement – also had implications for the sector. Commission proposals include scrapping the Defence Service Homes Insurance Scheme (DSHIS) and the Australian Reinsurance Pool Corporation (ARPC), which was set up in 2003 after the September 11 2001 attacks made terrorism cover scarce. Treasury engaged consultant Pottinger to examine the ARPC, with a report to the Government expected by January 23, and the Department of Veterans’ Affairs appointed advisory group McGrathNicol to complete a study on the DSHIS. National Insurance Brokers Association (NIBA) Chief Executive Dallas Booth says much time has been taken up with reviews concerning FOFA changes and fallout from the Commonwealth Bank advice problems. The role of commissions, best-interests obligations, general advice definitions and calls for university-level qualifications and national examinations are among issues raised. “We are getting no concerns at all about the nature and quality of advice by insurance brokers,” Mr Booth tells Insurance News. “However, proposals that are being discussed would, if we are not careful, include brokers. NIBA’s job is to say, ‘Hang on, we are not the problem here’.” The Parliamentary Joint Committee on Corporations and Financial Services is due to report on professional, ethical and education standards in the financial sector by year’s end. The Senate Economics References Committee is conducting another review of FOFA following previous Senate inquiries, and will deliver findings by next July. Meanwhile, ASIC and the Australian
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“The challenge for policymakers... is to manage contemporary general insurance issues within a framework that does not fundamentally disturb the efficient insurance markets.”
Prudential Regulation Authority (APRA) have pushed ahead with insurance-related reviews as they themselves face scrutiny. In October ASIC released reports on direct home and contents insurance sales, highlighting problems related to general advice. APRA’s focus has included bedding down major changes introduced under the Life and General Insurance Capital regime from January last year. More broadly, it has consulted on new cross-industry standards on risk that will include general insurers and which are due to apply from January. Outcomes from this year’s inquiries are set to generate more challenges next year, while developments internationally also have the potential to affect the local industry. The Insurance Council of Australia says “fundamentally” the sector is serving consumer and economic objectives well, and it is important to recognise it as distinct from other financial services. “The challenge for policymakers in these circumstances is to manage contemporary general insurance issues within a framework that does not fundamentally disturb the efficient insurance markets of today and, as far as possible, looks to widen the opportunities available from extending these markets further,” the council says in its FSI submission. Mr Booth notes that the Federal Government will soon start positioning itself for the next election. “That is going to make it important for us to be in there making sure that whatever they take to the next election is not going to damage the work brokers do and add unnecessary costs and other compliance * burdens,” he says.
December 2014/January 2015
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December 2014/January 2015
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most influential people and organisations in general insurance MORE THAN ANY OTHER individuals in Australian general insurance, Mike Wilkins and Robert Kelly have changed the face of the industry over the past year. Wilkins, the Chief Executive of IAG, bought the insurance underwriting operations of Wesfarmers last December, making his group the undisputed Number One of the region’s insurers. He also brought to an end – for now, at least – eight years of speculation as to how the industry could consolidate at the top end. Kelly, a broker who formed a buying group named Steadfast to give small brokers some chance to retain their competitive edge, has built that small entity into a behemoth that is counted among the ASX Top 200 companies. Steadfast floated in July last year, and is already a force changing the way intermediary companies do business.
These two men are Number one and two on the annual Insurance News list of the Top 20 most influential forces in Australian general insurance. We haven’t attempted to define which is more influential than the other. There’s little point. Over the past year, both have wrought profound change on the industry. Twelve months after announcing his company was buying Wesfarmers’ diverse group of insurance companies after a tense few months of behind-thescenes bidding, Wilkins trumped his competitors with a $1.85 billion bid. Kelly has spent the past year building Steadfast, adding brokerages to his list and – crucially for his future plans – underwriting agencies. The company, which only listed in August 2013, generated more than $5 billion in insurance sales in the 2013/14 financial year. Working in collaboration with Chairman Frank O’Halloran – who forged business relationships around the world during his years as QBE chief executive – Kelly has demonstrated the breadth of his options over the past few months with the striking of a deal with US financial giant Berkshire Hathaway to form a personal lines operation that gives brokers skin in a game they had given up as lost to the direct market. And without doubt there’s more to come. A tireless spruiker of the value of advice in insurance, Kelly is not afraid to be a harsh critic when he believes brokers are being disadvantaged or insurers are acting irrationally. While the load of running a burgeoning group with
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equally impressive ambitions has quietened this visionary bulldozer down a bit, he remains relaxed, friendly and always engaging. Like Kelly, Mike Wilkins is a willing and persuasive spokesman for the industry – a trait most of his counterparts in the industry give little time to. He also belongs to a number of influential business groups. For Wilkins, absolute domination in the New Zealand market through the merger with third-largest insurer Lumley and the addition of a string of businesses in Australia give IAG many new options and footholds in some key markets. Lumley and the smaller Wesfarmers insurers are being carefully merged into IAG’s commercial and personal lines operations. The acquisition of the rights to run the Coles Insurance operation, for example, gives the IAG team great insights into the value of Big Data. The merger game is something Wilkins has been showing considerable skill at for the past 11 years. In that time he has now been the architect, the salesman and the buyer in three of the biggest insurance company deals of the 21st century. As managing director of Tyndall Insurance, he masterminded the 2003 float of UK insurer’s Royal & SunAlliance Australian insurance assets, forming Promina. Three years later Suncorp-Metway bought Promina for $7.9 billion. Three years later he joined IAG as chief operating officer to bring order to a business that had seriously lost its way. Seven months later he was Chief Executive, and the group has been steadily growing in Australia and carefully selected overseas markets ever since. Though so different in so many ways, Wilkins and Kelly are not only good friends, they are also masters at the game of business – steady and assured leaders with an eye for detail and an imagination for what is possible.
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Mark Searles, Chief Executive, Austbrokers Holdings
We said last year that Searles is a strategic thinker, and he’s proved that over the past year with some astute moves on the acquisition front. And like Robert Kelly, Searles is leading an organisation that is setting up to be more able to bypass the big insurers in the increasingly crowded SME insurance market through their increasing focus on underwriting agencies. The November acquisition of the management group of the major New Zealand BrokerWeb cluster group, as well as a 50% interest in the country’s largest independent brokerage, BrokerWeb Risk Services, is another demonstration of Searles’ determination to widen Austbrokers’ range of revenue options. The AIMS joint venture between Austbrokers and the independent IBNA brokers has proved to be an increasingly shiny jewel in the Austbrokers crown. Searles has given the company a sharper focus and greater ability to move strategically. Searles drove the company to a ninth year of double-digit profit growth for 2013/14, but achieving that for a 10th year in a period of falling premiums will be a greater challenge.
Mark Milliner, Chief Executive Personal Insurance, Suncorp
Much admired for his ability to foster innovative approaches to seemingly unfixable problems, Milliner has spent 20 years in key roles at Suncorp as it has grown from a Queensland company with ambitions to the second-largest insurer in the country. His soon to be completed two-year stint as president of the Insurance Council of Australia demonstrated some finely nuanced leadership skills,
In the past couple of years the drive to gain in size through acquisition has intensified. In the past 18 months we have seen the top echelon of the insurer ranks stabilise with IAG’s purchase of the Wesfarmers insurance companies, which effectively ended the chances of smaller competitors like Zurich growing in size. In broking, the entry of Steadfast as an enthusiastic buyer of brokerages has not blunted Austbrokers’ drive for strategic acquisitions. The cashed-up and competitive Arthur J Gallagher is likely to keep the mergers and acquisitions pace running strong. But the market is only so big, and you have to wonder if the day of the smaller independent broker is numbered.
The Senate: This article was written shortly before the Financial System Inquiry was to publish its final report to the Federal Government, and from this distance it’s difficult to foresee what is in store for the general insurance industry. Previous examinations of the industry have focused on the need for dramatic change in financial services, which has wreaked havoc on blameless brokers and insurers caught in the bureaucratic backwash. The Senate, a fractious arena where the Federal Government struggles to push through reform laws, may well prove to be be an important source of support for the general insurance industry if financial services legislation disadvantages them unnecessarily.
encouraging a range of initiatives like the new emphasis on resilience and research into natural disasters. Milliner’s willingness to play hardball on flood-prone Queensland towns forced that state’s government to build levees that made risks insurable and premiums much cheaper. Well-liked by politicians and businesspeople, he continues to drive the brands under his control to think outside the box.
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The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) are important drivers of government policy, and they can make life very difficult for insurers. APRA in particular plays a tough game, imposing oftencontroversial (and expensive) demands on insurers that make the business just that much harder. Its role is simply to ensure no company ever gets into such poor shape that it can’t meet its commitments or falls over. APRA also imposes standards set in concert with its foreign counterparts – not all of which are popular. It’s the bane of insurance company boards and the nightmare of managers who have to absorb and implement its orders. The aim is to encourage a strong and safe insurance industry in Australia, but the downside is the impact on insurers’ ability to be innovative and competitive locally within a framework of never-ending global innovations. ASIC might be seen as an enforcer of consumer rights and a referee ensuring everyone plays straight, but its role is so wide and its effectiveness so often constrained by politicians’ whims that its impact on the insurance industry is, in a day-to-day sense, minimal. But when new laws come into existence as a result of the Financial System Inquiry, expect ASIC to be the one to formulate the rules and set deadlines for reform. For the sake of efficiency, the tendency is all too often to not differentiate between financial planners, who have many problems, and general insurance intermediaries, who don’t.
The Insurance Council of Australia
It’s taken us six years to acknowledge the Insurance Council of Australia (ICA) as influential in the industry it serves, but these days it’s hard not to think of an important issue the council’s team isn’t across and managing. Galvanised into action after the embarrassment of the Queensland floods in 2011 and encouraged by a board made up of next-generation leaders, ICA has become a powerhouse of forward thinking and toplevel representation. Chief Executive Rob Whelan’s team of technically impressive performers have built a range of important advances, often in the face of strong initial opposition. Flood mapping, once regarded as an impossibility, is now accepted as an essential tool, thanks to the council’s determined approach over several years. It has developed quick-response programs for post-disaster support and uses extensive research to underpin its communications with governments and communities. Respected and usually on the ball with its management of emerging issues, ICA is now the organisation it always should have been.
From broker to insurer:
Peter Harmer, Chief Executive Commercial Insurance, IAG
A highly experienced and focused manager, Harmer has spent much of the past year overseeing the complex integration of the Wesfarmers Insurance companies. A former leading light in Aon locally and then internationally, he’s typical of the next generation of leaders emerging in the industry. Well-liked and an excellent communicator, he has transformed CGU from a company resting on its history to something entirely different. Harmer has the intelligence, drive and chutzpah to turn his much-enlarged commercial operation into a significant player that will thrive in an insurance market that’s going to look very different in another five years.
Arthur J Gallagher
The dramatic promotion of US-based global broker Arthur J Gallagher as a big player in the local insurance broking market must have been an unpleasant surprise for many. But brokers with a more local focus shouldn’t be relaxing, either – as Steve Lockwood says, Gallagher is a big company, “but at heart they are brokers”. Shortly after swooping on the Australian and New Zealand broking operations being sold off by Wesfarmers, Chairman and Chief Executive J Patrick Gallagher paid $1.01 billion for Crombie Lockwood in New Zealand and OAMPS in Australia – and one of his
Austbrokers and Steadfast pose a growing threat to insurers in the SME and even middle market spaces. While the traditional role of the broker has been to sell insurers’ products, both companies have been heavily engaged in building a strong underwriting agency force that can compete with the insurers through the sale of niche products. It can only be a matter of time before they begin to eye the more mainstream products. Austbrokers has spent years developing its strategy to build a powerful independent insurance business, while Steadfast, which only listed in 2013, is hustling to catch up. The strategies differ, but the objective is similar: to become a force in selling alternative insurance products through brokers. The gloves aren’t off yet, but it can only be a matter of time.
first actions was to ensure he had Lockwood on board. The Auckland-based broker is a legend in New Zealand, building his company into a leading position in that market by fostering an entrepreneurial culture. With Lockwood providing the trans-Tasman strategy and experienced Australian broker Andrew Godden managing a large national network made up of the former OAMPS and longer-established Gallagher companies, Gallagher will be a tough competitor for any broker of any size. The game just got harder for everyone.
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Heinrich Eder, Managing Director, Munich Re
The urbane Eder is an old hand on the local reinsurance scene. He knows everyone in the industry who’s worth knowing. Most interesting is his Great Lakes Australia (GLA) offshoot, which is drawing increasing interest as the capital glut in the global market shows few signs of moving elsewhere. GLA is supporting some underwriting agencies and even Australia Post’s travel insurance, and at the time of writing was lined up to take over some of the operations that Steadfast doesn’t
want in its acquisition of listed insurer Calliden. Look to GLA being involved in some similar arrangements in the future. Reinsurers know a great deal about the markets they work in, and coupled with Eder’s business smarts that puts GLA well ahead when the significant deals get done.
Allan Manning, Managing Director, LMI Group
He’s a successful loss specialist who runs an international company, as well as an academic and a trusted technician whose services are highly valued. His claims comparison service is merely the latest of his many innovations. He gets people talking about insurance, and the blog he writes encourages debate and discussion. A big picture person, his mission is to help people see insurance as vital rather than an inconvenience.
Mathias Cormann, Finance Minister
The senator has been thrust into the insurance limelight this year thanks to the sidelining of Assistant Treasurer Arthur Sinodinos since March. Ironically, prior to last year’s election Cormann was the financial services sector’s preferred choice to oversee its activities. A government struggling for wins is a risky beast, and Cormann’s controversial decision to open the
In a world where capitalproviders are seeking safe investments with consistent (if not brilliant) returns, insurance is a great option. Over the past couple of years the reinsurance market has been flooded with excess capital, and now that capital is seeking further profitable opportunities further down the line. That is leading to some surprising deals – most recently the initiative by Steadfast to build a personal lines capability for its brokers using capital from US investment giant Berkshire Hathaway. Ready access to capital is always a spur to innovation, and insurance is an industry that could do with a dose of new thinking. So expect more unusual but smart developments across the industry over the next couple of years.
country up to unauthorised foreign insurers without consultation has had industry people comparing his methods unfavourably with Bill Shorten’s consultative approach following the 2011 floods. You have to wonder how Cormann will approach some of the big financial services reforms of the next couple of years, and how he will regard general insurance.
Colin Fagen, Chief Executive Australian and New Zealand Operations, QBE
While the parent company seems constantly battered in the stormy world of the investment market, Fagen keeps his local arm of the global entity firmly on a calm and profitable course. The business he oversees generates more than $5 billion in gross written premium and $1.35 billion in
managed funds. Fagen has also gathered around him a strong management team and devolved a lot of authority into their hands. Definitely a powerful and decisive influence in the industry’s decisionmaking processes.
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Richard Enthoven, Chief Executive, Hollard Australia
Investing in underwriting agencies and brokerages to give them security while they grow, creating insurance companies like Real and establishing a personal lines operation for retail giant Woolworths, Enthoven is a man in a hurry. Heâ€™s given up his chairmanship of the family company in South Africa to concentrate on the Australian business he founded 15 years ago. With around 1000 people working for him in Australia, his aim to be a major player in the industry is becoming reality very quickly.
Anthony Day, Chief Executive Commercial Insurance, Suncorp
One of the team putting together this presentation suggested Suncorp in general should get an honourable mention for â€œsticking their heads up to generate change on industry issues and their career development programâ€?. Day is not only an enthusiastic supporter of employee-friendly programs, heâ€™s also an effective competitor in the local market. His recent career has been built around a bold approach to business, and itâ€™s paying off for Vero as Day takes advantage of more competitive conditions to build his customer base.
As our Top 20 demonstrates, the various government agencies and ministries play an important role in the way Australian insurers and intermediaries go about their business. Sometimes theyâ€™re effective in their handling of the industry and often theyâ€™re well wide of the mark. Staying ahead of the game being played by a reform-minded but inherently clumsy federal government is a challenge the industry has to learn to deal with. At the state and territory level, the drive to privatise governmentowned injury schemes â€“ at present being led by Suncorp â€“ deserves the close attention of all major players. Insurers have demonstrated they can do it better, but wresting control of such politically significant and often hugely profitable schemes is going to be tough.
Niran Peiris, Managing Director, Allianz Australia
In his own quiet way Peiris has gone about changing Allianz without rocking the boat too much. He has a new team of top managers on board, and his successful bid for the Northern Territoryâ€™s government-owned insurer TIO has demonstrated that Allianz will compete with its noisier competitors when it makes sense. Peiris is more about forging efficiencies within Allianz to keep it comfortably in the top five companies, and that may well prove to be the way to go in a market where key acquisitions are becoming harder to find.
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December 2014/January 2015
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Leon d’Apice, Managing Director, Ebix Australia
You can’t fault d’Apice’s ability to keep Ebix Australia in front of every would-be competitor or imitator year after year. Alternatives to his broking systems and the ubiquitous Sunrise Exchange transaction platform come and go, but d’Apice does enough and more to stay ahead of the pack. Nothing much has changed in the past year in the classic standoff with
Steadfast and its ambitious Virtual Underwriter, although we hear some discussions have resumed. Other users of the Ebix business seem content to keep utilising its solid and reliable services.
Lambros Lambrou, Chief Executive, Aon Risk Services Australia
Since starting back in Australia in January, Lambrou hasn’t been slow in bringing a stronger emphasis to Aon’s already-impressive local operations. A big believer in the benefits of providing addedon services for existing clients and using Big Data to do even more, he has also urged the industry to focus on the risks it doesn’t provide cover for at this stage. A natural leader, the English-born Lambrou is likely to become a persuasive advocate for broking issues as he settles in.
Once insurers only had underwriting agencies to worry about. Today it’s everyone from South African entrepreneurs to aggregators with cute advertising to Google and Facebook. The so-called challenger brands are gradually making inroads into the personal lines markets dominated by IAG and Suncorp. The aggregators are trying to wheedle their way into the personal lines space, but the local insurers have seen what they’ve done to the UK market and aren’t going to play. There’s a disturbing lack of transparency in some of the comparator sites that has aroused the interest of regulators. And then there’s the potential impact of social media, and particularly the marketing opportunists at companies like Google and Facebook. Online insurance sales just look so easy for them, and they have the cash and the channels to get involved.
John Clayton, Chief Executive, Marsh Australia and Head of Pacific Region
A global giant like Marsh operating in a relatively small market like Australia could feel constrained, but Clayton has demonstrated before that he can tailor the company’s operations appropriately. Marsh has all the advantages for big business that only global scale can give, so while Clayton’s venture downmarket into the SME space through
Marsh Advantage Insurance has been an unusual step, it has also been an effective one. While he tends to steer clear of getting involved in local industry issues, Clayton is an experienced and able business leader.
Mark Senkevics, Managing Director and Head of Australia and New Zealand, Swiss Re
A thoroughly modern executive and business leader, Senkevics has built respect in the local industry for his knowledge and enthusiasm. The importance of Swiss Re in Australia gets him in most doors, and he and his counterpart at Munich Re, Heinrich Eder, seem to have been successful in countering the
threat of new entrants as a result of the $US50 billion capital glut flowing around reinsurance. Happy to speak his mind and use social media, he’s typical of the new generation of highly qualified Australians taking over the decision-making roles in Australian insurance.
December 2014/January 2015
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Growing together IAG’s Peter Harmer says the merged CGU and Lumley commercial operations are making the most of their common ground By Jan McCallum
senior team had the task of integrating the A BIGGER CGU IS DEVOLVING DECISIONoperations. making to the states and rolling out strateMr Harmer says the work already done gies to help intermediaries grow their within CGU has made the task easier. businesses. But IAG Commercial Insurance It may seem obvious, but he says “you Chief Executive Peter Harmer expects can never communicate enough”, and CGU something back from brokers. has worked with staff on the “why” quesHe told the Steadfast Convention earlier tions: “Why should we do this? Why will it this year that brokers must change their benefit our customers? Why will it benefit mentality and switch from being transacour partners? And why will it benefit the tion-driven to advice-driven. employee as well?” He says he believed this when he was a In terms of generating a more agile and broker – he joined CGU as Chief Executive efficient organisation, the disruption of the four years ago after more than 20 years with merger has been minimal and worth the Aon – and he felt comfortable saying it to an pain. audience who knew he had stood in their “We have been mindful of the impact on shoes. our people, and as we reconfigure the The message has mostly been well organisation it is clear there will be fewer received, Mr Harmer tells Insurance News, roles in the future.” with brokers telling him they agree and that But some productivity improvements “sometimes it needs to be held up in front of will take time to deliver because they are sysus”. tems-driven and there is no quick way to “One thing that’s healthy about our harmonise systems, so Mr Harmer believes industry is we are prepared to take a chalnatural attrition will minimise the impact on lenge and take it in the spirit in which it is staff. intended,” Mr Harmer says. The industry is starting to see the results “I believe in the advisory model, but my of a 100-day project to understand the busifear is that if collectively we don’t accept ness, with the aim of adopting the best of responsibility for addressing clients’ needs IAG and Wesfarmers. rather than simply trying to sell a product, There will be new policies from next then we will slip into an endless spiral of April, and new state managers announced irrelevance.” last month will have a greater degree of Does he see brokers taking his words on autonomy. board and acting on them? “A lot of underwriting authority is going Mr Harmer says he doesn’t expect to to the states, and the state managers will be change the industry, but “what we did equipped to be responsive to the brokers in expect was that we would identify a few partthe brokers’ time and not CGU’s time,” Mr ners who were interested in working with us, Harmer says. and we have”. “A lot of this is tied up in culture, and we “We have identified a number of brokers have moved our culture significantly.” – most of these I now refer to as preferred Wesfarmers Insurance staff had known partners – that we are helping build sales since October last year that they were in a campaigns for.” sale process. These campaigns are not about selling IAG became involved a month later and CGU products. “They are about understarted communicating with them in standing customer need. It’s just an entirely February, with Wesfarmers’ approval. different philosophy.” Mr Harmer did a series of roadshows to CGU had been undergoing its own Wesfarmers Insurance and Lumley staff, transformation when IAG made the $1.845 who he says maintained enthusiasm and billion acquisition of Wesfarmers’ underenergy despite the uncertainty. writing and broking assets on July 1. The 24
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Following an entirely different philosophy: IAG Commercial Insurance chief Peter Harmer
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“Once we took ownership of the [Wesfarmers Insurance] business we were pleasantly surprised with the quality of what we had acquired.”
project to maximise opportunities from “We were very clear about what we CGU and IAG’s personal lines business. would and would not do. I introduced IAG The direct brands could use their scale to all their staff but we also made it pretty to build supply chain models that CGU clear we had a very healthy respect for their could not replicate, while they had combusiness and we would take our time to mercial offerings that could benefit from more fully understand their business CGU’s broader commercial scale and data before we made any decisions about what analytics for risk selection. we would do.” Now CGU has found preferred partIAG set up an integration management ners, it is working with them to grow their office in February with 50 staff. On July 1 businesses by investing in digital capabilithey were joined by 40 more from ties, such as web-based sales campaigns. Wesfarmers Insurance. “That’s a great attraction of the scale we They have developed and tested now have,” Mr Harmer says. “If we help hypotheses and engaged brokers and the them grow, they will help us grow. Digital rest of IAG, with the aim of making the tranhas been perhaps an area where the sition as seamless as possible. industry as a whole has under-invested and “Once we took ownership of the busihas been slow off the mark.” ness we were pleasantly surprised with the CGU has investigated the changing quality of what we had acquired.” buying behaviours of the micro-SME Mr Harmer says he found Wesfarmers market, as a precursor to understanding the and Lumley had been on a similar journey SME market and then the mid-market. to CGU. Six years ago 12% of micro-SMEs Both had put lot of work into remedibought their insurance online. Two years ating a significant number of portfolios and later this had increased to 34% and now it is making tough decisions around operating above 50%, but Mr Harmer says there is a models. surprising lack of options for businesses And both businesses were well on their buying online. way to restoring financial health. The typical micro-SME owner works The integration team found elements from home, yet many policies are either for such as underwriting processes and goverresidential or business premises rather than nance tools that it realised it could “lift and a combination. drop” into IAG Commercial. The research has identified three buyer Mr Harmer says the companies’ cultures types: are similar. There are nuances but both have • The “right now”, who wants to get very old, mature heritage brands whose staff cover arranged without thinking about it have “invested in” what those brands mean too much; to customers and partners. • The “analyser”, who wants to get into “There are some real commonalities the detail and consider it before making a that have worked to our advantage,” he tells decision; Insurance News. • The “outsourcer”, who may have Lumley had a similar model to CGU moved up the risk spectrum as their busi“and it was probably more effectively organness grew and wants advice about protecting ised in the top-end corporate account space, greater complexity. so we will be lifting that part of its model in The owners are typically 27-38 years old that customer segment”. and they have an inherent distrust of advice Mr Harmer is a great believer in using provided by big business, so will look for data more effectively to improve the capaendorsements from their peer groups. bility of the business and offering to clients. “Think social media. This group will go He and IAG Personal Insurance Chief online and test: ‘Does anyone know about Executive Andy Cornish have worked on a 26
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“Late-night petrol-buyers are more likely to have an insurance claim, so Coles Insurance will not send those consumers an offer. People who fill up in the morning are more likely to be a good risk.”
CGU?’, and the Twittersphere will light up.” Mr Harmer says the comments can’t be controlled, so the only way to influence Mr Harmer has long advocated better them “is doing what we say we will do”. data-mining – to gain insights from the “Everyone knows you will have slip-ups information insurers hold on customers, and from time to time, but this demographic to use it to help clients and brokers alike. understands that, so what they will look at is He says the various applications within the weight of evidence from people they IAG can now talk to one another, providing trust.” more information on claims and policies. CGU has built a micro-SME direct This has revealed not only the first offering with sales campaigns for brokers. product a customer will likely buy from IAG, He says business-owners will not need but also what they will want next. It powers the way the company will advice for some products but will for other discuss insurance with a new customer and risks, although they may not recognise it. what is offered, meeting needs the consumer CGU will, at this point, direct them to a may not even be aware they have. broker for advice. “There are some very exciting “We’re trying to relink these customers developments,” Mr Harmer says. “At a group back to the advice model of brokers and level we have begun investing in our data authorised reps.” and analytics capability and have been able The owners might not want to see broto draw up what has been happening in kers, and the advice might be provided individual divisions and into a critical mass.” online, but they will get advice about their Wesfarmers Insurance brings in far more risk profiles, how they might reduce them data points. “In data, scale is very and how they might tailor them. important,” Mr Harmer tells Insurance News. Mr Harmer expects owners to want The Wesfarmers distribution agreement advice as their businesses grow. with Coles has led to startling discoveries about data analysis and how the “We’re trying to make it seamless for supermarket chain uses information to them so as their business gets more complex identify preferential risks. they are more comfortable about getting “For example, Coles knows there is a advice.” very high correlation between the time you He acknowledges brokers and authobuy your petrol and your propensity to have rised representatives have high expectations an accident.” of CGU and have complained it can be Late-night petrol-buyers are more likely unwieldy to deal with, but he is getting posito have an insurance claim, so Coles tive reports and says this is borne out by the Insurance will not send those consumers National Insurance Brokers Association’s an offer. insurer of the year award. People who fill up in the morning are CGU’s standing in the broker market, as more likely to be a good risk. measured by nominations for the award, has Coles can also draw high correlations between the propensity to have an accident risen from sixth last year to third this year – and whether a customer is a big or small“and hot on the heels of number one and basket shopper. two”. A small-basket shopper has a higher It had not been a finalist for several probability of experiencing an accident. years. Mr Harmer says it shows how data “That’s pleasing, because I still think we scientists who are not constrained by have a long way to go,” Mr Harmer says. industry knowledge can discover correlation “There is a lot of upside for us. between seemingly unrelated activities and “We know we have a long way to go, but outcomes. the feedback from brokers is very, very “We have got some wonderful insights.” * positive.”
Mining for gold
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Into the cloud – and beyond
Modelling the type of roof is important: slate and tile roofs suffered badly in the 1999 Sydney hailstorm
Catastrophe modeller Risk Frontiers has come a long way in the past 20 years, but its biggest advances still lie ahead By Shelley Dempsey
THE SLOW AND COMPLEX BUSINESS OF catastrophe modelling is about to get faster and easier thanks to new technologies such as cloud computing and aerial drones, according to Risk Frontiers. The Sydney group, the world’s fourth-largest catastrophe modeller, mainly provides data on natural perils in Australia, New Zealand and Japan. Now it plans to offer its modelling databases on cloud platforms, where a much broader range of clients can see them. And it is harnessing new technology to speed up data and image processing. Managing Director John McAneney says the
advances will help insurers better understand their exposures as they move towards street-level pricing. “Identifying which homes have slate roofs in Sydney, for example, is important for modelling hail losses,” he tells Insurance News. New visualisation techniques will also help with rapid risk assessment after disasters. “Risk Frontiers likes to send in a reconnaissance team immediately after big events and before things get too sanitised. “Having access to some of these data capture and visualisation tools will be really helpful.”
December 2014/January 2015
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“Probable maximum losses were determined over a bottle or two of red wine… that was basically the way in which reinsurance protection was purchased and thought about.” – Russell Blong You learn more at an unsanitised disaster scene: Risk Frontiers chief John McAneney
Risk Frontiers is celebrating its 20th birthday this year. It has come a long way since its launch. Founded by researchers in Macquarie University’s Department of Environment and Geography and funded mainly by the insurance industry, it provides modelling expertise to assist in the pricing and understanding of natural hazards and catastrophe exposures in the region. Founder Russell Blong told a Risk Frontiers seminar in Sydney in October that in 1990 “there were no models available in Australia and hardly any available in the world”. As a result, reinsurance pricing in Australia was somewhat unscientific. “Probable maximum losses were determined over a bottle or two of red wine… that was basically the way in which reinsurance protection was purchased and thought about.” Two decades on, technology has markedly advanced the industry. Of the latest developments, the move to cloud storage promises to be among the most significant for Risk Frontiers. While you cannot yet download a Risk Frontiers cat model from an app store, towards the end of next year they will be available from RMS’ cloud-only RMS(one) platform. Professor McAneney says Risk Frontiers will release all its Australian natural catastrophe loss models in this way. The first release will include five Australian loss models: tropical cyclone, earthquake, hail, bushfire and flood. Risk Frontiers licenses its models to the global insurance and reinsurance market, but to date they have been available via its own Multi-Peril Workbench platform only. Professor McAneney says insurers will find it easier to use the models on the cloud, which will grow the company’s market. “The main drawback for many prospective clients 32
until now has been their reluctance to commit to supporting yet another modelling architecture. “RMS(one) gets around this issue neatly with a common input structure/format and, if the user wishes, a common financial model.” For companies seeking multiple views on risk – which the Australian Prudential Regulation Authority (APRA) has pushed for – accessing the models is easy, Professor McAneney says. The RMS platform will also host models from other third parties. Risk Frontiers Chief Software Engineer Foster Langbein says insurers and APRA now demand a deeper understanding of model assumptions and results, which is driving a need for more frequent and faster model runs. “Cloud-based cat modelling solutions are beginning to emerge to satisfy this need.” The RMS initiative is the most far-reaching and ambitious, Mr Langbein says. Fellow catastrophe modeller AIR Worldwide is promoting its new Touchstone platform and Londonbased not-for-profit start-up Oasis is creating an open-source framework and community that makes it easier to develop and share models. There is also the Elements platform from Impact Forecasting, a subsidiary of Aon Benfield. Mr Langbein says a wave of new technologies is “about to break over the remote coastline of the cat modelling industry”. CSIRO researcher Stuart Mead told the Risk Frontiers seminar advances will include Big Data, the use of unmanned aerial drones and new visualisation imagery. “Structured data sets are a whole lot bigger now and a lot more open, so there’s a lot of value in integrating these multiple sources [data and images] together, to combine them to create a predictive model,” he says. “This is the core of what we do at Risk Frontiers.”
December 2014/January 2015
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“We’re over-modelled. We have too many models and they are too complicated, with too many bells and too many whistles.”
He notes a rapid rise in the use of geospatial technology through platforms such as Google Earth and geographic information systems. “They are getting a lot more popular and a lot more open. We are also getting much higher resolution and more open information and data sets nowadays.” Terrain models used about 15 years ago could provide images from 30-90 metres, but now global coverage is available at 12 metres. “There’s really a need now for the rapid acquisition of this kind of information,” Mr Mead told the seminar. “That’s where aerial platforms such as drones, which we are using, or balloons or applications with kites are very fast and cheap to deploy.” US insurer the United Services Automobile Association has applied for approval to fly unmanned drone aircraft after floods or other disasters to perform rapid damage assessment. After Typhoon Haiyan in the Philippines last year the Red Cross flew aerial drones to capture images of the damage. “They put all this information online and they effectively got crowd-sourced damage assessment from volunteers,” Mr Mead says. “People would log on to have a look at this map and start making out what buildings were damaged and where and to what level – slight or heavy.” High-resolution cameras are now cheap and light, and can provide better, faster damage assessment, he says. After the Christchurch earthquake in 2010, “before” and “after” pictures of the city’s cathedral were compared to assess damage. “We used an algorithm to try to match the images together,” Mr Mead says. “This kind of stuff, if you apply it broadly, will allow you to make more quick and efficient analysis of information for something such as rapid disaster processing.” Mr Mead is undertaking a PhD on visualisation technologies that can be used with numerical model34
ling to create 3D models of flood events. “It’s quite clear that the higher-resolution data we have nowadays means we can get a finer-scale understanding of risk and get it much faster,” he says. “This is leading more towards getting street-level, household-level information. But with these data sources it’s very important that you also use appropriate analytics to add value.” Big Data in its raw and natural state is not really a data stream, Mr Mead says. “There’s a lot of rubbish associated with it and you need to refine it, you need to re-map it and you need to code it to get your valuable information.” Data has been “democratised” online and governments are now releasing more, he says. “It reduces barriers to entry and when you combine that with cloud computing and your more scaleable access to computing power, there’s very little barrier to entry. “It’s all in the appropriate analytics you’re doing and is not necessarily about being able to handle Big Data sizes. Data is plentiful, but meaningful analytics are still relatively scarce.” Professor Blong told the seminar there is room for improvement in modelling. “My view of the present day is that we’re over-modelled. We have too many models and they are too complicated, with too many bells and too many whistles. “We don’t put nearly enough time into analysing the losses we have from past events and we put almost no time into understanding what is actually exposed to losses.” Professor McAneney agrees there are some areas that could be refined. “Risk Frontiers is lucky in having good relationships with sponsor companies that have been very generous in providing us with claims data,” he says. “However, we should be going right back to the assessors’ reports to get a deeper understanding of * vulnerability. We haven’t done enough of this.”
December 2014/January 2015
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The One Allianz team thanks you for your support and partnership throughout 2014. At Allianz, we strive to deliver a valued service that effectively meets your business needs. Weâ€™re committed to achieving shared business success and consistently encourage your opinion to assist us evolve our offering. Thank you for your ongoing support and we look forward to forging stronger partnerships in 2015.
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forward Dispute resolution is about to get faster, and the industry must learn to keep pace By Jan McCallum
GET READY FOR A FASTER, STREAMLINED Financial Ombudsman Service (FOS). In the coming year the insurance industry will start to feel the impact of behind-the-scenes changes to improve the service’s efficiency. General Insurance Ombudsman John Price says industry participants must look to their internal processes and systems to ensure they can respond to faster dispute resolution processes. He tells Insurance News some are already redesigning their systems “to see how they will cope with that”. FOS has struggled with a backlog of financial and insurance disputes following the global financial crisis and 2011 floods, and Chief Ombudsman Shane Tregillis says industry participants may have become used to long response times when dealing with the service. But at the FOS annual conference in October he warned this is about to change and the insurance, banking, credit and investment sectors must get used to disputes being dealt with in real time, with new processes in place by July 1 next year. FOS has poured resources into electronic documentation so documents can be exchanged more easily and quickly. Mr Price says most of the insurance industry has embraced the change, although some “remain in the Stone Age”. The industry communicates with FOS electronically and the service is now moving to connect consumers to its electronic exchange. It has been a major project, which Mr Price says will streamline the process and cut resolution times. 36
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General Insurance Ombudsman John Price: some insurers remain ‘in the stone age’
About 70% of disputes are received online, so another piece of the efficiency puzzle involves redesigning the online dispute form to improve the information captured. The aim is to get more key information to the insurance provider quickly, so it can resolve the matter. “We have had discussions with the industry and employed an external consultant to help redesign the form to ensure the information is captured and the provider has the best opportunity to respond to that information,” Mr Price says. Further refinement is under way following consultation, and there will be another round of discussions to give the industry guidance about the changes. The new form will go live by July 1. FOS launched a fast track for small disputes in October, and Mr Price says there are early signs the process is working well. It has proved effective for banking and finance and is being used for insurance disputes valued below $10,000 – typically about excess, unattended luggage claims on travel insurance and car repairs. The fast track involves active management by experienced staff and tight timeframes for the parties to respond. “It works as a means of getting the parties to resolve a matter quickly,” Mr Price says. It has been a long-held aim for FOS to settle more disputes through conciliation rather than the service having to make a determination. General insurance is the biggest user of conciliation among the FOS sectors, and Mr Price says it has proved successful, although requests from the industry to use the insuranceNEWS
December 2014/January 2015
service have dropped recently and he will be meeting insurers to discuss why. “The majority of insurers have embraced it, one or two haven’t,” he says. “Their model just doesn’t seem to facilitate conciliation in any effective way. We would hope they revisit their position.” He says conciliation can provide a reputational dividend to insurers. “It takes the bitterness out of a dispute. It tends to get the parties resolving the matter in a comfortable way.” He saw this during disputes over the 2011 floods, when many consumers complained about insurers’ loss assessments or found they did not have the cover they assumed was attached to their policies. “The consumer not only respected the fact that the insurer was prepared to sit down with them to discuss it, but when the matter was resolved they expressed brand loyalty. You don’t have the loss of customer support.” This experience showed customers another side of the industry – one that is prepared to revisit decisions and consider consumers’ points of view. The October conference highlighted the changing channels affecting financial services, with people able to transact via phone apps bought from foreign providers not regulated by Australian consumer protection law. While consumers lap up apps that offer convenience, conference delegates expressed concern over how disputes will be handled and the potential for their industry’s reputation to be tarnished. After five years as General Insurance Ombudsman, Mr Price has not seen this in 37
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“I am very concerned that we would allow foreign insurers the ability to insure domestic products and not have something to ensure consumer protections are there.”
insurance yet, but he does foresee issues with the convergence of products and providers. If a consumer transacts through a phone app and something goes wrong, who will be blamed – the telco, bank or insurer? In this blurring of roles, is the provider giving raw data or advice? And as Mr Price points out, “If the advice is wrong, where does the consumer go?”. He also wants to see more discussion around whether insurers can advise consumers on cover. While insurers’ staff are prevented by law from giving personal financial advice, consumer advocates argue companies are selling a product that is not fit for purpose if it won’t meet the consumer’s need. The issue was highlighted by last year’s Blue Mountains bushfires, when people whose homes had been destroyed found their insurance did not cover rebuilding because building codes had changed, raising the cost. Mr Price says insurers can increasingly price risk to individual properties and should perhaps be allowed to advise householders about checking whether their coverage is adequate. “I think this is something that needs further discussion and debate.” However, he acknowledges it is difficult to achieve a model that provides the advice consumers need but that is not abused as a sales tool. The Government’s controversial moves to set up an aggregator for north Queensland home and contents cover and allow unauthorised foreign insurers into the market also raise issues around dispute-handling. 38
Mr Price says aggregators tend to be price-sensitive. “I am very concerned that we would allow foreign insurers the ability to insure domestic products and not have something to ensure consumer protections are there,” he says. With fewer disputes stemming from floods and cyclones, the usual suspects of vehicle claims, home building and travel issues dominate general insurance disputes. Most concern decisions to reject, refuse or partially pay a claim, and some relate to the service provided. FOS rarely receives complaints about insurance brokers, but Mr Price says there are issues around insurance sold through non-broker intermediaries who provide products such as travel or cars. This can lead to complaints of payments being refused for non-disclosure or misrepresentation, with the buyer arguing the car dealer or travel agent did not explain the duty of disclosure. “It is often a last-minute purchase, so people don’t pay a lot of attention to what they are being asked or told,” Mr Price says. With distribution channels expanding, he can see these types of dispute growing. FOS does not split disputes between insurance bought online or through brokers, but he has not noticed an increase in matters arising from the direct channel. However, he has spoken to the industry about the prominence given to warnings and the ease with which consumers can click back to check information, to ensure they have enough opportunity to disclose. Many in the industry consider one positive from the 2011 flood disputes has been greater engagement between insurers and insuranceNEWS
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the consumer movement, and Mr Price says improved communication is being maintained. “There is a much better relationship between the consumer movement and the industry, and this is due to a lot of hard work by both groups and a desire to sit down and try to talk proactively about matters,” he says. The closer relationship has led to initiatives to design insurance that suits socially disadvantaged groups, such as people on low incomes and indigenous people in remote areas. Consumer advocates have long complained that insurers ignore people who want to pay in smaller, more frequent instalments than annually or monthly, or who need basic cover for a few essential possessions. Mr Price says one insurer has set up internal and external groups to work on such issues and he welcomes the move, while acknowledging the goals are “ambitious”. The number of general insurance disputes accepted by FOS fell 12% to 6193 last financial year, and Mr Price says this is not only due to a relatively benign period for natural disasters. “The industry has now got more time or has improved its processes around its internal claims handling and internal dispute processes.” He gives the industry a tick of approval for its behaviour this year, saying decisionmaking is better. “The industry is going pretty well and working very hard and diligently in * resolving matters.”
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December 2014/January 2015
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Big Data promises unparalleled insights for insurance companies – but to reap the benefits, they must first identify them By Wendy Pugh
THE WORLD IS AWASH WITH MORE DATA than ever before, flowing from a wider range of sources, and insurers are now seeking ways to find competitive advantages hidden within the information flood. Industries such as retail have already embraced the use of Big Data to study customers, and insurers are also increasingly following their lead. “Big Data is still very much evolving in the insurance space,” KPMG Insurance Partner Scott Guse tells Insurance News. “There is a hell of a lot of data out there and insurers are all talking about it and they are all exploring what they can do with Big Data, but no one, to me, has really cracked it.” Even settling on a definition is not straightforward, especially in an industry that has long harnessed information to assess risks and set premiums to cover future events. Mostly, it simply refers to vast amounts of complex data that can be collected from a range of sources and put through algorithms and analytics to produce insights that until recently would not have been possible. Often it is regarded as “high-velocity” data that is rapidly generated in large volumes. However it is defined, there is certainly more data available to crunch than ever before, technology allows companies to do this more efficiently and there is more effort being put into using the results. According to the Australian Public Service Big Data Strategy, 90% of data in the world today has been created in the past two years, and some estimate an additional 2.5 quintillion (that’s 2.5 000,000,000,000,000,000) bytes of data are generated every day.
“Digitalisation is triggering a revolution in the business world,” a Munich Re spokesman tells Insurance News. “Many business models can be replaced or improved by digitalisation, and we insurers have long since ceased to be just spectators on the sidelines.” In reinsurance it can make uninsurable risks insurable and help develop new business, the company says. In primary insurance there are opportunities in sales management and customer contact. This year Suncorp launched a business intelligence program, bringing together an 850member team of data analysts, modellers and technology specialists. “We’re using technology and a culture to mine the wealth of data at the centre of the group’s
to 9 million group customers.” Global broker Aon is among the enthusiasts, and says embracing Big Data is crucial to remaining competitive. “Data scientists and actuaries, often from non-insurance backgrounds, are now at the very centre of insurance markets, and the risk community needs to accept the change and leverage their skills in Big Data and analytics,” Aon Risk Solutions Australia Chief Executive Lambros Lambrou said at a recent conference in Melbourne. Finity Consulting Senior Consultant Jon Tindall says there is a fine line between traditional information and the Big Data realm, where volumes becomes
Suncorp’s Patrick Snowball: data-mining is a central role
“Many business models can be replaced or improved by digitalisation, and we insurers have long since ceased to be just spectators on the sidelines.” operations,” Chief Executive Patrick Snowball told an investor day. “It’s enhancing business decision-making, improving our response to market dynamics and enabling delivery of new and innovative banking, insurance and life products and services insuranceNEWS
December 2014/January 2015
greater and analysis can throw up discoveries that are often surprising. “Insurers have always used external data sources, so they have used maps and socioeconomic information and other sources of information from partners,” Mr Tindall tells Insurance 41
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Allianz’s Nick Scofield: everyone’s a winner
News. “This is really expanding that out.” At the customer end, that can mean using data from mobile phones, Twitter, Facebook, credit cards, loyalty cards and internet usage to understand how and what people purchase and their preferences for dealing with insurers and other providers. That can lead to predictions of future behaviour. More targeted marketing developed from the findings could lead to no-frills policies aimed at bargain shoppers, while data-crunching could highlight consumers with high-risk profiles. An example could include drivers who purchase mag wheels and lots of alcohol. External databases quickly deliver information on car models and features, while driving habits such as distances travelled, routes, speed and braking patterns are revealed by telematics. Improved databases, modelling and analytics have refined assessment of property exposure to floods, fires, cyclones and other natural disasters, allowing insurers to fine-tune premium pricing according to risk. The ability to drill into past patterns and combine them with current details can give insurers more confidence to write business in particular areas – whether in traditional lines or emerging risks – while encouraging them to stay away from others. Data also helps insurers by indicating patterns that may be associated with an increased likelihood of fraudulent claims, and by facilitating cross-checking.
Allianz Australia General Manager Corporate Affairs Nicholas Scofield says effective data analysis can help insurers to select business with lower risks and lead to more competitive products compared with rival carriers that may not have the same quality of information. “It’s like an arms race in a sense,” he says. “Everyone is innovating and investing to try to stay ahead of the competition, or catch up with them.” However, more precise analysis can also mean soaring premiums or lack of cover when data indicates a high risk, such as in the north Queensland property market. More information may not be good for everyone. “When it improves customer experience in purchasing, everybody is a winner,” Mr Scofield tells Insurance News.
“It’s like an arms race in a sense. Everyone is innovating and investing to try to stay ahead of the competition, or catch up with them.” “In other areas, where it allows much more accurate risk pricing, some consumers will be beneficiaries and some will be adversely affected, and that creates other consequences.” Tracking and monitoring consumer activity also has Orwellian overtones that have sounded insuranceNEWS
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took effect in March, along with increased powers to penalise breaches. Also last year, the Australian Prudential Regulation Authority (APRA) released guidelines on managing data risk. “Insurance licences are handed out by APRA but you also
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Aon’s Lambros Lambrou: deeper, longer-lasting relationships
have a social licence essentially handed out by the community, and you have to respect that and not take the use of data further or faster than the community is willing to allow,” Mr Scofield says. McKinsey & Co says the release of thirdparty public sector data from governments around the world is adding to the potential competitive advantage for insurers. “The US and UK governments and the European Union have recently launched ‘open data’ websites to make available massive amounts of government statistics, including health, education, worker safety and energy data, among others,” it says in a report. “With much better access to third-party data from a wide variety of sources, insurers can pose new questions and better understand many different types of risks.” But it is no simple matter to determine what the data means in practical terms, and it relies on the skill of individuals to glean worthwhile insights. No one wants to punch in the numbers and come up with flawed conclusions. “Big Data is like iron ore: bulky and useless in its raw state,” a report by Aon Benfield says. “It has to be refined through several stages before it yields up actionable and consumable information.” Aon developed its Global Risk Insight Platform to examine placement information, and Mr Lambrou says brokers and other insurance players have much to gain from Big Data. “Far from minimising rela-
tionships with clients as some may fear, relationships based on science and robust data and insight, as well as trust, are likely to be deeper and longer lasting,” he says. PricewaterhouseCoopers’ (PWC) Broking 2020 report says data will help intermediaries build advisory roles and become more valued by clients as they move beyond providing routine assistance on policy purchases. “Big Data and advanced analytics are going to be crucial in managing the emerging risk landscape and strengthening brokers’ position as the primary source of risk solutions,” PWC says. At the big end of town, PWC sees brokers’ “deep data-driven market insights, global customer relations and knowledge of public and private emerging risk concerns” facilitating growth of new products using capital available
forge close relations with groups such as governments, academia, specialist risk consultancies and industry peers. “The challenges include how to bring together all the information and expertise and forge it into actionable real-world solutions,” it says. At the heart of these analytical developments is a shift from hindsight to foresight, as brokers evolve from placers of coverage to preventative risk advisers and managers, PWC says. While there is no shortage of data to access, risks remain for businesses when deciding how much time and effort to spend on exploring the opportunities. KPMG’s Mr Guse says many insurers are cautious about investing large sums given uncertainty about the benefits. To some extent, Big Data remains a “buzz word”.
“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.” through insurance-linked securities. Smaller brokers without significant scale are urged to find ways to pool resources and access market-wide information services. PWC says brokers should insuranceNEWS
December 2014/January 2015
“Everyone is talking about Big Data, people are dabbling in it, but there is a fear of the unknown,” he says. “There is a real risk that you spend too much analysing data and don’t get the * desired return.”
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Love actuary: the growing value of analysis By Shelley Dempsey ACTUARIES ARE IDEALLY SUITED to working on Big Data projects, according to analytics company Quantium. In fact, co-founder Adam Driussi says his company’s Sydney business is now one of Australia’s biggest employers of actuaries. “With the whole Big Data revolution, I think in general the demand for people with actuarial skills has exploded,” he tells Insurance News. “Competition for talent has really intensified.” Quantium has about 350 staff – mostly actuaries – and is currently hiring about 100 more analysts. In the past decade Mr Driussi has transformed Quantium from a small consultancy to a data-driven strategy business that includes IAG and Suncorp among its clients. It offers data analytics for insurers on pricing, customer risk profiles, claims management, digital marketing and media campaigns, according to Mr Driussi, who was the Actuaries Institute’s 2013 actuary of the year. “Insurance companies are now expecting more insights from their data,” he says. Analytics drives business performance, and actuaries must take a leadership role to add value, especially because the volume of data worldwide will rise nine-fold by 2020. McKinsey & Co estimates that by 2018 the number of people with deep analytical skills in the US will be up to 190,000 short of what is required.
Mr Driussi says education courses are failing to keep pace with actuaries’ changing roles, but Quantium offers about 100 internal training courses “to bridge the gap”. The Actuaries Institute has 4000 members and is growing about 6% a year, according to President Daniel Smith. About 24.7% of members work in general insurance, 22.4% in life insurance, 2.9% in reinsurance and 1.9% in health insurance. Many are now shifting into banking, data analytics, media strategy, natural resources and public health. “They’re working for marketing organisations and even airlines,” Mr Smith says. “I know one actuary who works for a frequent flyer program.” They also now need to know how to deal with unstructured data. “Where insurers need to really make ground is in the whole social media area,” Mr Smith says. The institute has adapted some of its courses to meet new data challenges, and will change more in future. He says the amount of data available in the insurance industry has “increased massively”. “Twenty years ago it was like working in a back room with the light off. Now the light is on and in future we will work in a very bright room.” Zurich Head of Business Intelligence Mark Bennett says the insurer now has a centralised data warehouse and has started to widen the use of data. “We’re very much aware... there’s a marked shift in the way our
December 2014/January 2015
competitors are using data,” he says. “We’re very conscious of the need to furnish all roles with data – whether they are actuarial or in finance or sales.” Zurich wants actuaries to focus on interpreting data. General Insurance Chief Pricing Actuary Rikki Gold says Zurich employs 50 actuaries in general and life insurance, compared with about 15 when she joined 10 years ago. Many are in market-facing roles, where they use their analytical skills for strategy. “I think [actuaries] have become more important within the business in making key decisions,” she says. They have always been central to finance and estimating outstanding claims, but now take more of a role in pricing and customer strategy too. The actuary’s role is now more about the “predictive power of data”. “I need to make sure my actuaries are not just analysing trends but communicating what those trends are telling us to predict claims costs, customer behaviour and claims behaviour for the future, so we can make decisions.” Actuaries have a unique skill set for predictive analytics. “That’s where I think actuaries add value,” Ms Gold says. “We have that combination of business acumen and data skills. You can have all of this data and people get very excited by it, but you have to extract value from the data. “As actuaries, we’re in a good place to do that.”
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Benefits worth billions Research finds that reforms of state-based personal injury schemes could deliver widespread economic advantages
ECONOMICS MAY PROVE the trump card in a long battle by insurers to persuade governments to open up state personal injury schemes to competition. Suncorp has upped the ante in its campaign to privatise the schemes, commissioning PricewaterhouseCoopers (PWC) to examine productivity gains from potential changes. The results show that billions of dollars in benefits are there for the taking. The analysis complements previous arguments that have tended to focus on qualitative benefits from workers’ compensation and compulsory third party (CTP) reform. “I think this has been a really critical missing piece of the pie,” Suncorp Commercial Insurance Executive General Manager Statutory Portfolio Chris McHugh tells Insurance News. “It is difficult to justify maintaining state-owned monopolies when the private sector can deliver better outcomes for customers, injured people and the economy.” The Federal Competition Policy Review, chaired by Professor Ian Harper, has provided a fresh incentive to tackle the issue after previous inquiries failed to drive widespread change. The PWC analysis is included in Suncorp’s response to the Harper review draft report and is highlighted in a research paper written by Mr McHugh as the company sees a window of opportunity to press its case more widely across state and federal levels. “There are a whole host of aligning considerations, which means the time is right,” he says. One issue in the past has been doubts about the suitability of private insurers in taking on long-term catastrophic injury cases resulting from motor trauma and indus48
By Wendy Pugh
Is privatisation of workers’ compensation still out of reach? Suncorp’s research paper says private insurers can deliver better outcomes for all stakeholders, including people like Cade Bowers, who was severely burned when a farm vehicle he was repairing exploded
trial accidents that can leave someone needing lifetime care. Catastrophic claims are expensive and lengthy, requiring insurers to hold large amounts of capital for a long time. Private companies would also prefer to pay compensation as a lump sum to finalise a claim rather than manage it for decades. But that issue is no longer a major barrier as moves to better manage catastrophic injury are separately under way through creation of a National Disability Insurance Scheme and National Injury Insurance Scheme. That allows a clearer focus on the role of private insurers in areas of workers’ compensation and CTP where they can deliver advantages. “With national disability insuranceNEWS
and catastrophic injury reform under way, now is the time to complete the transformation of Australia’s personal injury insurance landscape,” Mr McHugh says. Workers’ compensation and CTP schemes collect about $15 billion in annual premiums, excluding self-insurers, with the private sector underwriting about $5 billion and statutory monopolies the remainder. The PWC analysis uses New South Wales’ workers’ compensation and South Australian CTP and workers’ compensation as case studies to show potential benefits from opening up schemes. NSW’s real gross state product – a measure of the market value of goods and services produced in the state – could benefit by $3.07 billion
December 2014/January 2015
over 10 years and in South Australia the combined impact could be around $838 million, according to PWC. The three schemes represent about a third of the total underwritten by governments in statutory arrangements. “Without further modelling on the schemes it is difficult to predict the broader economic benefit of privatisation across Victoria, Western Australia, Queensland as well as the national Comcare scheme,” Suncorp says in its Harper review submission. “However, extrapolating the PWC outcomes for NSW and SA based on related scheme size in the states not modelled would suggest a boost of at least an additional $6-$12 billion.” Employment, productivity and tax revenue would benefit
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over a 10-year period, with much of the gains flowing from improvements in insurance capital management, better workforce participation and more effective rehabilitation. It is estimated that 5% of injured people will return to work faster in a privately underwritten scheme and competition is expected to encourage investment and innovation. The PWC case studies also identify combined benefits across the three schemes of $783 million in state and commonwealth tax revenue increases and employment growth of more than a thousand jobs. Productivity gains would be spread across a range of sectors and the majority of the increase in gross state product expenditure would be directed to household consumption, the PWC modelling shows. Australia’s current private and public underwriting patchwork has developed historically with the same frustrating inconsistency that once confounded travellers forced to change trains when interstate tracks didn’t connect. Many governments also added to their personal injury cover with state general insurance operations, before deciding in recent decades that the private sector was well placed to do that job. The Northern Territory Government announced just last month that the Territory Insurance Office (TIO), the last government-owned general insurer in Australia, would be split up and sold for $424 million. But the privatisation trend for general insurance offices tended not to include the personal injury classes. The SA Government has announced its CTP scheme will shift to private sector underwriting from July 1 2016, but
otherwise no personal injury schemes have made the transition since 1989, Suncorp says. Another factor that may help revive reform momentum could be the varied financial performance of state schemes, which are not subject to Australian Prudential Regulation Authority oversight. The NSW scheme recorded a deficit of $4.08 billion as of December 31, 2011 according to calculations by the Independent Scheme Actuary, while governments in general face conflicts in their various roles. For example, some state governments see their schemes as cash cows, transferring surpluses from the schemes worth hundreds of millions of dollars each year to bolster consolidated revenue. There is also the issue of political pressure. Mr McHugh argues the challenge for a government that is both the scheme regulator and the insurer “is to resist pressure from the electorate to reduce premiums and increase benefits to injured people”. Suncorp argues that there are enough insurers operating in the market to ensure strong competition in jurisdictions that open their doors, while systems and process that are already in place can easily be rolled out across additional schemes. Without reform the statutory personal injury sector could remain a productivity drag on Australia’s economy for decades to come and the issue needs to be a Competition Policy Review panel priority, according to the submission. “The appropriate role for government in today’s personal injury insurance schemes is to be an independent regulator of the private scheme, allowing a competitive market to increase productivity and maximise value for the community,” Mr * McHugh says. insuranceNEWS
The lure of lucre Money dominates the privatisation argument WHILE THE SUNCORP RESEARCH PAPER CANVASSES THE need for statutory insurance schemes across Australia to be privatised, Risknet Director Richard Gilley says there are already plenty of signs of progress. Mr Gilley, a Sydney-based risk management consultant, says the New South Wales workers’ compensation scheme could be privatised as early as next year, after the state election scheduled for March. Polling shows strong support for the present Coalition government, which will need to win a majority in both the Legislative Assembly and the Legislative Council if a privatisation exercise is to be guaranteed to succeed. Employer groups scuppered the last privatisation push in 2002, “essentially because they didn’t trust the insurers to do the right thing”, Mr Gilley tells Insurance News. “But a lot has changed since then.” One strong incentive for NSW politicians’ enthusiasm for privatisation is the knowledge that the state’s workers’ compensation scheme will be in surplus to the tune of $6 billion by 2016 unless major changes are made to benefits or premium rates. While the Workers’ Compensation Act prohibits any government from taking a dividend or absorbing the surplus into consolidated revenue, Mr Gilley is confident a solution would be found. “By rights the money belongs to the employers whose premiums have contributed to the surplus, but which employers? If the surplus is to be returned to existing policyholders those who may have been forced out of business by skyrocketing premiums would miss out.” He says the NSW Government could wind up the present scheme and change the Workers’ Compensation Act to allow the money to be transferred to consolidated revenue. Mr Gilley believes South Australia, “which is about to have the lowest-cost workers’ compensation scheme in Australia”, would follow NSW’s example and privatise its scheme. The SA scheme is also expected to move into a significant surplus around 2016, and Mr Gilley says both state schemes would have very short “tails” to worry about as a result of recent changes. It’s understood overseas insurers have already shown interest in buying the NSW system’s tail – the claims remaining to be handled, mainly involving people with long-term injuries. The Northern Territory and the Australian Capital Territory workers’ compensation schemes will have to change to fall into line with the states, Mr Gilley says. And he believes the Commonwealth workers’ compensation scheme, Comcare, could also be put up for sale ”if it gets the chance to align itself with everyone else”. One state that won’t be privatising its statutory schemes is Victoria, which regards them as very healthy cash cows. Victorian WorkCover paid the state government a $193 million “dividend” in 2012/13. The amount is set each year. The Transport Accident Commission’s annual “dividend” in 2012/13 was $176 million.
December 2014/January 2015
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Turbulent times A spate of big losses has rocked the aviation insurance industry. What market impact can we expect? By John Deex
THIS YEAR HAS BEEN DOMINATED BY catastrophic aviation losses on a scale not seen for almost a decade. It began with Malaysia Airlines flight MH370 disappearing without trace on March 8. It was only one hour into a journey from Kuala Lumpur to Beijing, with 239 passengers and crew on board, when all contact was lost, sparking a massive – and so far unsuccessful – search across the Indian Ocean. Just four months later, on July 17, another Malaysia flight, MH17, was shot down over Ukraine as it travelled from Amsterdam to Kuala Lumpur. All 298 passengers and crew were killed. Investigations into these events continue, but they are by no means the only ones. The July 14 destruction of airliners at Tripoli airport in Libya, as rival militias battled for control, led to a potential bill of $US750 million ($851.63 million). In the same month an Air Algerie flight went down in Mali and a TransAsia Airways plane crashed in Taiwan. The human and economic costs of these events, particularly following years of relatively low losses, has stunned aviation insurers. insuranceNEWS
December 2014/January 2015
Many years of underwriting profit has been wiped out in just a few months. Total claims for this year, including hull war insurance, have already topped the $US2 billion ($2.27 billion) mark. “That is a huge figure for a market with a worldwide premium of only just over half that amount,” Head of Aviation at Munich Re, Roman Beilhack, says. Lloyd’s reported in September that aviation claims so far had reached $US600 million ($681.31 million). The total premium for aviation cover at Lloyd’s is $US65 million ($73.81 million). Almost 10 years of low aviation claims have created a hugely competitive market and prices have been under pressure for a long time now, as capacity has increased. However, the scale of this year’s losses demands a response. “Without doubt some aviation risks will have to be reassessed, especially with a view to the increasing number of hot spots in the world,” Mr Beilhack says. There is little doubt that in the niche war risks market, the reaction will be significant. Some estimate a premium increase of 300%, while others predict rises as high as 1000%. However, it must be remembered that war risks are disassociated from traditional
Caught in the crossfire: the remains of an airline at Tripoli airport in July. Another 11 aircraft are missing from the airport, believed stolen
aviation, the premiums of which have been cheap for some years. Premiums act almost like a deposit, securing an amount of capacity at a cheap rate. Events are rare, but when they do occur the market moves swiftly. While 1000% sounds huge, it is based on a tiny number. The effect could spread to the wider aviation market too, with hardening in other areas already noted. The traditional hull market has in all likelihood suffered one total loss in MH370, and liability claims will almost certainly follow. However, many believe excess capacity will keep increases in check. At the annual gathering of the reinsurance industry in Monte Carlo, Guy Carpenter President and Chief Executive Alex Moczarski expressed concern at the deflationary effect of excess capital across “all lines of business and geographies”. “Even in the aviation sector, with this year’s prominent and tragic losses, abundant capacity is expected to mute upward repricing,” he said. Some underwriters will come in with higher rates because they have suffered a loss, but others will jump in with cheaper
rates on the back of not having paid a loss, keeping the overall cost down. Poor investment returns elsewhere – a legacy of the global financial crisis – continue to make insurance attractive to new players, extending the soft market cycle that ordinarily would have turned long ago. “The losses themselves are not enough to see the market look for dramatic increases,” Greg Rector, Managing Director of specialist aviation broker Aerosure Asia Pacific, says. “We would need to see a dramatic reduction in capacity before the market really moves up.” Philip Smaje, Willis’ Global Head of Transportation Broking and Chief Executive of Aerospace, tells Insurance News there will be a reaction, but it is too early to say what it will be. Willis’ latest Airline Insurance Market report acknowledges the significance of the losses, but questions the impact on those not exposed. “The vast majority of programs will represent no worse a risk than they did 12 months ago, and while understanding and recognising that the losses of the few are paid for by the many, it therefore depends on how much the many can and realistically insuranceNEWS
December 2014/January 2015
will be asked to pay,” it says. Buyers do not want a return to boom and bust, it says, adding a 27% increase in premium is all that is needed to break even. “The nature of the recent losses has made them high-profile, not just for the market but for the world at large, but should this profile be influential in driving market reaction and behaviour?” The report accepts the dramatic impact on the hull war market, with annual premium for this year “exhausted many times over”. But even in this “traditionally reactionary” sector, excess capacity may come into play. “There will be a number of markets not impacted by these losses, which will be keen to capitalise on their good fortune and increase market share,” the Willis report says. “This added level of competition, as in the hull and liability market, could well lead to a blunting in rate increases and a fractionalisation of the market.” JLT’s latest Plane Talking report says the first batch of accounts negotiated since the losses are a sign of things to come. A relentless decline in rates during the first half of this year – averaging 15-20% 53
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“Global aviation insurance will continue to be a difficult market for underwriters to generate consistent long-term underwriting profits.” drops – has been transformed into an increase of 7%. “The overall rate increase is small but it is an increase… a significant swing, particularly in an environment of surplus capacity,” the JLT report says. The shift in the hull war market will be far greater, “with rate increases in multiples rather than small percentages”. There will be a renewed focus on selectivity, JLT says. “The differentiating factors affecting each risk will have a much greater impact in this environment, exposure reductions are going to affect rates, exposure growth is no longer for free and loss history will be heavily scrutinised for each risk.” Ratings agency Fitch agrees, saying despite the losses, policyholders with attractive safety profiles will continue to see insurers competing for their business. “These competitive dynamics will require underwriters to weigh benefits of rate increases with the potential for lower account retention in upcoming renewal periods.” Munich Re says it follows a rigorous process when assessing an airline. Mr Beilhack says pilot training and past decisions are examined, plus whether the 54
airline attempts to maintain an open culture “in which it is possible that the pilot listens to the co-pilot when he tells him they are about to fly into a mountain”. Data is also gathered on the size and age of the fleet, and its value. “We talk about the routes, but mostly about where the planes take off and land – because they are the riskiest phases of a flight,” Mr Beilhack says. “All of these things go into our calculation of the premium.” Mr Rector tells Insurance News the Australian market is still in oversupply, so rate increases are not likely for some time. QBE National Relationship Manager for Aviation Julian Fraser agrees. “We've seen the market flat for a very long time now and are not expecting to see any further reductions,” Mr Fraser says. “While we’re starting to see evidence of some hardening in Australia, we expect the local market to remain largely unaffected.” This year’s global losses have served as a stark reminder of aviation insurance’s volatile nature – resulting from the combination of a small number of insureds and huge potential exposure. Mr Beilhack believes many forgot this fundamental fact as years of low claims piled up. insuranceNEWS
December 2014/January 2015
“When aeroplanes crash, not only does enormous human suffering result but also high costs for the insurers,” he says. “That is not new, but it is something people tend to push to the back of their minds. “We have significantly reduced our share in the insurance of airlines over the years, because very few of them pay premiums that are commensurate with the risks.” Fitch notes the expected rate increases are unlikely to be enough to recoup recent losses for several years, even assuming claims revert to recent averages. “Wherever the market goes in the near term, global aviation insurance will continue to be a difficult market for underwriters to generate consistent long-term underwriting profits,” it says. So what do we know? Hull war rates will rise, significantly. The wider aviation market will be affected too, but excess capacity is likely to dampen the impact while airlines with strong safety records and procedures will still attract competitive pricing. It will be a bumpy ride – but this has always been the case. Low levels of claims may have masked the truth for a time, until this year’s tragic events brought it sharply back into focus. *
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FM Global’s Thomas Lawson: neither surprised by nor afraid of loss events
Mutual attraction Client partnerships and building resilience are at the heart of FM Global’s business, says new chief Thomas Lawson By Jan McCallum 56
THOMAS LAWSON JOINED US-BASED MUTUAL INSURER FM Global as an engineer straight from university, thinking he would take a good look at opportunities in various industries before deciding where to pursue his career. Thirty-five years later, he is still there, and about to move into the President’s chair. Mr Lawson became Chief Executive in August and takes the additional presidential role in January following the retirement of Shivan Subramaniam after 40 years with the group. He says long stints are not unusual at the company, which is based in Johnston, Rhode Island, and operates in Australia as FM Global and Affiliated FM. He and Jonathan Hall, who took over as Chief Operating Officer in the August 1 succession, are 35-year veterans, and the people coming up below them are only a few years behind. “We are very much an internally driven organisation,” Mr Lawson told Insurance News during a recent visit to Australia. “We don’t go outside for positions because we have such a unique value proposition that it really helps to have been raised in the business.” He agrees such longevity is unusual these days, but he says clients appreciate it. “I started as an engineer doing inspections. It gives you the right perspective because you have been in the facilities, you have worked with clients. No matter where your career takes you, whether it is claims, underwriting or sales, you still have that basic foundation of understanding risk, mitigating loss and working with clients to make their facilities resilient.” FM has a decidedly engineering bent, and is famed for its purpose-built laboratory in Rhode Island that researches emerging risks. Mr Lawson describes FM as an engineering company that does insurance, as opposed to an insurance company that does engineering. “It is all focused on the premise that you can prevent loss. “We don’t have any actuaries. We have 1800 engineers that work with our clients to identify their risk, to give them solutions that will mitigate that risk.” As a mutual, established in 1835, FM Global is owned by its clients. Mr Lawson says he spends considerable time consulting with them on the company’s strategy, and makes annual visits to Australia. He also considers it important that clients share the company’s philosophy. He describes them as sophisticated risk managers looking for long-term stability and ways to maintain uninterrupted earnings flow. They are market leaders in their sector. “They want to be the ones standing after the disaster when their competitors aren’t. They are not looking for a dollar-for-dollar insurance purchase. For some people that’s fine, but it’s not our philosophy. That said, we always need to be competitive.” Does that approach make it easier to reject potential clients? “Absolutely.” Prospective clients go through a “fairly upfront” process, so everyone’s intentions and expectations are clear. The same attitude applies to mid-market clients, where the Affiliated FM brand differentiates FM’s market position.
December 2014/January 2015
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“We don’t have any actuaries. We have 1800 engineers that work with our clients to identify their risk, to give them solutions that will mitigate that risk.”
So is his job getting harder in the current soft market, where clients can obtain cover without having to prove they are minimising risk? Mr Lawson is used to competitors targeting FM’s markets, and while clients expect the company to be competitive, he says they are really looking to tap into its expertise to control their destiny, “to react to the risk before it reacts to them”. They also recognise the stability of FM’s capacity, which is unrelated to the economy or the market – or large losses. “In fact, we tend to grow as an organisation following large disasters such as 9/11, Hurricane Katrina or the Thai floods, because as a mutual company we are built to absorb the volatility of large-risk property.” FM can offer clients the same capacity following a disaster as it did beforehand, without having to retract terms. Mr Lawson says engineering work to identify risk in advance means the company is neither surprised nor afraid of events. The mutual structure means there is no conflict between acting for the clients and the shareholders, because they are the same, he says. However, there is a risk it could limit the company, because shareholder-owners may not wish to fund expansion, whereas shareholders in a listed insurer would not be surprised by an equity-raising. Mr Lawson says that since expansion is part of normal business, clients are not asked to fund it. Because it is essentially in partnership with its insureds, FM has many long-term clients, and these are the relationships it encourages. It also rewards them through its credit rebate on premiums, which this year totalled $US465 million. The credit is decided annually based on losses not incurred. The company budgets for two major catastrophes a year. If it has excess capital after a relatively benign disaster experience, and taking into account business needs, it considers a credit. The rebate is based on the length of the client relationship. Clients with a 20-year plus record get 15% and those with five to 19 years save 10%. Clients of fewer than five years receive a 5% discount. The underlying principle of a longevity-based payment is that the longer the client has been with the company, the more they will have invested in protecting their assets, so they deserve a larger share of the reward for losses that do not occur. FM has considered different models but Mr Lawson believes this is the fairest mechanism. “We have a lot of long-term clients and you don’t want to penalise the client who just happened to have a loss right before a credit was issued. You want to reward their long-term investment in their facilities.” This year’s rebate started at June 30 and will apply at renewals over the following year. Since 2001 the company has returned $US2.5 billion, but there have been years when credits are not distributed – such as 2012, following catastrophes the previous year. Australia is a core market, in which FM Global has operated since the 1970s. Mr Lawson is undisturbed about predictions in Australia of an economic slowdown driven by the end of the mining boom. December 2014/January 2015
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“I see a lot of business opportunities in Australia and New Zealand. This is a very sophisticated market with a lot of industry that is interested in protecting their facilities and maintaining their place in the global leadership, whether it be mining, power generation or retail.” He says FM Global does not target any particular industry but looks for businesses that recognise the value of resilience. Its expansion model is to follow its clients as they move into new geographies rather than to open offices to establish market share, and it provides insurance through partners if it does not have a licence. “We get used to the local market, and once we feel like it’s a good market for us to do business in and we have enough mass to make it economically viable, then we will pursue a licence.” FM Global entered Australia to support several multinationals that had come here to do business, with a handful of engineers setting up its first office. “Now we write business domiciled in Australia and that is our typical process of going into countries.” The group earns 70% of its $US5.6 billion premium from multinational companies, and Mr Lawson sees new opportunities to support clients as they move into Asia, Eastern Europe and South America. Although it remains firmly a property insurer, FM Global considers cyber assets to be property and has offered a cyber line as a standard inclusion for several years, covering damage to data and machinery and denial of service. The company is responding to growing concern about cyber risks among clients’ boards. “We are looking at the opportunities: what kind of coverages, risk mitigation and services would help our clients as they deal with cyber?” Mr Lawson says there are always new hazards to investigate at the Rhode Island campus. More than 50 PhDs work on natural hazards, climate issues and how technological change may have an impact on FM Global’s clients. For example, when plastic packaging began to replace cardboard and glass the company highlighted the huge fire hazard faced by many clients. The campus also tested aerosol cans to discover how they can become potential rockets in warehouse fires. Mr Lawson says blowing something up or starting a fire drives home the message about preventing loss. When clients see how fast a fire can stop production, “it really validates the message”. He was involved in building the research campus and still enjoys taking clients there. “It’s hard not to miss setting fires and blowing things up every day,” he admits. He might have seen FM Global as a temporary proposition 35 years ago, but Mr Lawson says he has had several careers within the company, including engineering, underwriting and sales. It was not the route he imagined when he left university, but he has fulfilled his original goal of gaining insight into some of the * world’s biggest industries. December 2014/January 2015
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Look! No hands With driverless cars almost ready to hit the road, could the motor insurance industry be heading for a crash? By John Deex
Heading your way: the Google driverless car has no steering wheel, brake pedal or accelerator
December 2014/January 2015
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A WORLD WHERE HUMAN DRIVERS ARE redundant and collisions never happen would be a better world, wouldn’t it? Jeremy Clarkson probably doesn’t think so – and the BBC’s Top Gear show might not be the only casualty of the long-awaited automated vehicle. There are some who believe this technology could also spell the death of the motor insurance industry as we know it. The idea of a fully automated car dates back to the 1939 World’s Fair, and the dream became a reality in 2005. Stanford University’s experimental vehicle, Stanley, won the 2005 Defence Advanced Research Projects Agency Grand Challenge, having travelled driverless 212km through the Mojave Desert. In May this year Google revealed a new prototype of its robotic car, which has no steering wheel, accelerator or brake pedal. Google’s vehicles use laser sensors to generate a 3D map of their environment and can negotiate traffic, read road signs and perform emergency stops. There are still limitations. The cars cannot differentiate between a pedestrian and a police officer, understand the implications of different kinds of debris on the road or operate in adverse weather conditions. However, most car manufacturers believe they will have models available for the market by 2020. The first and most obvious benefit will be safety. No matter what Clarkson and his fans like to think, humans are not particularly good drivers. Human error contributes to about 90% of collisions and a staggering 1.2 million people are killed every year on roads worldwide. Driverless cars will not drink and drive, break the speed limit, fall asleep, send a text message on the move or get distracted or angry. Parking prangs will be consigned to history. In fact, we will probably be able to get out and let the car park itself. Then there is all the extra free time. Read a book, do some work or watch a movie while the car takes control. The daily lives of the visually impaired could be utterly transformed. Sounds good, doesn’t it? But spare a thought for the motor insurance industry. insuranceNEWS
December 2014/January 2015
Many of the routine claims that drive the cost of motor insurance are likely to diminish or even disappear. “Lower claims would be expected to result in lower premiums and tighter profit margins,” Lloyd’s says in a recent report. “Some might argue that if cars really do become crashless, there may not even be a need for motor insurance.” A Rand Corporation report expands on this argument, stating that “if crashes decline in frequency, an entire ‘crash economy’ of insurance companies, body shops, chiropractors and others will be disrupted”. Aon agrees, saying that with the expected dramatic decline in vehicle accidents and related costs due to driverless cars, “the personal lines auto insurance industry may very well become obsolete”. However, there are strong counter-arguments. The driverless car scenario is a long way off. We may have autonomous cars available in 2020, but they are not going to dominate for a long time after that. Global information company IHS predicts nearly all vehicles will be self-driving “some time after 2050”. But could even that be optimistic? Allianz General Manager Corporate Affairs Nicholas Scofield tells Insurance News the technology is one thing, but getting driverless vehicles on the road is quite another. “Setting up the rules to integrate them into the current road network is pretty much a blank sheet of paper,” he says. “The government and legal framework and practicalities are going to be the biggest handbrake. “The issue will be how quickly governments can adapt the rules on having those vehicles on the road. It will be a slow and tortuous process.” NRMA Insurance Head of Research Robert McDonald welcomes such new developments but believes “The Jetsons stuff” is a fair way off. “All elements will be arriving at different times. There will be a lot of years where there is going to be a mixture [of driverless and non-driverless vehicles] and that brings its own problems. Will driverless cars have separate lanes, for example?” Rather than fearing change, Mr McDonald embraces it. “We’re heavily involved in researching 63
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Motor insurance will be different: and the evening commute might become a relaxing experience
the technology that will make up driverless cars and there are some very positive impacts on insurance,” he says. “We are already offering incentives for autonomous emergency braking.” And it may not be a case of simply delaying the inevitable. Motor insurance will be revolutionised by the new technology but it still has a future – albeit a very different one. “Collisions are a major part of what we are insuring today,” Mr McDonald says. “If there are fewer collisions then we will have to look at the value of our offering. “But there will always be an element of risk that people want to protect themselves from.” These might include collisions with animals, systems errors or weather damage. “Cars can be damaged in ways other than colliding with other vehicles,” he says. And while there may be fewer crashes, they will be more expensive. Repair costs are already soaring, and new technology could be a useful foil to the spiralling cost of claims. AAMI spokesman Reuben Aitchison says eliminating human-error collisions will not be as straightforward as some imagine, but he accepts autonomous vehicles will change the cause and nature of accidents. “We believe there will still be a need for motor insurance, but just in a different way. Customers will still want to protect their second most valuable asset from natural hazards such as extreme weather and other unforeseen events.” A crucial issue will be the potential shift in liability. The Lloyd’s report notes that if users are no longer expected to even oversee the autonomous driving of their vehicle, more liability will have to be assigned to manufacturers. “Motor insurance could change substantially to be something more like product liability insurance,” the report says. “Insurers would need to know less about the users of a car and more about different models of cars themselves.” Aon’s report says an absence of vehicle operator liability would raise interesting questions. “It is possible that auto industry [manufacturers] may, in the future, have to take on liabilities that are currently attributable to ‘driver error’,” it says.
“For example, who is responsible in the event of a self-driving car parking itself and hitting a pedestrian?” Mr Scofield says product liability for car manufacturers is nothing new – but it will have to evolve. “If you are in a world where the product is doing a whole lot of new things such as driving around by itself, manufacturers of these vehicles will need cover to protect themselves.” Mr Aitchison accepts change is coming but prefers the glass-half-full approach. “In some ways, the move to autonomous vehicles may actually open up new product offerings for the insurance industry,” he says. There are still many unanswered questions. We know the technology is close, but how will driverless vehicles integrate with the current system? Public reaction is another great unknown. Will these vehicles be affordable, and will drivers be willing to relinquish control? Frank Peppard, founder of QBE’s Insurance Box telematics system, recently returned from visiting the Google team in the US. He raises ethical questions, too. “Do you instruct the car to save the life of the driver as a priority over a child that suddenly steps out in front?” he says. insuranceNEWS
December 2014/January 2015
“Do you program the car to allow for excessive speed if the driver urgently needs to get to hospital or do you restrict the car to obeying the legal speed limits? “Who should be making these decisions and who regulates the programming of these automated split-second decisions?” Insurers can shelter for now behind this barrier of doubt; it buys them precious time. “If we ever get to a point where collisions are eliminated, then motor insurance will look very different,” Mr Scofield concedes. “Between now and then our products will need to adapt and evolve to the use of driverless cars. But the total demise of the product is a very long way off, if it ever comes. “We are not worrying too much about this in the short and medium term. There is not going to be any shock to the system because these things will come into use in a graduated way. “We will have plenty of time to work out how to adapt our products.” Insurers may be right. There is no need to hit the panic button just yet. But everyone agrees on one thing – change is coming. And if Clarkson and his friends don’t like it, tough. Because if the vast majority of 1.2 million deaths a year can be prevented, then nothing – not Top Gear, nor the motor insurance industry – should stand in the way. *
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Digging a deeper talent p The insurance industry is finally taking steps to become a career of choice, rather than a job people ‘fall into’ By Leo D’Angelo Fisher
December 2014/January 2015
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nt pool DANIEL FOGARTY WAS destined to be a banker, perhaps even a future bank chief, but his career took an unexpected turn that led him to become Chief Executive of General Insurance at Zurich Financial Services Australia. It was a 12-month spell as chief manager of general insurance at Westpac in 2001 – a normal rotation for a promising corporate leader – that opened up the unexpected career path. He returned to banking roles with Westpac soon enough, but the die had been cast. Mr Fogarty joined Suncorp as an insurance executive general manager two years later, and in his six years there his executive responsibilities touched virtually every insurance business in the Queensland bancassurance group. In 2009 he joined Zurich as head of automated business solutions, before rising to the top job three years later. Now Mr Fogarty cannot imagine working in any other industry. “It’s a great industry and the people you work with are great people,” he says. “I have a personal passion for insurance.” However, in recent years Mr Fogarty has been nursing a quandary: why is it that an industry now so dear to him is one he fell into by accident? Whenever he presented at industry conferences he would begin by asking audiences how many of them had “fallen into” insurance. “The result was always the same: the vast majority of people in the audience had fallen into insurance. At one conference, just 12 or 15 people out of 400 had consciously chosen careers in insurance. I didn’t realise it was that bad.” insuranceNEWS
Mr Fogarty has made it his mission to raise the profile of insurance as a career choice, and it is not only a personal matter. “As a business leader, I also want the best talent for our business,” he says. Mr Fogarty has called on insurance companies and industry bodies to do more to promote insurance as an attractive career at schools, universities and employment fairs. He has also urged insurers to do more to attract and develop “career-changers” from other industries. The agitation, capping off many years of industry panel sessions asking why the industry didn’t address the recruitment
paper outlining key findings and a plan for co-ordinated industry action. That paper was scheduled to reach insurance industry leaders as Insurance News went to press. It is expected to call for funding contributions from industry bodies and businesses. While the recruitment issue has been festering within the industry for many years, there were some surprises when Insurance News set out to report current points of view. Some former critics of the industry’s lack of a co-ordinated recruitment strategy are now doubtful that the unity of purpose needed to effect a change is achievable, and
“At one conference, just 12 or 15 people out of 400 had consciously chosen careers in insurance. I didn’t realise it was that bad.” issue seriously, has paid off. In July the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) surveyed human resources executives and senior managers, with the support of the Insurance Council of Australia and the National Insurance Brokers Association (NIBA). The survey was overseen by an industry-wide committee chaired by Mr Fogarty. The results were presented to a group of 20 industry human resources directors in October, and Mr Fogarty’s committee will release a discussion
December 2014/January 2015
others obviously just didn’t want to discuss it. NIBA – once a strong proponent of an industry-wide recruitment effort – declined to be interviewed for this story. Although there is general accord on the difficulties faced by the industry in attracting graduates and career-changers, how these problems are tackled is a more contentious matter. “If we’re going to ask the industry to spend money we’ve got to make sure we develop a proposal that sets out a plan and the results we expect,” Mr Fogarty says. “If somebody asked me for money I’d want to 67
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ANZIIF’s Prue Willsford: collaboration over recruitment has been powerful
Zurich’s Daniel Fogarty: the people you work with are great people
know what I was going to get out of it.” Gary Gribbin, Insurance House Group Chairman and also Chairman of the Insurance Brokers Network Australia, has been in the industry for almost 40 years, having completed a business studies diploma in insurance and economics in 1976. But he insists he had no special insight into insurance broking as a career. “Unless there’s a direct family connection, people get into the industry by accident, and I’m one of those. But those who do usually come to embrace it, as I did, when they realise the richness of it and the multi-dimensions of it.” However, Mr Gribbin says there is one stumbling block to overcome before the love affair can blossom: entry-level jobs can be “boring… mundane… almost stultifying”. Those who endure the tedium of such positions – generally data-entry roles and basic administrative duties – will eventually acquire the technical competence required to advance their careers. It can take a year before trainees and juniors are given more responsibility, managing their first small accounts and dealing with less complex clients. But for smaller employers this can pose a fresh challenge. Insurance House has 150 employees, and Mr Gribbin says it is not always possible to provide the career paths needed to retain top talent. “Not everyone can be a senior account manager. We don’t have enough career slots to chart a career path for everyone. The best we can do is to try to be a decent employer and to provide an environment that people enjoy.” Suncorp Commercial insuranceNEWS
Insurance similarly believes not everyone can be promoted to management. But unlike smaller businesses, the insurer has the scale to provide other options. It offers talented employees two distinct career pathways: people leadership roles and technical specialist roles. Big insurers can also help smaller business partners develop their leadership capabilities. CGU runs a development program for brokers called the Platinum Leadership Network. It comprises intimate workshops addressed by industry leaders – including Mr Gribbin
blamed for the global financial crisis. Some graduates may be filtering through to insurance as a result, but Mr Williams says most have little knowledge of – or interest in – the insurance industry. For graduates who make it to the larger insurers, it is a familiar challenge for employee and employer alike: boredom. “The biggest problem insurers have at graduate level is that most graduates will be going to a claims job and a claims job is not as exciting as three-month rotations at a bank or an accounting firm,” Mr Williams says.
“Most graduates will be going to a claims job and a claims job is not as exciting as three-month rotations at a bank or an accounting firm.” – at which various leadership topics are canvassed. CGU says the network is an opportunity to “make a contribution to the broader development of the insurance industry in Australia”. With notable exceptions, a major weak spot for the insurance industry is graduate recruitment. Ieuan Williams from recruiter Marks Sattin says graduate programs at the major insurers are “light years behind institutional banks”. This comes at a time when many graduates are shunning careers in banking and finance because the sectors were
December 2014/January 2015
“The claims role, by its nature, is a service role and it’s usually not a customer at the other end that’s happy to be dealing with you.” Those who persist will find a strong market for their skills. Marks Sattin places midlevel to senior-level insurance professionals in three segments: general insurance, life insurance and workers’ compensation. “Life is the golden child of the industry at the moment,” Mr Williams says. “It’s been growing consistently over the past 15 years and still showing signs of growth.” Whatever the sector, the
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Insurance fails to excite business students Insurance ranks 18th out of 30 industries in an international survey of business students’ preferred career paths, according to Deloitte. Even in the UK, despite London being one of the world’s most important insurance hubs, insurers account for just 0.2% of companies listed among students’ five “ideal employers”. Deloitte UK Insurance Lead Partner James O’Riordan says the survey reveals “some uncomfortable truths” for the industry. “Insurers aren’t appealing to graduates with the right mindset to safeguard future success,” he said. “Knowing what motivates these students should be central to future recruitment campaigns.” The research shows “professional training and development” is students’ leading aspiration, with more than half wanting this from an employer. They also aspire to have leaders who support their development. “Technological innovation will be critically important for insurers, so as part of the competition for talent insurers must secure the technologically savvy and innovative people that other sectors are chasing too,” Mr O’Riordan said. Deloitte Head of Financial Services Insight Margaret Doyle says insurers must work with industry bodies and universities to promote careers. “Insurers have typically had low campus profiles at university recruitment fairs, so building on this will be key,” she said. “Also important will be showing the range and stability of roles available in insurance and how careers can meet the aspirations of students today.” insuranceNEWS.com.au, 17 November
lack of fully developed talent pipelines is an issue. Mr Williams says there is a shortage of “any specialist insurance [worker] at senior level”, but particularly underwriters and actuaries. There is also strong demand for senior executives. Marks Sattin recently placed two senior underwriters from two UK multinationals to positions in Australia for salaries above $200,000. “A specialist underwriter could move jobs very easily at the moment,” Mr Williams says. “There are more positions [to be filled] than there are specialist candidates. “The recruitment agencies in this space know that it’s a merry-go-round of staff every four or five years. There’s no fresh talent coming in and there are only a finite number of senior roles. “If the industry is going to combat this problem there needs to be a focus on career development.” Council of Queensland Insurance Brokers (CQIB) Executive Secretary Greg Duncalfe remembers presenting to a careers day at a Brisbane high school several years ago and realising insurance was the furthest thing from the youths’ minds. “None of the students had thought about insurance,” he says. “Not even the vocational guidance people had much information on insurance. It wasn’t on anybody’s agenda.” For Mr Duncalfe, the blame is easily apportioned: “The industry has been a little bit tardy over the years.” He decided to do something about it. In 2010 CQIB started the Young Insurance Professionals program, a careers scheme run through Queensland’s secondary schools. Teams of four or five brokers visit schools to talk to insuranceNEWS
students about their jobs. “We tell the kids we’ll take them straight out of school or we’ll take them out of university,” Mr Duncalfe says. “There are so many options in the industry they can take. They can be anything they want to, and once they’re in the industry most of them won’t leave because it’s a great industry to work in.” Amy Chavarria, General Manager of insurance recruitment company iPeople, believes the industry needs to be more assertive in promoting itself. “Insurance has a branding problem,” she says. “It’s not a glamour industry. It comes across as salesy rather than sexy. Insurance is seen as a poor
“Recognising there is a problem and collaborating on a solution is really important for the industry,” she says. “There’s been co-operation before, but not at this level. The level of collaboration has been really powerful. It’s a significant outcome in its own right.” But Ms Willsford exercises a caution more in keeping with her training as a lawyer than her role as an industry cheerleader. “The difficulty for me is that I don’t want to pre-empt the reaction from the industry,” she says. “It would be overly forward of me to put words in the mouths of industry leaders.” As the finishing touches are put to the industry’s careers and recruitment blueprint, Ms
“Insurance has a branding problem, it’s not a glamour industry. It comes across as salesy rather than sexy.” sister to finance.” Ms Chavarria, a former customer service manager with Allianz, says the industry is also regarded as a “closed club” – and with good reason. “The insurance industry can be a little bit cliquey in terms of who they want to work with. Clients are always looking for someone with experience, rather than developing someone new. They don’t want new blood.” As a result, recruiters “are all swimming around in the same talent pool”. ANZIIF Chief Executive Prue Willsford is excited about the level of co-operation that brought about the industry employment survey.
December 2014/January 2015
Willsford can say there is “clearly” a skills shortage and “an absolute need for investment in technical skilling”. “What I would like to see is industry-based collaboration that focuses on the development of technical training streams,” she tells Insurance News. “There is training in place, but not enough, and not the right training. I think there are opportunities for improvement.” There surely must be. For most people working in insurance, including the many who “fell into” accidental careers that have enriched their lives, the wait for the industry to get serious about making insurance a career of choice has been a * very long time coming.
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Our Catlin Seaview Survey competition winner found inspiration on Indonesian coral reefs. And yes, she had a great time By John Deex CLOSE YOUR EYES AND IMAGINE DIVING into the rainbow world of fish and coral in warm crystal clear waters off Bali. As Marsh project manager Davina Misra says, it wasn’t the toughest job she’s ever done. Sydney-based Ms Misra won a Catlin competition, run in conjunction with Insurance News, to join the Seaview Survey in the Coral Triangle around the Philippines, Timor-Leste and Indonesia. “The resort and the weather were fantastic,” she says. “The dives were absolutely amazing. The water was very clear and warm and the coral looked pristine. “It wasn’t one of the more difficult things in the life of an insurance broker.” But this wasn’t just a holiday – it was a 72
valuable learning experience too. Since September 2012 the Catlin Seaview Survey has been working to create a baseline record of the world’s coral reefs in 360-degree panoramic vision. More than 40% of corals are estimated to have been lost in the past 30 years due to pollution, unsustainable fishing and climate change. The decline is set to continue, with dire consequences for 500 million people who rely on reefs for food, tourism income or coastal protection. It is feared coral reefs could be entirely wiped out by the end of the century. The Seaview Survey, backed by global insurer Catlin, has responded by beginning work on an unprecedented record of reefs that can be monitored to assess damage and help plan future protection. Australia’s Great Barrier Reef was the starting point, and was the scene for the first Catlin/Insurance News competition. Last year the teams moved on to the Caribbean and Bermuda. The focus this year has been the Coral Triangle – home to 29% of the world’s coral reefs and 3000 species of fish. Head of Communications for the Seaview Survey, Lorna Parry, tells Insurance News the location of the competition trip was carefully chosen. insuranceNEWS
December 2014/January 2015
Ms Misra was taken to a reef off Nusa Lembongan – an area still mostly untouched by development. “It was a place where we could focus on the natural environment and marine life, a more remote and back-to-basics location,” Ms Parry says. “Earlier that week we had seen Mola Mola sunfish that can grow up to three metres, and manta rays are common. “The evening after the dives we sat down and discussed the project and everyone was very engaged after what they had seen earlier in the day.” Ms Misra says the experience changed her outlook forever. “The marine life and the corals are just amazing, and diving makes you feel more connected to it all. “You have a much better appreciation for wanting to save these ecosystems. “The reefs are absolutely beautiful and it is really upsetting to see images of destroyed reefs. It only takes a water temperature change of a couple of degrees. “They are actually quite resilient. They can cope with a change for a few weeks, but after that, it’s all over.” Ms Misra says by bringing images of reefs into people’s homes and raising awareness of the threats they face, the Catlin project could inspire significant change.
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Catlin Seaview Survey/Insurance News competition winner Davina Misra (at left) with Catlin specialists Joseph Hershewe, Rory Morison and Natalie Warren, Joe Le from Cerberus and Jugal Madaan from the Abu Dhabi National Insurance Company
A changed outlook: Davina Misra shows her delight after diving on a pristine Indonesian reef
“Highlighting the plight of reefs could help get a reaction from the public and the government. “But it is a global issue. Australia needs to do its part but it is only a small percentage of the global economy.” The insurance industry could benefit too. Reefs are such a delicate ecosystem that they are a good indicator of the future impact of climate change, and implementing measures to protect the reefs could bring far wider benefits. “If we can have a better understanding of reefs and how they react to climate change then we can have a better understanding in the insurance world about future catastrophe events,” Ms Misra says. Ms Parry says people often ask why Catlin is engaged in such a project, and the answer is simple. “The reefs are the barometer of our oceans, the canary in the coalmine,” she says. “Knowing what is happening to our oceans is critical to the insurance industry. “Oceans govern weather systems, sea level rises and impact on coastal protection. “Catlin is investing in our future for everyone’s benefit.” The project continues to break new ground. In November more than 100,000 images were released from the expeditions along the Great Barrier Reef.
Anyone can access this unprecedented data through the Catlin Global Reef Record, and the images have also been released through Google’s Streetview, allowing people to explore virtually more than 20 different reefs for the first time. The team will also carry out a detailed resurvey of the Great Barrier Reef, to assess changes since 2012. This will examine damage caused by Cyclone Ita, which hit the area in April, but also degradation caused by other factors. The results are sure to be intensely scrutinised, as the global debate over the state of the reef continues. “For the first time we will have some clear and obvious scientific findings because we will have a before and after,” says Ms Parry. Ms Misra was impressed by the dedication of the survey team. “The Catlin staff were so passionate and enthusiastic about this project. I can see how hard they have worked,” she says. “For a corporate insurer to put so much money into this is just fantastic.” There is no doubt that the Seaview Survey is creating a priceless scientific resource. But if Ms Misra is anything to go by, the project also has the capacity to secure something even more precious – hearts and * minds. insuranceNEWS
December 2014/January 2015
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Oiling the wheels of deals Warranty and indemnity insurance can make corporate takeovers more comfortable for buyer and seller alike By Jan McCallum
IT’S EASY ENOUGH TO FIND INFORMATION ON PUBLICLY listed companies, but when an acquisition involves a private business, buyers can feel they are leaping into the unknown. Warranty and indemnity (W&I) insurance is one way to reduce the risk, and is used by buyers and sellers to oil the wheels of deals. A warranty is a form of promise by the seller, who is liable to compensate the buyer if there is a breach of any representation made when the company was sold. Either buyer or seller can be the insured party. W&I is not widely known about or used in Australia, but Marsh mergers and acquisitions (M&A) specialist Josh Roach says that is changing. “It’s a product that has really grown in the Australian market over the past two to three years,” he tells Insurance News. “It is the most active market for us globally in terms of growth in both policies and claims.” Mr Roach, Marsh’s Senior Vice-President of Private Equity and M&A Services, recently assembled a panel of insurers, lawyers and advisers to discuss how W&I works and how to get the best out of it. Head of Transactional Risk Janine Fenwick says the product is most often used when a private company is an acquisition target, because there is a lack of information in the public domain. It enables parties to restrict their potential liability after the sale if information turns out to be incorrect and the buyer takes a loss. The underwriting process can also “flesh out” disclosure, forcing the seller to provide information so the buyer can adequately and accurately assess the deal’s worth. The buyer will usually require the seller to retain some liability, but a seller wanting a “clean exit” can also initiate the cover, known as a “sell-buy flip”, by requiring the buyer to take out a buy-side W&I policy. 74
The seller may want to retire, pay out investors or use the proceeds for another venture, and will not want to set aside funds in case they have to compensate the buyer. In this case the buyer has no recourse to the seller and the claim comes directly against the policy. A sale and purchase agreement is built into a W&I policy and will set out the process for the buyer to bring a breach of warranty claim and specify the seller’s financial limitations. Ms Fenwick says once the insurance market becomes involved, there will be discussion about the suite of warranties being covered. There may be exclusions such as seller fraud or forward-looking statements. Marsh will want to see the documentation being proposed and will present it to the insurer and ask for non-binding indicative terms. “Insurers will give us a 24 to 48-hour turnaround and an indication of pricing as well as any preliminary comments they might have,” she says. Mr Roach says the transaction need not be far progressed before insurers are approached for a good view of pricing, while Ms Fenwick tells Insurance News she has rarely seen the price move later when the policy binds. AIG Australasian Manager of M&A Martin Larkman says there will be options for the buyer. “It is not a black and white pricing process.” The average insured amount is $25-$27 million, and most insurers will put down $30-$35 million on one transaction. People with a legal background are drawn to this area of insurance and it’s one where buyer, seller and insurer may engage external counsel. King & Wood Mallesons partner Darren McClafferty says the insurer will initially consider several points: who gets the W&I? Who
December 2014/January 2015
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pays for it? What is the recourse arrangement against the insurance? Is there an agreement that gives the buyer recourse against the seller? HWL Ebsworth senior associate Laura Young says insurers will want to see a balanced document. A particular insurer might be sensitive to a certain area of risk. “We will think about who the law firms are that have been acting for them and if they have conducted thorough due diligence,” she says. “If they are not one of the big names, we might take a bit more time to think through these areas.” When a deal reaches Ironshore Australasian Divisional Manager of M&A William Lewis, he will consider who the advisers are, the level of due diligence undertaken, the warranty itself and the general area of risk. “We would think about the multiple being paid, to the extent it is justified,” he says. “Do we think this is a good investment? Do we think this is actually going to be a good transaction for the buyer?” Mr Lewis says he will look for a good commercial agreement and “a great investing story”. A warranty can be for one to three years, or up to seven years for tax, one of the key areas likely to lead to a claim. When it comes to providing documents, Ms Fenwick wants to see a suite of due diligence undertaken, external legal and tax advice and the acquisition agreement. Marsh, insurers and their external legal counsel will also need access to the virtual data room. At this point, the client may need to sign an agreement to cover the cost of the insurer’s legal advice, which could be $15,000-$25,000. There is no obligation to pay if the transaction does not happen. Otherwise it will be absorbed into the premium. Mr McClafferty says lawyers acting for insurers will look to ensure sellers have “done their homework”. “You want something sensible,” he says. “The client needs to have investigated the relevant risks of the transaction and prepared for them.” There may be gaps in the information – which may or may not be reasonable – and there will be discussion about how to deal with these. Although the panel agrees that sophisticated buyers may have internal teams that know exactly what they are buying, Mr Roach says if there is internal due diligence, insurers will want to see it. When the policy is being drafted, Ms Fenwick says the most important aspects are the exclusions and the warranty spreadsheet, detailing what is listed and what is covered. “That is where the most robust negotiations with insurers and their counsel happen. That will usually take between two and three days.” Having a warranty in place might be a condition of closing a deal, and she warns that if the buyer signs without insurance in place they risk finding a gap between liability and what is covered.
“If there is nil recourse [to the seller], the buyer has nowhere else to go.” She likes to have 10 business days for the process, and says underwriting “crunch time” comes when the insurers receive the buyer’s due diligence and have access to the data room. They would need a minimum of five business days to go through that process. Ms Fenwick says it is not fatal to the deal if the buyer has their own broker, because the company may be a multinational with a global relationship, but Mr Larkman says AIG likes the broker to be involved in the transaction from the beginning. “Engagement of a quality broker is key because they facilitate the transaction for the insurer and they are the glue holding the transaction together,” he says. He also wants the seller engaged, because if there is no recourse the seller can walk away, knowing they have no liability. Mr McClafferty says seller engagement will produce a more balanced and fully investigated transaction to present to the insurance market. “If that occurs discussions with the insurance market will go much better.” The panellists agree communication between parties is important, while Ms Young says a smooth transition, a collaborative process and transparency are also key. “If people are trying to hide things, or won’t discuss or provide documentation, it can create problems – from everyone’s perspective.” There are no hard and fast rules about who pays the premium, but generally if there is no recourse to the seller they will pay the premium and bear the retention. Sometimes there is a 50/50 split. Pricing in the Australian market is fairly stable at about 1.25-1.5% of the limit of the liability purchased. Claims are likely to be made around accounting and tax issues, which will fall within the financial statement warranty of the policy. If there is an accounting issue, a tax one will invariably follow. The experts estimate about 25% of claims are about tax and 20% relate to accounting. Claims may be triggered by payroll tax being calculated incorrectly or a large employee benefit that was not disclosed. The buyer may be landed with a professional indemnity claim from a contract entered into months before the transaction. Contracts involving intellectual property and construction can prompt claims relating to revenue over a period of time. Sometimes the most thorough due diligence fails to identify a red flag. However, although insurance is ultimately about compensation for loss, risk mitigation features strongly in W&I insurance because the involvement of the insurance market can lead to more information being provided and prevent an acquisition unravelling for the * buyer.
“If people are trying to hide things, or won’t discuss or provide documentation, it can create problems – from everyone’s perspective.”
December 2014/January 2015
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Fighting fire with water The Queensland Supreme Court has ruled in favour of brokers following a major chemical factory blaze By Jan McCallum
INSURANCE BROKERS AND THE Queensland Government have successfully defended a legal action against them over a huge chemical fire in 2005. The Queensland Supreme Court rejected claims that Marsh and one of its authorised representatives breached a duty of care in the insurance they arranged for the chemical factory at Narangba, north of Brisbane. Justice Jean Dalton also ruled the Queensland Fire and Rescue Service has immunity from a suit for negligence over how it fought the fire. Hamcor’s chemical factory fire in August 2005 blazed fiercely for several hours. “The brigade’s response to the fire was considerable in terms of men and machines,” Justice Dalton says in her decision. “Massive quantities of water were applied on and around the fire.” Forty-four gallon drums of chemicals caused fireballs and explosions within the main fire and drums with flammable vapour inside behaved like rockets and flew out of the fire, burning where they landed. The water and chemicals combined to produce “fire water” that ran onto nearby bushland and into stormwater drains, dams and a creek. It soaked into land that was then classified as contaminated and which Hamcor had a statutory obligation to remediate. This would cost $9 million, many times more than the value of the land, which Hamcor couldn’t use until it was cleaned up. Hamcor and its owners Terrence Armstrong – who has since died – and Donald Hayward, sued the State of Queensland over the fire service’s action, saying the brigade was negligent in fighting a chemical fire with water. Hamcor’s insurer paid the full $3 million sum insured on the property, but the same insurer refused to pay on a liability policy with Binary Industries, a separate company owned by Mr Armstrong and Mr Hayward which leased the land and buildings from Hamcor. 78
They then sued the brokers that arranged the liability insurance, Marsh and Otago Pty Ltd, which is operated by Marsh authorised representative Stuart Munro. They claimed the brokers knew, or should have known, that Hamcor owned the land and it should have been named as insured or interested party on the liability policy. They said the brokers also should have obtained an industrial special risks (ISR) policy for Hamcor. The owners claimed the factory would
obtained $2 million cover with London underwriters and later another $8 million excess cover. Justice Dalton says Mr Munro had a defined retainer to place the liability insurance in terms similar to a previous policy that had lapsed. He and Marsh fulfilled the terms of that retainer. The factory owners argued the brokers had a duty to investigate the relationship between them and Binary Industries and all their insurances with the other broker, and realise these were inadequate.
“The two owners were comfortable in assuming quite significant risk in their commercial enterprises.” – Justice Jean Dalton have been able to buy at least $10 million cover for pollution and environmental risk, and this would have paid for land remediation and the loss to the factory. But Justice Dalton rejected the arguments, saying Mr Munro has been a broker for more than 25 years and had kept diary notes and sent emails confirming his dealings with Mr Armstrong, the Managing Director of the company and a chemical engineer. Mr Munro was only engaged to arrange a public liability policy for Binary Industries, and Mr Armstrong had rejected his attempts to assume a wider role by offering directors’ and officers’ and property cover. Mr Munro sought the business after being told the company’s existing broker could not get public liability insurance for the factory, which manufactured insecticides and herbicides. The market was very difficult, but he insuranceNEWS
December 2014/January 2015
“My view is that no such duty was owed,” she says. “Mr Munro was given a specific task on behalf of Binary Industries. He was not even asked to ensure that all Binary Industries’ insurance needs were met.” Justice Dalton says there are cases where a broker has received general instructions and may be under a duty to ask for more details about the business to ensure all foreseeable risks are covered. But that was not the case here, where Marsh and Mr Munro were aware that another broker had the care of other parts of the business separate from Binary Industries. Mr Munro had asked about providing other insurances, but was rebuffed. Mr Armstrong, the owner he was dealing with, “did not have a diligent attitude to insurance”, was tardy in responding to Mr Munro’s requests for information and had been running a large chemical manu-
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facturing plant without liability insurance for a year. Even if Mr Munro had asked to review the adequacy of all the cover, Justice Dalton is not convinced Mr Armstrong would have agreed or discussed it with his partner. The two owners were comfortable in assuming quite significant risk in their commercial enterprises, she says. If Hamcor and the two men had been named on Binary’s public liability policy it would not have covered land remediation. They had lost on this in a separate court case and been refused leave to appeal to the High Court. In her decision Justice Dalton rules the fire brigade has immunity under the Fire and Rescue Service Act and rejects Hamcor’s damages claim, which consists of $9 million to remediate the land, $442,000 legal costs for proceedings in the Planning and Environment Court, $1.33 million loss of rental income and $1.55 million for lost income. She notes there has not been a case in the High Court or an intermediate court in Australia that has decided on whether a fire brigade owes a duty of care in how it fights a fire. She agrees the brigade breached its duty to Hamcor and its two owners in applying large amounts of water to areas of land, although it was reasonable to spray it on areas where there were gas cylinders that could have exploded. But while the fire service knew the fire water posed an environmental hazard, Justice Dalton says there is a long history of immunities being given to fire brigades when laws establishing them are made. “The reason for these immunities may well be the devastatingly large consequences of errors made in fighting fires. “It may also be the fact that fighting fires is a task which in its nature may require brigades to destroy or damage * property, and act very quickly.”
December 2014/January 2015
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Playing the long game
Eight years of succession planning has ensured a smooth leadership transition at Perth-ba By Leo D’Angelo Fisher
AS 2014 DRAWS TO A CLOSE, PERTH insurance industry doyen Alan Bishop is looking forward to the new year. It will mark a major milestone for EBM, the company he founded: its 40th anniversary. But if next year is to start with a bang, that is also how this year has ended, with arguably the most significant shake-up the company’s leadership has seen. The changing of the guard was prompted by the decision of Managing Director Jeff Adams to retire after 20 years in the role. In fact, Mr Adams’ leadership goes back much further. He joined EBM in 1986 as general manager in charge of broking operations and soon after was also made a director. 80
In his place, general managers Ward Dedman and Steve Sparkes will become joint managing directors, with Mr Dedman in charge of operations and Mr Sparkes running the insurance broking and risk management sides of the business. It is not the first time EBM has had co-leaders: for a time Mr Adams and Mr Bishop were joint managing directors. Mr Bishop – one of the original partners in what began as Elkington Bishop Molineaux Insurance Brokers – remains at the apex of the leadership structure as Executive Chairman. Mr Adams will maintain his association with EBM as a non-executive director and “executive consultant”. The fact the leadership shake-up has insuranceNEWS
December 2014/January 2015
occurred on the eve of EBM’s ruby anniversary is largely a coincidence, but this was no last-minute reshuffling of the deck. The transition is the result of eight years of succession planning. Mr Bishop remembers well when the process started. “The succession planning began during a profound time in my life – in 2006, when the [West Coast] Eagles won the [AFL] premiership,” he says. “A week after we won the grand final, we started the whole process. We looked at who were our key people and who could be our successors in years to come.” The chosen successors were already veterans and rising stars at the company. Mr Dedman joined EBM 1999 as general
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Perth-based brokerage EBM
Talent and experience combine to manage national broker EBM: from left, Joint Managing Director Ward Dedman, new WA State Manager Ryan Cameron, Executive Chairman Alan Bishop, Melbourne-based Executive General Manager Sharon Fox-Slater and Joint Managing Director Steve Sparkes
manager responsible for strategic planning, governance, marketing and development, and specialist services. He is the Western Australia Divisional Committee Chairman of the National Insurance Brokers Association (NIBA), and in 2007 won NIBA’s Warren Tickle Memorial Award as young professional broker of the year. Mr Sparkes joined in 1988 and rose to be general manager with responsibility for comprehensive corporate insurance and risk management lines and servicing key clients. The revamped leadership team will also see Sharon Fox-Slater remain as head of EBM’s Melbourne-based landlord insurance division, RentCover, but with the new title of
Executive General Manager. Ms Fox-Slater joined EBM in 1993. Former director and senior broker with Perth-based Phoenix Insurance Brokers, Ryan Cameron, has joined EBM as State Manager for Western Australia. Mr Bishop says the new leadership team provides “a formidable depth of talent and experience to successfully guide the company into the future”. That future will be built on a very successful past. Privately owned EBM has annual revenue of $200 million and employs 200 people in nine offices nationally. A business does not reach 40 years without taking a formal and strategic approach to growth, and in EBM’s case that includes listed-company disciplines such as an independent board of directors. The board currently comprises Mr Bishop and three non-executive directors: investor and hotelier Michael Monaghan, barrister and former city law firm partner Terry O’Connor and former Ernst & Young partner Dalton Gooding. Mr Adams will become the fourth nonexecutive director, and the new joint managing directors will also join the board. Having such prominent sources of business advice has been an important element of EBM’s success, but it was not until the period surrounding the 1990 recession – Paul Keating’s infamous “recession we had to have” – that the company underwent its first exhaustive review and makeover involving external advisers. “In 40 years of business there have been some very tough economic cycles, but the toughest time was definitely the late 1980s-early 1990s,” Mr Bishop tells Insurance News. “That was a four or five-year year period that was as tough as it gets. Everyone was in a depressed frame of mind. It didn’t matter what business your client was in, everyone was feeling it. It was an exceedingly tough time.” At that time EBM operated in Western Australia only – it had recently opened a Kalgoorlie office, its first outside Perth – which Mr Bishop believes made it easier to digest the new systems and processes recommended by the team of management consultants and organisational psychologists. “It was a big hit [financially] to the business, but it had a big impact. There was a lot of work on our internal systems and it totally re-engineered a lot of what we were doing. It made a substantial difference to the business. insuranceNEWS
December 2014/January 2015
Alan Bishop: eye firmly on the ball
Jeff Adams: veteran managing director will become a director
“The introduction of systems and processes was a major breakthrough. A lot of things until then were done in a frustrating and inefficient way. People were doing things their way, whether or not it was creating problems. That all stopped.” Some employees did not like the new business processes, “but that simply told us who was on the bus and who wasn’t”. Most were on board, and Mr Bishop has no doubt the experience was a positive one. “There was a stronger sense of team,” he says. Mr Bishop says the positive experience with consultants has stayed with EBM, which has adopted a policy of “continuous improvement”. “You’ve got to be prepared to take on 81
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Worth the wait Mr Bishop says succession planning does not bring instant benefits, but it is necessary so that a resignation at the top does not throw the organisation into turmoil. “When I look back over the past eight years, a lot of it is like watching paint dry,” he says. “It does take a long time to do this properly, but taking that time has resulted in good outcomes. “This [new leadership team] is a major stepping stone and there’s more to do. It’s a work in progress, getting layers [of emerging management talent] in place. “We’re going through a continuous improvement process at the moment. There will be more refinements in the next year, two or three, and there will be more announcements, some restructures, and some people will be assuming new roles and elevated positions. “The focus is on our people: their objectives, their responsibilities, their empowerment.”
external advice. External people bring in a broader view of the world. We don’t use consultants irrationally, but we do use them. We are continually going through business improvement missions.” Succession planning was one such mission. EBM hired consultants to review the management structure, talent pipeline, career paths and professional development. Mr Bishop says that one of the most rewarding aspects of watching the company grow has been the success of its culture. Organisational culture can be hard to define, but he sums it up in a way any successful broking business can understand and identify with. “We’re about the clients. Our pride in what we do is having a very good relationship 82
with the client and maintaining a trusted relationship with the client. “Well in excess of 40 clients have been with us for 20 years or more. One client who comes to mind almost goes back to the very beginning. “To do all the things we’ve done, you’ve got to be of the highest integrity. It gets back to your ethics, your ethos. When the client comes first, long relationships with clients follow, and it’s certainly proven that way for us. “In 40 years of business you’ve got to be prepared to take the knocks. That’s one of the things we’ve been really good at: perseverance. But it’s not just about turning up every day. It’s a matter of applying yourself and asking: what are we here to do?” Mr Bishop says EBM’s focus on client outcomes is best served by having salaried employees only. It eschews the authorised representative model and believes in providing maximum choice. “Today there are fewer and fewer insurance brokers who operate from an open book of insurers and who can give their clients access to the greatest possible choice and value of products available around the world. “Many of our competitors are limited by affiliations with specific insurers, the desire to streamline their business or pressure from shareholders.” Mr Bishop is looking forward to the next phase of EBM’s development. “I intend to step back a bit and let [the new managing directors] take the running,” he says. But this should not be misinterpreted: “I’ll have my eye firmly on the ball.” As for the retiring Mr Adams, when Insurance News spoke to him the transition was well under way. One of the first things he did after deciding to step down was to write down every task he performs as managing director. Over several days he came up with 100 functions and handed a two-page list to his successors. “I must say, I did surprise myself coming up with about 100 things that I do in the job,” Mr Adams says. There is one role he will particularly miss. “I had an open-door policy,” he says. “It was one of the biggest parts of the job. The best way to get good productivity is to make people’s job as enjoyable and fulfilling as it can be and giving them the confidence that there’s plenty of support behind them.” insuranceNEWS
December 2014/January 2015
Ward Dedman: joined EBM in strategic planning role
Steve Sparkes: overseeing broking and risk management
Mr Adams says succession planning has ensured a smooth transition, but it has not made stepping down any easier. “The planning part is not difficult. It’s wanting to leave that is the difficult part. Doing the planning is quite easy; it’s hypothetical until you decide to retire. But I’m 64. I have some health issues, and I needed to change my life a bit.” Mr Adams expects most of his consultancy work to involve developing products for RentCover, which accounts for 20% of EBM’s revenue. “There’s scope for the business to be larger,” he says. As for his successors, Mr Adams advises them to “lead by example. It’s the best way of * going about the job.”
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December 2014/January 2015
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IAA hosts sparkling Gold Coast conference Insurance Advisernet Australia (IAA) held its most successful conference yet as 480 delegates descended on the Gold Coast. The event opened with a silent disco and a Studio 54-themed gala dinner attended by 400 guests. The theme of the conference was Bigger, Better, Stronger, Power and focused on the continuing excellence and professionalism of the Insurance Advisernet network. As Managing Director Adrian Kitchin put it, the event was a chance “to showcase and recognise the terrific talent we have in our group”. About $50,000 was raised for charity – $10,000 each for Kidsxpress and Beyond Blue, and $7500 for Reach, Go Foundation, the McGrath Foundation and Walking Wounded. IAA’s annual awards were also presented at the event. Authorised representative (AR) of the year is Melbourne-based Sound Insurance, while the Insurance Advisernet New Zealand (IANZ) broker of the year is Tauranga-based Financial Independence Insurance. The platinum quality practice award went to Sydney-based Everest Risk Group and Southern was judged region of the year. The Chairman’s Award went to IAA’s BrightonLe-Sands AR Andrew Pearson and IANZ Manager Finance, Systems & Administration Paula Mills. Employee of the year is Regional Assistant Caitlin Apps.
December 2014/January 2015
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Adjuster takes a 360-degree view for launch More than 200 guests celebrated the launch of Cunningham Lindsey’s new Major & Complex Loss team with an evening of drinks and canapés at Sydney’s revolving O Bar. Clients and other interested parties were treated to breathtaking views from the 47th floor at the event in October, which was part of the loss adjuster’s bid to build relationships with customers. Head of Construction and Executive Adjuster Andrew Thomas says the launch was arranged to reinforce the global rebrand of the major loss team, which took place earlier in the year. “We are really making a push to build global relationships,” he says.
December 2014/January 2015
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peopleNEWS Young eagles do good business A team from Insurance Advisernet Australia (IAA) has won Allianz’s Young Eagle award for up-and-coming young professionals, the first year IAA has competed. Each state fields a team of four brokers and an Allianz employee, and they become the executive management of a general insurer, competing over two days in a market simulation where they run their company. This year’s winning team was made up of Jaron Bresland of Bresland Consultants in Western Australia; Leigh Moulden of Melbourne’s Hunt Insurance; Morgan Jones of Business Insurance Group Queensland; Simon Elliott of Moody Kiddell & Partners; and Damian McHugh of Allianz. Allianz National Manager Key Partners Chris Lynch was team observer in the competition. The Young Eagles were brought to Sydney to present their rationale for their decisions to a board of senior executives including Chief General Manager Broker & Agency David Hosking and General Manager Commercial Denis Morrissey. Managing Director Niran Peiris later shared insights on the state of the insurance market.
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December 2014/January 2015
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peopleNEWS AILA young professionals go incognito More than 500 guests donned masks when the Australian Insurance Law Association (AILA) Young Professionals held a masquerade in Sydney in October. Members, clients and other insurance industry professionals met on the ground floor of the GPO for an evening of seafood, cheesetasting and a Mediterranean buffet â€“ and a spot of trying to guess who that was over there behind the mask. The New South Wales AILA Young Professionals are a particularly active bunch, and AILA plans this year to roll out more initiatives for younger members in other states. It is also working to attract more members who are not lawyers but whose work intersects with insurance law.
December 2014/January 2015
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peopleNEWS Berkley’s night at the museum Berkley Insurance Australia’s guests enjoyed more than just drinks and canapés at its rebrand launch in October at the Australian Museum in Sydney. More than 150 brokers and guests were given a surprise exclusive peek at priceless artefacts from the Aztec empire now on display at the museum. Two live owls almost stole the show from Chief Executive Tony Wheatley (right) when one of the birds flew on to his arm. The rebrand follows the decision to move the Australian operation from under the wing of WR Berkley Insurance (Europe) Limited to operate as a branch of the larger Berkley Insurance Company. As legendary WR Berkley Corporation Chairman and Chief Executive WR (Bill) Berkley puts it, the move will allow the company to “deliver a more efficient operating platform to develop the group’s business in Australia”. The main launch was held in Sydney while a smaller-scale version took place at Brisbane’s Blackbird Bar & Grill in late October. Western Australia hosted a Melbourne Cup function to mark the rebrand, and Victorians will hold a Christmas function.
December 2014/January 2015
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Inspiration and fun power Resilium conference Inspiration and innovation were the attractions when Suncorp-owned Resilium held its adviser conference at the Sheraton Mirage Port Douglas resort in Far North Queensland. Some 240 delegates were inspired by speakers like “human performance” researcher and author Dr Adam Fraser, who discussed his “third space” concept; Antarctic explorer Rachel Robertson, leader of the year-long 58th Australian National Antarctic Research Expedition to Davis Station; and twotime Australian Young Entrepreneur of the Year Brad Smith, designer of the Braaap motorcycle. The calendar of social and networking events included a visit to a crocodile farm, a trip to Mosman Gorge for a traditional Aboriginal smoking ceremony, and a trip to the Daintree rainforest to participate in activities such as dune buggy rides and archery. A pirate-themed outdoor gala dinner was held at the Flames of the Forest “rainforest ballroom” and featured performances by fire dancers and drummers. Brisbane-based Goldsworthy Investments and its General Manager Kate Greaves won several prizes, including the coveted Fire Helmet, for the second year in a row. The unusual trophy is awarded to the practice with the most premium growth.
December 2014/January 2015
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AIG hosts All Blacks brunch All Blacks sponsor AIG invited 25 brokers to a brunch with added crunch on the eve of the third and final Bledisloe Cup match in Brisbane in October. All Blacks Colin Slade, Augustine Pulu and Brodie Retallick took part in a light-hearted Q&A with AIG Australiaâ€™s Chief Executive Noel Condon at the event. Guests were able to pose for photographs with the players and get autographs. Door prizes included a framed All Blacks poster and signed jersey and rugby ball. Seven brokers were invited to lunch and given the opportunity to watch the Captainâ€™s Run, the final squad training session before the game. The following day AIG held pre and post-match functions at venues close to Suncorp Stadium, where the All Blacks enjoyed a narrow victory over Australia, winning the match 2829. They also took home the cup, for the 12th consecutive year.
December 2014/January 2015
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Catlin puts reputation in the spotlight Managing reputation risk in a volatile world was the focus of a professional development conference organised and presented by Catlin recently in Sydney. More than 100 people attended the event hosted by the company at its Angel Place headquarters in the central business district. Similar conferences were also held this year in Brisbane and Melbourne. Sessions included managing reputational damage in the face of product recalls; kidnap, extortion and political instability; construction project delivery following delays; and pursuing rights of subrogation. Two panel discussions also generated strong interest among broker participants. One of the discussions focused on global economic uncertainty and the impact on markets and the other on reputational damage. Participants heard that smaller companies are now as susceptible as large enterprises to reputational risk due to the rise of the internet. Companies may also have only hours to respond to a reputation risk crisis instead of days or weeks and social media can shift customer sentiment overnight. Catlin plans to make the conferences an annual event following the success of this yearâ€™s sessions in each of the three states.
December 2014/January 2015
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December 2014/January 2015
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What a smashing, positively dashing spectacle Thatâ€™s a quote from the classic musical My Fair Lady, and it entirely suits the atmosphere CGU created when it kicked off its famous Melbourne race week. The theme of My Fair Lady was faithfully followed, with Pimms to drink and potted shrimp to eat. The movie musical featuring Audrey Hepburn and Rex Harrison has its own scene at the Ascot races, and this was recreated in the CGU marquee from where guests had a trackside view of the action whatever the weather. IAG Commercial Chief Executive Peter Harmer welcomed guests from key clients, stakeholders, government and media, who enjoyed hospitality on Derby Day, Oaks Day, the Melbourne Cup and Stakes Day. CGUâ€™s Spring Racing Carnival is its major entertainment and networking event of the year and planning for 2015 has already begun.
December 2014/January 2015
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maglog » THE WHIMSICAL USE OF A movie title in the our article on actuaries in this issue – “Love, actuary”, devised by sub-editor Andy Swales – intrigued the newsroom team at Insurance News, who proceeded to get a bit carried away over their Friday afternoon ration of champers. Brace yourself: PDS, I love you (PS I love you): A consumer actually reads his product disclosure statement and is smitten by its bewilderingly exact syntax. The loss boys (The lost boys): A sad movie about a bunch of loss adjusters who can’t agree on how much of a claim should be paid. Total product recall (Total recall): If you think the manufacturer was upset you should have seen the insurer. Marsh of the penguins (March of the penguins): A global broker becomes truly global when it opens an office in Antarctica. From here to indemnity (From here to eternity): In the end, the insurance company pays the claim. Retrocessionary road (Revolutionary road): A religious movie about the pilgrimage to Les Rendezvous in Monte Carlo each September. Brokerback mountain (Brokeback mountain): Two intermediaries…well, you get the picture. The Kelly gang (The Kelly Gang): People who work for Steadfast. Arthur Sinodinos has been sidelined as Assistant Treasurer since March while the New South Wales Independent Commission Against Corruption unravels his role in a couple of interesting cases. Trouble is, he keeps getting resurrected by minions in the federal bureaucracy. Late in October Insurance News (and everyone else in the media) received a profuse apology from the Federal Treasury, which had a few hours earlier issued a statement attributed to the Minister, Arthur. Oops. It should have been released in the name of Finance Minister and Acting Assistant 98
sam Pentecost Contributor
Treasurer Mathias Cormann. “We would like to assure you that errors of this nature will not occur again”, said the little grovel from Treasury, which made the same mistake a few days later. Someone in Treasury obviously hasn’t heard about Arthur’s travails, because his ever-smiling face beamed out from a recent statement on a Senate inquiry, although Finance Minister Mathias Cormann signed off on the full document. Mathias is also on the Treasury website as Acting Assistant Treasurer, just above that toothy pic of Arthur as Assistant Treasurer. A British pet insurer is offering a 20% discount on premiums for people who equip their pooches with little global positioning system (GPS) tags and can thus demonstrate they give them sufficient exercise. Apparently obese dogs are a problem in the UK. Here at Insurance News Lucy the Office Dog continues to earn her salary by making her human workmates exercise. Each morning someone escorts her to the local post office lawn for her morning poop. Perhaps the bosses should be looking for a discount on their workers’ comp premiums. For those readers who from time to time ask after Lucy, she’s now two and still lying in the sunny patches in the newsroom, meeting all visitors, allowing journalists to pat her and very occasionally barking back at dogs in the street below. She’s a very valuable employee.
in claims, for example. Do you have any examples? Share them with us. The last issue of Insurance News contained an article on the state managers of QBE, accompanied by a picture that has caused much hilarity and some embarrassment. All we can say is thank god Victoria/Tasmania State Manager Andrew Borden has a sense of humour. Our photographer posed the managers artistically scattered around a low glass partition, and somehow the reflection on the glass gave Andrew a skirt and legs which actually belonged to NSW/ACT State Manager Christine Bell. That picture went through several checking processes in this place, and no one noticed. Needless to say anyone who knows Andrew – quite a lot of people, apparently – did notice, and called to point it out to him. Sorry, Andrew. In this picture our graphic artist has returned your trousers. Have a great festive season break, readers. Stay safe and don’t overdo the sun.
While at the post office, whoever is being exercised by Lucy also picks up the mail, which often contains little notes from our vast readership that make one smile. Like the recent change of address form from a Melbourne broker who has listed his job title as the King of Scotland. And occasionally we get subscription details from people whose names seem just so fitting for their occupations. We have one called Storm who works insuranceNEWS
December 2014/January 2015
Andrew Borden dressed up, above, and re-trousered, below
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AN ADVISER CAN GET JUST AS MUCH OUT OF A CLAIM AS A CUSTOMER.
Leo Di Paulo has been an insurance adviser for 39 years, 13 of them to Sonter’s Fern Nursery. So when the nursery was destroyed in the 2013 Blue Mountains’ bushfires, Leo knew he could rely on CGU to help its owner, David Sonter, see it through. As Leo said, “Seeing a claim settled - that’s the most important and rewarding part of my job.” To find out how CGU can help you with your customers, speak to your CGU Business Development Manager today or visit www.cgu.com.au Insurance issued by CGU Insurance Limited ABN 27 004 478 371 AFSL 23829. This is general advice only and your client should consider their personal circumstances and the relevant Product Disclosure Statement available from www.cgu.com.au before purchasing any insurance product.
The December/January edition of the insurance industry’s most-read print publication, Insurance News (the magazine), will be delivered to su...
Published on Dec 1, 2014
The December/January edition of the insurance industry’s most-read print publication, Insurance News (the magazine), will be delivered to su...