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THE SECRET LIFE OF
The Christchurch earthquakes killed this small New Zealand insurer. But our research exposes a company focused far more on the Australian market, where its exposures amounted to billions of dollars August/September 2016
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Contents 6 Newsmakers » 10 Rolling with the punches » The industry has taken a beating in recent years, but analysts are impressed with major players’ ability to bounce back and keep fighting.
14 Sea change » June’s east coast storms offered a stark insight into the risks of coastal living, and the future under global warming.
20 Gaining ground » Allianz Australia’s broker chief David Hosking outlines the insurer’s strategy to catch the market leaders.
28 Premiums under pressure » Australia and New Zealand were global laggards last year and there is no respite in sight, a new report shows.
30 The little kiwi that could – and does » Meet CBL, an insurer that rules its global niche from Auckland and sees plenty of opportunity in Australia.
34 The secret life of Western Pacific » The remarkable story behind the birth, growth and sudden death of New Zealand insurer Western Pacific, a company with a huge exposure in Australia.
44 Bringing on the shakes » The arguments around fracking and pollution are well worn, but in the US a new threat has been linked with the controversial process. In Australia, the risks are different.
48 Hover bother » When new technology clashes with the desire for a fast buck, lives and property are at risk.
52 Culture club » A unique working environment is central to the McLardy McShane success story.
56 Closing the gap » Insurance companies are backing up words with actions on indigenous employment.
62 The blockchain gang » Distributed ledger technology could revolutionise the way the industry operates.
68 Time to get moving »
72 Starving to death » The National Motor Vehicle Theft Reduction Council has done a great deal to tackle car crime, but now it faces a fight to survive.
lawNEWS 76 End of the road? » Transport operators’ consignment notes promising only ‘all care, no responsibility’ for small business are about to become history.
companyNEWS 83 SME support » Vero launches an online tutorial for brokers.
83 Two into one goes » Shieldcover rebrands as Ryno under a ‘more products, one brand’ strategy.
84 Sura expands menu » Small contractors embrace new product.
84 BHSI builds » New products signal entry into the cyber and A&H markets.
84 Filling a niche need » Dual expands in specialty consumer products.
peopleNEWS 86 QBE biggest winner in Queensland Day awards » 88 Team SA edges Victorians in Allianz Young Eagle event » 90 Drinks by the river » 92 Five years old and ready to party » 94 Crabs, cooking and brokers – HDI Global’s recipe for a fun night » 96 UAC’s Brisbane expo plays to a full house » 98 maglog »
A new report suggests insurers in Australia and around the world are still struggling to align their transformation strategies with new business realities.
Cover image: Bill Wood
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insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 22,000 subscribers. In June/July we published 400 articles online. These were made up as follows:
58 63 LOCAL
Flood still not an easy issue Five years have passed since Brisbane was inundated with water and insurance failures took centre stage, but despite a range of actions, flood cover remains a difficult issue. The devastating east coast low-pressure system that hit last month has provided the latest test for insurers and policyholders. The storms that swept across Queensland, New South Wales, Victoria and Tasmania again brought cases in which some householders and businesses faced the consequences of lacking flood cover. The Insurance Council of Australia (ICA) says most people were covered and their claims accepted, but there is still progress to be made on the issue. ICA data shows only 0.9% of residential property claims from the storms have been denied, while in the commercial arena that increases to 1.7%. “The vast bulk of people are buying a product that is suitable for their risk circumstances.” The level of residential cover varies slightly between states and territories, but overall about 94% of domestic building policies are purchased with flood insurance, according to ICA. Of the remainder, policies either specifically do not include flood cover or the customer has opted out. In Picton NSW, Suncorp and QBE determined customers will be fully covered under the storm section, while IAG says it will fully pay 80% of claims. Flood cover: still wading through the issues, 18 July
65 THE PROFESSIONAL
3 BREAKING NEWS More than 22,000 news articles – including 213 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. Access to news articles and other services provided by insuranceNEWS.com.au is free. 6
REGULATORY & GOVERNMENT
Drier wet raises fire risk Queensland’s northern coastline faces an above-normal fire risk this year after one of the strongest El Nino events on record led to patchy wet-season rainfall. Most coastal areas recorded below-average rainfall for October to April, while cyclone activity was suppressed and temperatures were high, the Bushfire and Natural Hazards Co-operative Research Centre says in its Northern Australia Seasonal Bushfire Outlook. Cattle destocking after three years of drought in western and central Queensland has increased fuel loads in the region, contributing to the fire risk. The region’s main rainfalls came in May and June, outside the normal period, and the report says the impact of those falls remains unclear. In Western Australia, the East Kimberly and Pilbara areas recorded record low autumn rainfall, but reduced grass fuel loads are expected to offset the drier-than-usual wet season. July to September is normally dry for northern Australia, with low rainfall except near the tropical Queensland coast. “This means the impact of rainfall in the coming months, even if it is above average, will tend to be quite modest,” the report says.
Queensland bushfire risk rises after El Nino, 11 July
I look forward to questioning, under oath and before a Senate committee, every major insurance executive in Australia about the way they conduct their business.
– Independent senator Jacqui Lambie follows the well-worn politicians’ playbook by threatening insurers “if evidence emerges” of claimants being treated unfairly following the June floods in northern Tasmania
O’Dwyer keeps insurance oversight Kelly O’Dwyer retained responsibility for financial services in last week’s Federal Cabinet reshuffle. Her title has changed from assistant treasurer and minister for small business to Minister for Revenue and Financial Services. Meanwhile, the Labor Party Opposition has appointed Jim Chalmers as Minister Minister for Finance and Katy Gallagher is the new Shadow Minister for Small Business and Financial Services. Andrew Leigh remains Shadow Assistant Treasurer. Insurance Council of Australia Chief
Executive Rob Whelan says the council has worked closely and co-operatively with Ms O’Dwyer since she assumed responsibility for the sector last September. He says the industry wants the Government to focus on avoiding “unnecessary intervention in properly functioning markets” and to “renew the tax reform process to help state governments abolish their punitive, inefficient taxes on insurance products”. Industry welcomes O’Dwyer’s return to portfolio, 25 July
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Don’t ignore millennials
London insurers ponder Brexit British insurers have put on a brave face as Britain prepares to negotiate with the European Union over its divorce from the bloc. The industry is confident it will continue to thrive and remain a global player, despite widespread concerns that the loss of EU membership following last week’s referendum will hobble London’s status as a leading insurance capital. Losing the right to provide financial services throughout the EU – commonly known as passporting – will have industry-wide ramifications. “The loss of these rights could see insurers forced to restructure and facing large operational, regulatory and tax costs as they adapt to such a change,” PricewaterhouseCoopers UK Insurance Leader Jonathan Howe said. “Many non-UK insurance companies from areas such as the US and Asia currently use the UK as their European headquarters and as a ‘gateway’ into Europe through… passporting. “There is a real risk these rights
could be eliminated, and insurers will be thinking about the best location for their bases in the future.” One example is US-based global insurer AIG, whose Chief Executive Peter Hancock told a London seminar last month that the group would consider moving its European operations centre from London to somewhere in the EU if the vote went against remaining. Munich Re has also warned the London market is likely to lose business to other international insurance hubs such as Singapore and New York. Lloyd’s Chairman John Nelson told the market last month that pro-exit politicians were “irresponsible to pretend that the benefits of a single market can be replicated outside of the EU”. He took a more positive line at the weekend, saying Lloyd’s has “a wellprepared contingency plan in place and will be fully equipped to operate in the new environment”. London braces for Brexit fallout, 27 June
A company’s ability to stay relevant depends on seeing things through the eyes of its customers, many of whom are now Millennials, according to QBE Chief Executive John Neal (right). In a blog post, he writes it is “foolish to ignore” the characteristics of young people who are heavy users of social media and are more collaborative, inclusive and more demanding in terms of service and immediacy. “The so-called Millennial generation – to some extent our workforce of now and leadership of the future – think differently, and have different values and expectations and aspirations to my own generation,” Mr Neal says. Businesses must constantly question themselves so they don’t miss the boat, like Kodak did with digital photography and Blackberry with smartphones. Questions should include: Which new technologies will succeed? Which should companies invest in? Which are hype? How quickly will change happen? At what pace is “Millennial thinking” changing customer expectations, and how should companies balance short-term shareholder performance with long-term investment? “The most forward-thinking organisations actually engineer market change to create opportunities for themselves and corresponding threats to others,” Mr Neal says. He says insuretech companies “reimagine insurance” and, unconstrained by legacy systems and processes, set out to disrupt current business models. “The business that has the closest relationship with its customers and listens to its own people will succeed,” Mr Neal says. Industry must find secrets of youth: Neal, 18 July
How it all began 350 years ago Repairing damage caused by a blaze the size of the Great Fire of London in 1666 would cost insurers at least £37 billion today, the Association of British Insurers (ABI) estimates. “The Great Fire of London led to the modern insurance industry we know today,” ABI Director of General Insurance Policy James Dalton says. “The damage of the fire was on an unprecedented scale and it is difficult to imagine now that no insurance policies were in place for any of the damage caused.” The ABI has released the damage calculation and a timeline for the fire before the disaster’s 350th anniversary on September 2. The fire started in a bakery on Pudding Lane and destroyed more than 13,500 homes and 87 churches, including St Paul’s Cathedral. Homeowners had no guarantee they could rebuild their properties or replace belongings, because property insurance did not exist, the ABI says. “This led to many people, including the famous Samuel Pepys, running to their gardens to bury valuables such as cheese and wine.” The ABI says estimated costs were £10 million in the 17th century. Ecclesiastical Insurance says the cost of rebuilding St Paul’s was £700,000. The rebuild would cost about £600 million today. London rocked by $65 billion fire (350 years ago), 4 July
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Westcourt sells to IAG Perth-based authorised representative (AR) group Westcourt has been sold to IAG. The acquisition came into effect today, with Westcourt to join up with IAG’s National Adviser Services (NAS). Westcourt founder and joint director Jeff Hollands (above) says his company will continue for now to operate as an independent organisation. Westcourt and NAS are both members of the Steadfast network. Mr Hollands will remain with Westcourt as the National Manager Network Relationships “to ensure a smooth integration”. However, his co-director, Tremayne West, who bought into the business in April last year, “has declined a position in the new company going forward to pursue other business opportunities”. IAG Chief Executive Australian Business Division, Ben Bessell says Westcourt is “a compelling strategic fit” for IAG. “The AR segment is one of the most rapidly growing segments in the broader broker market, so it makes sense to look for ways to grow and enhance our existing offering.” Mr Hollands says the acquisition is a significant opportunity for both companies, “and it provides an opportunity to combine the best of both businesses to create value for the respective AR networks”. “The whole AR market is going through a lot of change, this move ensures that you are dealing with a large, strong and secure licensee.”
Our report on the rise and fall of New Zealand insurer Western Pacific dominates this issue. It has taken months for Insurance News journalist John Wilkinson to pull together all the information on how the company was formed, how it was managed and the reasons it collapsed. His research covers a remarkable amount of ground, from the early days of this century and tracing the registration of Western Pacific Insurance by individuals in a faraway Caribbean country to its last-breath efforts to stay afloat. But while Western Pacific was keen to be identified as a “New Zealand-owned and operated company with a commitment to the people of New Zealand”, its management was focused far more on the other side of the Tasman. We were surprised by the relative ease with which the Auckland-based insurer accessed the Australian market, selling significant amounts of cover through what an associated company says involved 300 Australian brokers and some 1000 policyholders. The policies were, we presume, sold into the Australian market through the regulations covering brokers’ access to unauthorised foreign insurers (UFIs). Under the UFI access rules, brokers can only place business with an unauthorised foreign insurer if it can’t easily be placed locally or the insured has operating revenue or assets worth at least $200 million, or employs at least 500 people. Western Pacific was not an Arated company, its products were readily available from authorised insurers in Australia and its reinsurance was totally inadequate for the amount of cover it carried – especially in Australia. Its Christchurch
losses were enough to wipe it out with a massive deficiency in its reinsurance reserve. The clean-up process since then has been long and complex. Beyond the liquidators’ reports, nobody has previously taken the time to examine how Western Pacific carried out its business. The Australian connection seems to have been ignored completely. Yet the company collapsed with claims not related to the earthquakes totalling $NZ15.41 million. As unsecured creditors, those individuals and businesses have received nothing. We do not suggest any of the individuals we have named in this article acted illegally. Unwisely, perhaps, and certainly with a sharper eye on profit than on prudence. And considering that the main figure in the management of the company had previously been prevented by the regulator from accessing Australian businesses from a foreign base, you would think it might have noticed, or been alerted by others. Quite by accident, this issue also features another New Zealand insurer, CBL, which late last year acquired Assetinsure in Australia. The contrasts are startling. CBL is a small operation with a global business and a big reputation. When its managers started looking at ways to expand the company, they had the choice of diversifying their products or acquiring foreign operations working in the same niche. Their decision to stick to their niche has been highly successful. And its ambitions for Assetinsure as its new owner couldn’t be more positive. Terry McMullan
Breaking News: Westcourt sells to IAG, 1 July
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Rolling with the punches The industry has taken a beating in recent years, but analysts are impressed with major players’ ability to bounce back and keep fighting By Bernice Han
RESILIENT. TENACIOUS. ADAPTABLE. They’re not words that always spring to mind when describing insurers, but these are attributes they continue to display in the face of unrelenting pressure. Look no further than the June announcement from Munich Re for a sign that these are indeed unusual times in the insurance industry. Unusual because the German reinsurance giant’s decision to dump its 10
underperforming primary insurance business in Australia and New Zealand raised few eyebrows. Gloomy news no longer rattles like before. If anything, it reveals a battle-hardened industry taking on a stoical attitude when the going gets even tougher. The industry has displayed remarkable resilience and adaptability, churning out respectable profits despite the barrage of body blows in recent years. insuranceNEWS
Businesses have been forced to thoroughly spring-clean their balance sheets, cut down on wastage and auction assets that are past their use-by dates. Insurers deserve top marks for looking at the big picture and pushing through with difficult decisions that often mean sacrificing profits in the short term. “To date they have got a good track record of changing when necessary and being quite proactive,” Standard & Poor’s
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Senior Director Financial Services Group Mark Legge tells Insurance News. “A lot of people would not necessarily think of insurers as being especially like that, but… they have shown themselves to be very aware of the environment and aware of potential risks and opportunities. It’s always hard to look decades and decades forward… but we have seen them to be adaptable.” Munich Re says the decision to sell Great Lakes Australia boils down to dollars and sense – yes, sense – following a strategic review. The primary insurance unit fell short of the targets set by management, despite gross written premium of about $500 million last year. Calibre, the rebranded insurance operation of Calliden, acquired in 2014, is also on the market less than a year after its launch. The divestment will presumably free up resources for Munich Re to consolidate its presence in the Australian reinsurance market. “Munich Re, like many others, would be dealing with very tough conditions, not just in Australia but also globally,” Kevin Gomes, Principal with actuary Taylor Fry, tells Insurance News. “No doubt this decision was made in its head office.” If it isn’t worth carrying on with a business after crunching the numbers, it is logical to head for the exit, as Munich Re and troubled Swiss insurer Zurich have done. Zurich’s huge asset sale shows no signs of abating. Its latest disposal involves selling its operations in South Africa and Botswana to Canada’s Fairfax Financial Holdings for an undisclosed sum. The insurer has already sold its businesses in Taiwan and Morocco, and pulled out of the Australian strata and New South Wales compulsory third party markets. “Insurers want to write a full product suite but might be prepared to offer up an unprofitable one,” Mr Gomes says. The industry is doing all it can to prepare for a future dotted with challenges and uncertainties. “They do put in a lot of planning to try to understand change, but some of these are really difficult to know, such as in the technology side,” Mr Gomes says. “From what I see, there are lots of efforts
“From what I see, there are lots of efforts to understand what is happening. I don’t think it will be fair on [insurers] to say they are reacting like they don’t do forward planning.”
to understand what is happening. I don’t think it will be fair on them to say they are reacting like they don’t do forward planning.” Munich Re is not quitting primary insurance altogether. The reinsurer still wants to compete in this area, but the Australian market is not on its priority list. Chief Executive Nikolaus von Bomhard and his team have done the maths, and concluded it’s better to bet on the vastly bigger markets of Europe, Asia and Canada. About €1 billion has been committed to turn around its subsidiary Ergo. The primary insurance operation lost €25 million in the first quarter and €227 million last year, but that has not dented the boardroom’s faith that it is worth holding on to. Ergo plans to introduce a purely digital insurance company, with its own brand, next year. The first product will be motor insurance. Unlike Munich Re, rival Swiss Re says it is staying put in the Australian primary insurance market, and continues to invest. Recent steps include opening a Melbourne office and establishing a presence in Brisbane following to aquisition of Assetinsure’s aviation business. “Swiss Re Corporate Solutions Australia and New Zealand provides traditional commercial insurance and innovative solutions to a growing number of mid-sized and global companies,” Australian and New Zealand Country Manager Adam Cox tells Insurance News. “[The region] continues to be a key market for Swiss Re Corporate Solutions and an area of focus as we expand our footprint across Asia-Pacific. The recent establishment of our Melbourne office, the insuranceNEWS
acquisition of Assetinsure’s aviation business, which allowed us to establish our Brisbane office, and the launch of our Property Single Carrier and One Construction initiatives, together with recent additions to our local underwriting and claims expertise pool, shows our continuing investment in the market.” Australia has put up some decent figures, despite the turbulence that has rocked the industry in recent years. Australian Prudential Regulation Authority data show insurers and reinsurers recorded combined net profit of $2.2 billion in the year to March 31. “It’s not in a loss-making state, but it is certainly at lower levels than it has been,” Mr Gomes says. “The reason for that is low investment returns, worrying claims trends and, on the commercial side, we are in the soft part of the cycle.” While the profit figure represents a 41.7% drop from the previous year, much of the decline relates to low interest rates worldwide. Investment income fell 70.4% to $1.4 billion. “Insurance companies invest in bonds and it’s depressing their investment returns,” Moody’s Investors Service Vice-President and Senior Analyst Frank Mirenzi tells Insurance News. “It’s creating a world where it is difficult to generate high shareholder returns. “When that happens, companies are forced to relook at how best to redeploy their capital and generate returns.” Low interest rates are not the industry’s only headache. It must also contend with low inflation, sluggish economic growth and excess capital in the reinsurance market. 11
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“Those four things combined are creating pressure in a certain way that is keeping premium rate growth low,” Mr Mirenzi says. The list of pressures just keeps growing. Fintech companies, or disruptive innovators, are piling on the pain, enjoying significant growth and rewriting the rules of the game, according to a recent PricewaterhouseCoopers report. Annual investment in fintech start-ups focused on insurance has increased sharply, with cumulative funding of $US3.4 billion since 2010. Overall fintech start-up funding more than doubled to $US12.2 billion last year from $US5.6 billion in 2014. The conclusion is clear: insurers cannot afford to be complacent. “If you look at parallels with banking, where fintech is a lot more aggressive, and look at the growth of fintech in the US and UK banking spheres, they are making inroads,” Mr Mirenzi says. “But the banks have such a well-entrenched and strong position that it is difficult to displace them. The same would be true for the insurance industry.
“Eventually global growth will pick up again, interest rates will rise again and the cycle will turn.” “It would be difficult to dislodge insurers. That is not to say it won’t happen, though.” It is possible for fintechs and insurers to co-exist, as Suncorp’s $US5 million investment in US-based Trov has demonstrated. Suncorp recently introduced the Trov Protection app, an on-demand insurance platform that lets customers “swipe” the items they want covered from inventories on their phones. It will offer protection for electronic items first, with plans to expand the list eventually. “[Suncorp] obviously has found a unique business where it can provide ondemand insurance for small electronic
I n d e p e n d e n t S p e c i a l i s t Te c h n i c a l C o n s u l t a n t s
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devices,” Mr Mirenzi says. “Fintech can be a disruptor, but it can also offer opportunities if the incumbents can find a way to partner with technology.” The music has not stopped for the industry, but if their track record is anything to go by, insurers will emerge stronger than ever. “The more recent years have obviously been more difficult,” Mr Mirenzi says. “Eventually global growth will pick up again, interest rates will rise again and the cycle will turn. “It’s a new period, a new cycle, they will find ways to adapt and continue to generate * shareholder returns.”
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Sea change June’s east coast storms offered a stark insight into the risks of coastal living, and the future under global warming By Michelle Hannen
A HANDFUL OF PROPERTIES collapsing into the sea during the June storms made for spectacular imagery, but it came as no surprise to those in the insurance industry familiar with the risk posed by coastal erosion. The stretch of beach in Collaroy and Narrabeen, on Sydney’s northern beaches, is probably the best known – and most frequently studied – coastal erosion hotspot in the country, according to Karl Sullivan, General Manager Risk
and Disaster Planning at the Insurance Council of Australia. What was more surprising was the perfect storm of climatic conditions that converged to cause the damage. While most east coast residents are familiar with low-pressure systems, these weather patterns typically generate more tightly centred storms. A briefing note on the storm by natural hazard researcher Risk Frontiers describes the combination of large wave heights and
very long-period, northeasterly swell waves, strong onshore winds and some of the highest tides of the year as “uncommon”. “This resulted in significant beach erosion, overtopping and some structural damage at the extreme southern ends of beaches,” the note says. It is a phenomenon known as a “Black Nor’easter”, which Risk Frontiers says was much more frequent during the 1600s and 1700s. That distant history – and humanity’s short memory – is part of the problem.
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to tackle the issue in the 1970s by purchasing properties along the beachfront, rezoning the land for parkland and placing a moratorium on redevelopment. But the attempt to wind back historical planning law was defeated when the council lost a court case over the matter. With the development remaining in place, authorities turned to mitigation. Sea walls have been built to mitigate risk to the north and south of the area, leaving about 10 houses in the middle
unprotected. A sea wall to protect those homes had been approved but not built due to local opposition and the refusal of some property owners involved to contribute to the costs. The project is now back on the table, with Northern Beaches Council General Manager Mark Ferguson saying the council will again consider a third sea wall, partly funded by homeowners. Reports estimate the bill will be $120,000-$140,000 per house.
All stakeholders involved in coastal risk agree development at Collaroy and Narrabeen – from the shoreline subdivision more than 100 years ago to building on the sand dunes and high-rises built in the 1960s and 1970s – should never have occurred. As Risk Frontiers says: “The beach is an erosion hotspot because of inappropriate development, rather than a natural sand supply problem.” According to the Australian Coastal Councils Association, the local council tried
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Mitigation: from talk to action BILL BERKLEY: FEAR DRIVES THE INSURANCE CYCLE
NO MARKET FAILURE: INSURERS FIRE BACK OVER FLOOD
SOCIAL MEDIA: YOU CAN’T AFFORD TO IGNORE IT
AUSTRALIA’S BIGGEST FLOOD RISK
Insurance news HAS CAMPAIGNED for greater awareness and improved mitigation of flood risk in the HawkesburyNepean Valley, in Sydney’s west, since it first covered the story in 2011 (above). Insurance Council of Australia (ICA) General Manager Risk and Disaster Planning Karl Sullivan has worked tirelessly on the issue, culminating in the New South Wales Government’s announcement in June that it will fund phase one of a project to raise the region’s Warragamba Dam wall. This mitigation project will eliminate flood risk to 30,000 homes and reduce the severity of risk to hundreds of thousands more. Unable to discuss the process until now due to a stringent non-disclosure agreement, Mr Sullivan has told Insurance news about the work behind the scenes to secure a commitment for the “biggest piece of mitigation in Australia in the past 30 years”. Following a recommendation from Infrastructure NSW in 2012 to review options for mitigation in the area, the NSW Government created the HawkesburyNepean Valley Flood Management Taskforce in 2014, with a reference panel comprising Penrith City Council, Hawkesbury City Council, Hills Shire Council and Blacktown City Council, along with ICA, Sydney Water and Floodplain Management Australia. The taskforce was charged with answering two questions: how to save the maximum number of lives if a major
flood event were to occur now; and how best to mitigate the risk, to protect property into the future. Dealing with the first question was complex, Mr Sullivan says. Problems included the lack of time to evacuate during a major flood and choke points in the road system, both due to the area’s topography. The second question required new flood mapping of the entire area – and adoption of the new maps by all councils in the region – to come up with three proposals for mitigation. The impact that each mitigation proposal would have on the flood risk map was presented to select insurers – who were not privy to specific mitigation measures for each scenario – so they could provide feedback on the effect on flood insurance pricing. The proposed insurance savings versus the estimated cost of each project were presented to the NSW cabinet, and it was ultimately decided to raise the dam wall by 14 metres. The non-disclosure agreement prevents Mr Sullivan from revealing the other two proposals, but when announcing the plan Infrastructure NSW said compulsory house acquisitions, building major new evacuation roads, the construction of a new dam and changing the course of the river through dredging, levees or diversion channels were all considered. It is reasonable to assume that so too was raising the dam wall by 23 metres, as recommended in a 1995 report, but the taskforce found 14 metres “to be the most efficient and effective height for significant reduction to flood risk to life and property”, adding that “no dam wall raising could be constructed to eliminate all flood risk in the valley”. Land use planning in the area will also be addressed, under a new regional approach. Councils in the area currently base their planning on the one-in-100-year flood. However, the taskforce says “this level does not adequately deal with flood risk in areas that have large flood depths, such as the Hawkesbury-Nepean Valley. For example, in the Richmond-Windsor region, the probable maximum flood is up to nine metres above the one-in-100-year flood level.” The Hawkesbury-Nepean Flood Risk Management Strategy summary report, which further details the plans, will be released in August.
The effects of climate change are expected to increase the number of properties exposed to erosion risk, and in turn demand for such cover. Once planning, building standards and mitigation options have been explored, insurance exists to cover the residual risk, Mr Sullivan says. And despite popular opinion to the contrary, cover can be bought to protect against “actions of the sea”. It is offered by a few specialist insurers and, though expensive, a number of the houses affected in June had such cover in place. But Mr Sullivan says due to the varying nature of the structures – and lack of data available on coastal risk – they would have to be underwritten on an individual basis, probably with a site visit. While that may be sufficient to cater for a niche market, the effects of climate change are expected to increase the number of properties exposed to erosion risk, and in turn demand for such cover. A new report from the Climate Institute warns the value of Australian housing stock exposed to coastal erosion is at least $88 billion, excluding the actual land value. Risk Frontiers has even more startling numbers. Managing Director John McAneney says research he conducted a few years ago found about 50% of Australian addresses are within 7km of a shore. About 6% – or about 780,000 – are within 3km, in areas with elevations below five metres. In its briefing note, Risk Frontiers says
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For insurers to provide wider access to more reasonably priced cover, further mitigation is required, but the question of who should pay is difficult to answer.
Chaos ahead: the east coast low comes together the day before storms hit Queensland and New South Wales
recent research suggests “this… storm type may become a more frequent feature along the New South Wales coast in the future”. Research published last year links a pattern of beach erosion around the Pacific with the El Nino-Southern Oscillation climate cycle. It found that while sea level rise is the most frequently cited global warming risk for coastal communities, more intense El Nino and La Nina cycles, developing due to climate change, will cause stronger storms and bigger storm surges, changing Australia’s coast independent of rising sea levels. “We expect a significant increase in the amount of property at risk along the east coast,” co-author and marine scientist Andrew Short, from the University of Sydney, says. And unlike sea level rise, which is forecast to affect 250,000 Australian coastal homes by the end of this century, the impacts of coastal erosion are being felt now. In NSW alone there are 15 identified coastal erosion hotspots across 11 council regions. These are defined as areas where five or more houses and/or a public road are located in a current coastal hazard area. Belongi Beach and Lennox Head near 18
Byron Bay, The Entrance and Terrigal on the Central Coast, Bilgola, Mona Vale and Collaroy-Narrabeen in Sydney, and Batemans Bay on the South Coast are among the most well known. Mr McAneney says within 500 metres of the NSW coast more than 85,000 properties are located in areas with an elevation below three metres. Many more of these locations exist around the country – among them familiar names such as the Gold Coast, Sunshine Coast and Cairns, the southern metropolitan beaches of Adelaide and the pricey enclave of Portsea in Victoria. Others are less well known, including Seabird, north of Perth, where a road has been washed away and more than a dozen houses, once more than 20 metres from the beach, are under threat. While mitigation tools such as breakwaters, groynes and seawalls are in place at several sites, their funding is something Allan Manning, Managing Director of LMI Group, labels a “wicked problem”. Professor Manning says for insurers to provide wider access to more reasonably priced cover, further mitigation is required, but the question of who should pay is difficult to answer. If mitigation benefits only a handful of houses, should the cost be borne by all ratepayers or taxpayers through local or insuranceNEWS
state governments? Most would agree the homeowners involved should contribute, but to what extent remains unresolved. Funding from governments – whether local, state or federal – has historically been piecemeal and often given only when the situation reaches crisis point. The recent announcement by the Queensland Government of a $12 million fund to help coastal councils safeguard communities from the impacts of climate change is welcome, as is an $83.6 million package from the NSW Government for councils to develop management programs and conduct cost-benefit analyses on mitigation measures. Mr Sullivan believes more insurers will start offering cover for actions of the sea, but says the evolution of this product class will take time, primarily because data related to coastal erosion is inadequate, with limited storm surge mapping and gaps in data on the extent to which coastal defences already exist. He says state-based and national mapping are needed, but we are “years away from it”. Until then, images of properties collapsing into the sea will continue to shock communities as such events occur more fre* quently.
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Gaining ground Allianz Australia’s broker chief David Hosking outlines the insurer’s strategy to catch the market leaders By John Deex
GLOBALLY, ALLIANZ IS A GIANT, the largest property and casualty insurer in the world. But here in Australia it sits in fourth place, behind local heavyweights IAG, Suncorp and QBE. If it has its way, though, that’s about to change. By 2020 Allianz Australia aims to hit $6 billion in gross written premium (up from $4.2 billion last year) and to have leapfrogged QBE into third spot. It’s a clear goal, but as Chief General Manager Broker & Agency David Hosking explains, getting there is rather more complex. Crucially, he believes the local broker division comes from a position of strength. “We have a very solvent organisation, very loyal customers, and we have 4000 employees [who] are a very passionate and engaged workforce,” he says. “We gain very strong support from that.” Despite this strength, change is under way and the environment is undeniably challenging. “There’s the low interest rate environment, the abundance of capital, and technology and digital has lowered the barriers to entry like never before.” Within this environment, Allianz needs to be “ambidextrous”, Mr Hosking tells Insurance News. “We still have to steer this wonderful business and this organisation that’s made us great, but at the same time constantly look to reinvent ourselves.” To get where it wants to be, Allianz must be a loyalty leader – and 20
that means building and maintaining relationships with broker partners and customers, and delivering value. Equally important, it must be a place people want to work. “They’ve got to really enjoy being here,” Mr Hosking says. “We want a really diverse and inclusive and vibrant workforce that can help us achieve those goals. We are constantly
good old-fashioned service – being reliable, responsive and continuing to deliver a great claims experience. “We need to continue to offer that breadth via the [wider] Allianz family.” Beyond the core offering, three other areas have been identified as “real opportunities”. The mid-corporate or mid-market offering has been identified as a pri-
“Price is an important determinant in this part of the market, it’s very competitive. But we want to build a really sustainable and consistent business here.” investing in our people and their development.” As ever, the devil is in the detail, and Allianz has a very detailed plan to achieve its aims. In the broking division, there are four key focus areas: the core offering; Tailored Underwriting Solutions, a new team that services the midmarket; rural and regional; and the new broker interface for SMEs, Allianz Alive. Not neglecting the core offering is an obvious starting point. “Firstly and most importantly, we just have to literally keep on doing what has made us good today,” Mr Hosking says. “Relationship management is a key focus – knowing more about our broking partners and what their needs are. “The next thing is service. Just insuranceNEWS
ority, and the Tailored Underwriting Solutions team was set up to service this sector. It is the market sitting above SME level, but not so large it falls into Allianz Global Corporate & Specialty. “In round terms, we are talking about 50,000 commercial clients placing their business through our broking partners,” Mr Hosking says. He says about two years ago Allianz accepted that while the company was good in this area, it wasn’t great. “We’ve undertaken some fairly extensive broker feedback and the team is really charged with building our capability and service delivery in this important segment. Price is an important determinant in this part of the market, it’s very competitive. But we want to build a really sustainable and consistent business here.
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We’re good, but we’d like to be great: David Hosking
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“We will also reduce the number of referrals just by asking better questions, and utilising third-party data and analytics enables things such as registration look-up.”
Hosking on… broker value “It’s really around their professional advice. That’s something the internet can’t do. “The broker can also advocate. Dealing with an insurance company can be complicated and daunting, because people are generally time poor. “I am always fascinated when people refer to insurance as a commodity. Wait until you have a claim, because then it’s far from a commodity. While you have people who need advice and advocacy, there is always going to be a market for brokers.”
“We are trying to build up our capability and what we can offer, so price maybe moves a little bit further down the decision-making tree and other things – finding solutions, the breadth of the wider Allianz offering, being able to offer an exceptional claims experience – gain prominence.” Another key focus is regional and rural. Allianz is one of the largest agriinsurers in the world, and locally “we’re in pretty good shape too”, Mr Hosking says. “We have a market-leading crop offering through Primacy, our specialist underwriting agency, and we have got a really solid regional and rural footprint in terms of supporting the SME commercial client in the rural centre, plus also the farmer, with Farm Pack.” However, it is another area in which Allianz “is good, but we’d really like to be great”. Over the past year the entire offering has been refreshed, starting with Farm Pack – excluding covers that weren’t needed, and putting in those that are. The review was carried out with the help of Steadfast, to gain “deeper 22
understanding” of the balance between covers and affordability. “We like to say it’s a product for brokers, designed with brokers,” Mr Hosking says. Upgraded Farm Pack wording was released to the market last year, and Allianz has seen good growth off the back of it. A team of people is now dedicated to the rural area, and the numbers are in on a full upgrade for the Farm Pack system. “These people just wake up and live and breathe that product,” Mr Hosking says. “We naturally get people who are a lot closer to the business, the risk and ultimately the end customer themselves. “The system upgrade would be a really big investment, but a worthy one if we do want to lead in this segment. “The next stage of the journey is to be a lot more focused on what new products we can roll into the market that really help farmers and the rural community manage their risk and their asset protection.” The final area of focus is the one that excites the most – the new system for SME package business, Allianz Alive. insuranceNEWS
Three or four years ago Allianz began engaging with customers and the broker community to develop an “intuitive interface” that makes it easier to do business. Following a $20 million investment, the whole front end has been redesigned, along with the rating algorithm. “Having listened to the brokers, we’ve introduced a number of improvements,” Mr Hosking says. “First and foremost, there’s indicative pricing in 45 seconds. That was really a direct response to the fact there’s nothing more annoying for anyone than to spend 10 minutes typing in the details and finding the price is way out of the market. “This will save everyone a lot of time. We will also reduce the number of referrals just by asking better questions, and utilising third-party data and analytics enables things such as registration look-up. “So instead of having to type in all the vehicle details, you just have to type in the registration. Most importantly, we are rolling additional covers into the package. Commercial motor and management liability into the Business Pack, professional indemnity
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“While I’ve only been in the industry 20 years, I am very conscious of the cycle and this has probably been as severe as I’ve seen it.”
Fintech “Just by necessity insurers capture a lot of information and data, and I think there are always ways to partner with people who have some sort of privileged access. “Using their databases and our databases and some clever technology in the middle, there might be a real way to get something into someone’s hands very quickly when they need it. “There’s a brand new industry of people who are going to be entering the workforce in the next 10 years, where we actually don’t know what the insurance solution is because we’re not sure what they’re going to be working in. “The SME of yesterday was a tradesman, a cafe owner, a hairdresser, etc, but the SME of tomorrow is probably a one-man band doing app design. We need to make sure we have a solution for their special risks.”
into the Office Pack, personal accident into Trades Pack. “It’s pretty exciting, and the broker gets a lot of benefits from day one.” While half of the investment was used to build a good user interface, the other half established a strong central pricing service. “What we’ll get from that is better proximity rating, so we’ll get more accurate pricing. We get an indicative price, we get policy-level data, and it means we can get a faster price change into the market if we are out of whack or some new information comes along.” Allianz Alive was introduced in July, with a full rollout in September – but that isn’t the end of the story. “Towards the end, our managing director challenged the team and said, ‘So once this is built, how do you make sure you don’t fall behind?’ It’s really that Apple concept. What does that pipeline of innovation look like, that you can drop into the market? “What we’ve got now is a 36 or 48month pipeline of activity that we are going to be launching into the market. As excited as I am with all the work we’ve done to date, I almost think the journey really does start now. 24
“The SME market is the backbone of the country. There are more than 2 billion registered SMEs in Australia. It is probably the backbone of a lot of brokers too, so it’s just too important to not be good at it. “With better rating and more covers we’ll really try to grow market share in this segment. It’s the biggest investment we’ve made in my time at Allianz, but it’s very worthwhile and we engaged brokers right from the start.” The four areas of focus should result in a 50% growth in business, Mr Hosking says. But in the current environment, it won’t be easy. The soft market has made it competitive for everybody – underwriters, brokers and the end clients. “The past three years have been extraordinarily tough,” Mr Hosking says. “While I’ve only been in the industry 20 years, I am very conscious of the cycle and this has probably been as severe as I’ve seen it. If I talk to some of the people who have been around longer than me, that’s echoed by them.” Maintaining discipline is crucial, he says. insuranceNEWS
“That’s the reason Allianz has been able to keep itself solvent through many, many years. We’ve tried to stay very focused on our risk selection, risk quality and supporting our partners as best we can. “We’ve tried to focus on our people, the stuff we can
Road to Allianz David Hosking grew up in suburban Adelaide, and after attending university entered the chartered accounting profession. After a couple of years working in the UK in the mid-1990s, he returned to Sydney and was employed by former insurance company FAI, working in a number of finance-related roles. In 1999 he joined NRMA Insurance, which ultimately became part of IAG. He spent a couple of years in Singapore before joining Allianz in 2008. The following year he was made chief financial officer of Allianz Australia, before moving to lead the broker and agency division two years ago.
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“Where we can push a little bit of rate increase through – accounts with some claims history, where the broker is not under attack – then we will try to push some increase through.”
diverse workforces “If I think about the challenges that lie ahead, we are going to need a very diverse and inclusive workforce if we are going to meet them. “Inclusive meritocracy is one of the group’s strategic pillars. You need a workforce where people matter, but it has to be merit-based, performance has to also matter. “We’ve done a lot of research looking at what the future workforce looks like in terms of ethnicity, age and gender, and we’ve set targets for ourselves. “This stuff doesn’t happen immediately – you don’t change your workforce overnight. There’s a role for everybody in insurance. If you love relationships, there’s a role. If you’re very analytical, there’s a role, if you’re incredibly statistical, there’s a role, if you like doing repeatable operational processes, there’s a role. “When you bring in a more diverse workforce, that’s when you get your fresh thinking, and you can adapt to the changes around us.”
control, our own expense base. But it has been very tough.” There is evidence the cycle is starting to stabilise, he says, with rate reductions becoming less common. “There are still pockets where there are markets offering lower premiums, and if the broker desperately needs those markets he can find them. “But where we can push a little bit of rate increase through – accounts with some claims history, where the broker is not under attack – then we will try to push some increase through. “There are pockets where you can get a little bit of rate increase, and pockets where it is still very, very competitive.” Old certainties about the insurance cycle have gone out of the window, Mr Hosking says. “Conventional wisdom used to say that when interest rates fall you put your premium rates up because you’ve got to maintain your profit margins. What conventional wisdom didn’t take into account is how capital is very global and can move very quickly. “Now what we have is globally very low interest rates, even negative 26
returns in some jurisdictions, and that capital is finding its way into insurance companies, and insurance companies need to get a return on it. The interest rate fall has just introduced more competition than we’ve ever seen before.” Predicting when the market will harden is almost impossible. “Excluding a big external shock – a credit shock or a couple of really material catastrophes – it will be more of a slow burn. “All insurers are right down the bottom of their profit cycles now, below where they’d like to be, sort of holding their breath underwater, and I think they are slowly having to just tap rate where they can, to get themselves back up, so it will be a slow recovery. “My best summary of June would be that in renewing business, you could renew on your terms. If it was being shopped around, either the market didn’t meet a lower rate consistently enough or brokers and the client were comfortable to leave it with the holding underwriter. “We probably had our best renewal season in terms of policies for a couple of years.” insuranceNEWS
Mr Hosking believes the major changes the industry has seen in recent months could be just the tip of the iceberg if the soft market continues. Shareholders have only so much patience. They want a positive return or they will look to move their capital elsewhere. “Whether it’s pockets of business within the Munich Re group or Zurich group, or just a standalone Lloyd’s underwriting syndicate, if they’re not getting the adequate return they’ll withdraw that capital. Inevitably, the first casualty of a soft market is the withdrawal of capital. “I don’t see that slowing down. It just goes to show that you can’t sustain underwriting losses for a long period of time. No organisation can do that. “That’s why insurance is a cyclical business, at some point those losses can’t be sustained and the cycle inevitably hardens.” Allianz has set some very ambitious targets, and only time will tell if they can be met in such a challenging environment. However, there is no doubt the breadth and detail of its strategy gives it the best possible * chance.
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All that glitters: hail is just one natural hazard that pushes up claims in Australia
Premiums under pressure Australia and New Zealand were global laggards last year and there is no respite in sight, a new report shows By Wendy Pugh
GLOBAL PREMIUMS WILL come under pressure this year amid moderate economic activity and soft pricing, and there is little joy in sight for insurers in Australia and New Zealand, according to Swiss Re. The two countries were the laggards in the developed market sector last year when it came to premium growth, and face their own difficulties again this year against a more difficult international backdrop. “Premium growth in Oceania is expected to remain low,” Swiss Re’s latest Sigma report on the global market says. “In addition, an expansive range of regulatory changes present major challenges.” The reinsurer notes the Federal Government has established the Northern Australia Insurance Premiums Taskforce to explore options for reducing home, contents and strata rates. In New Zealand the Government has proposed increasing the Earthquake Commission’s limit for building cover, which could crowd out private companies offering excess insurance. Insurance premium growth in Australia slowed to 0.5% last year from 1.3% in 2014, while 28
New Zealand fared worse, with a 1.2% decline after scraping a 0.2% gain in the previous year. Commercial lines in Australia recorded weak growth last year. In particular, liability lines were sluggish and property premiums declined. But personal lines, including property and motor, recorded moderate growth. Overall, claims grew, mainly due to events such as Cyclone Marcia, storms in New South Wales and southeast Queensland, hail in Sydney and bushfires in South Australia. The overall loss ratio increased to 69.2% from 63.2%. Alongside higher losses from natural catastrophes and weaker investment results, Australia’s non-life insurers reported a 43% drop in aftertax net profits last year. The solvency ratio declined slightly, but was still strong. Australia and New Zealand’s tough time last year forms part of a mixed global picture, with Swiss Re’s report titled World Insurance in 2015: Steady Growth Amid Regional Disparities. Globally, non-life insurance premiums grew 3.6% last year insuranceNEWS
compared with 2.4% in 2014, with advanced Asian countries providing a boost, North America making a good contribution and western Europe defying strong headwinds to achieve moderate growth. But the global positive move is already on a slippery footing, with Swiss Re forecasting a weakening this year due to economic trends and soft pricing, mainly in the advanced markets, while the scenario is chequered elsewhere. “The outlook for the emerging markets is mixed,” the report says. “Non-life premium growth will likely be strong in emerging Asia, mainly supported by China. However, in certain other regions growth is expected to weaken or even contract.” When it comes to profitability, low interest rates in most advanced markets are still creating headaches for companies seeking improved investment earnings. “Interest rates and the macroeconomic and financial market environments will continue to shape the outlook for the insurance industry,” Swiss August/September 2016
Re’s Chief Economist Kurt Karl says. “With profitability under pressure, life insurers will continue to focus on improving capital management, lowering expenses and enhancing investment yields. Profitability in non-life will also remain subdued on still-low investment returns and soft pricing conditions.” Overall profitability for non-life insurance, measured by return on equity, declined to 7.2% last year from 9% in 2014, and the overall negative trend is expected to continue this year. In the US, non-life premiums grew 3.1% last year, while in Canada gains accelerated to 4.2% from 1.3% despite economic challenges. Western Europe managed a 1.5% increase, with the modest gain representing a big improvement on the 0.2% postfinancial crisis stagnation. Germany gained 2% as motor and property lines provided solid support. Gains accelerated in advanced Asia, with premiums up 4.1% compared with a 3.4% increase in 2014.
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Emerging Asia remains a bright spot for premium growth, posting a gain of 15% last year compared with 14% the year before. China, the second-largest non-life market in the world, saw premiums rise 17%, driven by motor, guarantee and credit, and agricultural insurance business. Swiss Re says emerging Asia is set for robust premium growth this year and next, with China benefitting from a government objective to raise insurance penetration to 5% by 2020 from 3% in 2014. â&#x20AC;&#x153;To this end, the Government has initiated policies to encourage the development of property natural catastrophe, environmental liability and agricultural insurance, among others. Sustained infrastructure
investment in other markets will also support aggregate premium growth in the region.â&#x20AC;? Looking at the longer-term picture, the average annual growth rate for worldwide insurance premiums since the global financial crisis remains below the pre-crisis level, Swiss Re says. The premium trend mirrors weaker economic expansion and a slowdown in global trade volume growth. Global trade grew about twice as fast as world GDP between the early 1990s and mid-2000s, but has only paced GDP more recently. Swiss Re says trade should pick up as economic activity accelerates, but the weakness also reflects changes such as the dispersion of global supply chains, protectionism and Chinaâ&#x20AC;&#x2122;s economic transition
toward domestic services and consumption. â&#x20AC;&#x153;Given that the structural factors behind the trade slowdown are likely to persist, a persistent slowdown in global trade will lead to lower growth in marine and credit insurance in particular,â&#x20AC;? the report says. The premium performance last year came amid a busy period for disasters. Swiss Re notes there were 353 disaster events in the year, of which a record 198 were natural catastrophes. But total economic losses caused by all disasters were estimated at $US92 billion, down from $US113 billion in 2014 and below the inflationadjusted average of $US192 billion for the previous 10 years. The earthquake in Nepal and port explosions at Tianjin
in China were among the major events. The insurance sector covered $US28 billion of losses from natural catastrophes and $US9 billion from man-made disasters, with the $US55 billion difference between total and insured losses highlighting the lack of cover against catastrophe events worldwide, Swiss Re says. Despite premium growth challenges and pressure on profits, the Sigma report provides some positive assessments for the future. Solvency in the non-life insurance sector hit a record high of 130% last year and the industry is on a solid footing. â&#x20AC;&#x153;The industry overall remains well capitalised, meaning insurers are better able to withstand periods of economic or market turmoil,â&#x20AC;? * the report says.
> > > > The team at Wildfire Investigations and Analysis specialises in wildfire/bushfire origin and cause investigations. Our expert findings are used in cases involving negligence, insurance claims and cost recovery. We also specialise in second opinion reviews of investigations. Our Principal, Richard Woods AFSM, has extensive experience in the investigation of bushfires in Australia. He has trained officers in Australia, North America, Korea and Europe in wildfire investigation and has internationally recognised qualifications in the field. Contact us to discuss how we can help you. Wildfire Investigations and Analysis www.wildfirecause.com | Tel: (02) 6255 5722 insuranceNEWS
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It’s all about long-term relationships: CBL’s Peter Harris
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The little kiwi that could – and does Meet CBL, an insurer that rules its global niche from Auckland and sees plenty of opportunity in Australia By Terry McMullan
YOU’VE NEVER HEARD OF CBL? NEITHER had most Australian insurance professionals before last September, when the New Zealand company acquired major underwriting agency Assetinsure with a minimum of fanfare or fuss. But this seemingly innocuous little Kiwi is a global giant in its niche – the credit surety and financial risk market. In 10 years CBL has grown its annual gross premium income from $NZ2 million to $NZ350 million a year. It derives 95% of its earnings from its international operations, with 70% from its businesses in Europe. In 2006 it had one employee in one small office, dealing mainly in contractor bonds. Today CBL has 180 employees and eight offices, including regional offices in London, Kuala Lumpur, Copenhagen and Mexico City. Apart from bonds used by a wide range of industries, it also offers reinsurance and other specialist financial surety, single-situation insolvency and general underwriting risk products and programs. Assetinsure is the largest surety bond insurer in Australia, and the “fit” with CBL – it reportedly cost $NZ32.7 million – was the latest in a string of similar acquisitions involving companies operating in the niche around the world. The Auckland-based company’s Chief Executive and Managing Director, Peter Harris, is as soft-spoken and low-profile as his company. “Our business is completely based on long-term relationships with as few people as possible around the world,” he tells Insurance News during a visit to Sydney to attend an Assetinsure board meeting.
“We engage with companies that have the ability to put on business, and they are looking for an insurance company that’s not going to compete with them, not going to nick their business and that has the underwriting expertise and balance sheet capacity they’re looking for. “We have found those people in various countries, and we have spent a lot of time helping their businesses grow, and that’s how we grow.” Assetinsure came into CBL’s focus because “it’s a very complementary company”, Mr Harris says. “It carries the same sort of products that we have, and it represented an opportunity to expand in Australia. That had been precluded from us before, because we were not Australian Prudential Regulation Authority-regulated and licensed.” Mr Harris is a specialist in financial risk and structured credit underwriting, and has also worked as an investment banker and in manufacturing. He and some business associates bought the then Contractors Bonding Ltd in 1996 from Noel Dick, a construction company owner in Auckland who set up the company in 1973 after encountering difficulties negotiating contractor bonds. Under Mr Harris the company grew gradually in the New Zealand market, “but because what we do is quite specialised in a country of only four-and-a-half million people, there’s only so much business you can do”. So in 2000 he and his fellow private shareholders decided to grow in their niche, rather than expand the range of their products. In the 16 years since, the growth has been steady, with Mr Harris relying on word of mouth and CBL’s solid reputation to gain new customers. “Sometimes it’s us just seeing opportunities, or taking a product from a market and sort of putting it in front of our distributor in another country, and saying, ‘Is this something that would work in your market?’.” As for acquisitions, CBL moves slowly. “We take a long time picking the ones we do [acquire]. It’s a little bit like picking your key insuranceNEWS
staff. If you get the right ones, they will stay there for a long time. So we take a long time over choosing them. There’s the people driving the business – are they capable of driving it better, and what do they need to achieve that? Is it capital, is it capacity? “And it needs to have synergies with what we do, and we need to understand the business. So we won’t just acquire somebody who’s writing business we don’t understand or don’t do. “And there needs to be growth opportunities. But what’s so important is the people and the culture have to align with ourselves.” CBL can bring in new capital and even new directions if they are needed, but Mr Harris and his colleagues place considerable value on the need to retain people with expertise. “Many of the acquisitions we’ve done – and some have been completely strategic – have been with parties we’ve known for some time,” he tells Insurance News. “In the case of SFS in France and Luxembourg, we’ve been doing business with those people for nearly 12 years. “But we don’t always go out and acquire companies. If we can do business without acquiring them, well, that’s even better.”
Brexit: no time to waste Mr Harris believes June’s vote by the British public to exit the European Union – the so-called Brexit – will place UK-based insurers under considerable pressure. While CBL does have a London office, its European insurer is based in Ireland. He says British insurers must not take their European markets for granted “and think they’ve got two years to sort this out”. If they do, “they are going to see business walk”. “There are a lot of people in Europe who are concerned about what’s happening with their insurer, and where they are going to be in three or four years’ time, when it comes time to pay a claim,” he says. “And they’re not going to wait around for two years.”
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An opportunity to expand in Australia: Mr Harris with Assetinsure Chief Executive Gregor Pfitzer
A month after it acquired Assetinsure, CBL listed on the New Zealand and Australian securities exchanges, with the owners – including Mr Harris – retaining 60% of the shares. “It was an institutional float, so we were looking for long-term shareholders that could see… into the future. I think they bought the management record, and the fact that the whole company was owned by the management and the board, and they were all staying on. “So our interests are absolutely aligned with shareholders. We were looking for $125 million and we got firm commitments for $198 million, so we were able to sort of pick and choose a little bit. “The investors and the shareholders we picked up have been excellent, very supportive, and are all long-term shareholders. And the share price has performed well since.” Mr Harris says there is much greater understanding of the insurance industry in Australia than New Zealand, and this is reflected in the share register. “We have more shareholders in Australia.”
“We never dominate a market, so we are never looking at the fortunes of the macro market. We think we can outperform the macro market.” The companies it has acquired – the most recent was in June, when it bought French insurer Securities and Financial Solutions (SFS) for $144 million – have all retained their brands, their management and their staff. About the only change that might be easily discernible following a sale to CBL is the addition of one or two of the Kiwi company’s directors to the newly acquired firm’s board. But as far as Mr Harris is concerned, organic growth is just as important – perhaps more important – as acquisitions. “Probably two-thirds of our business is through organic growth, so we haven’t just gone around making acquisitions. We’re not afraid of them, but we don’t need them for growth.” Running a conglomerate with many companies scattered around the globe can be challenging for a chief executive whose headquarters are about as far from the rest of the world as can be. Mr Harris shrugs off the inevitability of so many hours spent in aircraft, and says the real challenges are based not around travel but the different languages, cultures and even religions with which CBL rubs shoulders. “We have to be alive to differences,” he says. “We’re very aware of different cultures in some countries, and we’ve had to grapple with that in some cases.” Life, he says, is a full-time learning experience. “France would be a good example, where we have a lot of French employees. They’re all good people, all doing the right thing, but there are differences. “And while we may all be looking in the same direction, we have to be very, very aware of… different cultures and how they go about things, and what’s important to them.” He sees the Australian market as highly competitive, but believes there are good opportunities locally for Assetinsure. “We never dominate a market, so we are never looking at the fortunes of the macro market. We think we can outperform the macro market, so we’re looking to cherrypick opportunities within a market.” So will growth locally be organic, rather insuranceNEWS
than through mergers and acquisitions? Mr Harris says there’s plenty of attractive premium on the table. “Australia has a lot of natural hazards insurance premium. So it becomes attractive from that point of view. But it’s also competitive, and there you have thinner margins. “I’m not an expert in property and casualty in Australia, because we don’t do it, so I can only comment as an outside observer. It seems there’s a lot of reinsurance capacity, and rates are tight. So insurers are just doing it for less and less money, I don’t quite understand it, actually. “If you do all that writing of premium and you’ve got to give it all back, and there are losses and acquisition costs and expense… Unless you’re making serious investment income on the way through, why do it for those sort of numbers?” Technology is another challenge facing general insurers, but Mr Harris says it is “incredibly important” to CBL, in a very positive way. “Technology’s incredibly important both from an underwriting perspective and from a results and outcomes perspective. There are companies out there whose margins are very fine. They need to use dynamic pricing. “They need to know that if their outcomes are not looking so good, they will have to put prices up a little bit. “We generally have the philosophy that if we’re not comfortable with the risk, then we won’t just put the price up and acquire it for more money, because I don’t think you can turn a poor risk into an acceptable risk just by charging more money. I’d rather say no.” So where does CBL go from here? Mr Harris is confident the company can keep growing in its niche, with plenty of opportunities continuing to emerge. “I think it will keep growing. It’ll keep growing because the people we engage with and our producers keep growing. And there is just no shortage of opportunities out there. It’s quite amazing. “We turn down probably a third of the business that comes in our door and say no to it, or not yet. But yes, there are some really exciting possibilities, all over the world. The * times are really exciting.”
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The secret life of Western
The remarkable story behind the birth, growth and sudden death of New Zealand insurer Western Pacific, a company with a huge exposure in Australia By John Wilkinson IN APRIL 2011 A SMALL NEW ZEALAND company named Western Pacific Insurance collapsed under the weight of claims brought on by the Christchurch earthquakes. In a last-ditch effort to keep the business afloat, managing director Jeffrey McNally wrote to the New Zealand Finance Minister Bill English pleading for access to the $NZ500,000 government bond Western Pacific had paid in 2005 to operate as an insurer in New Zealand. He also wanted a five-year government guarantee for $NZ5 million to tide the company over while it raised more capital. It needed a lot more capital. The huge increase in claims from the quakes has revealed a $NZ31 million reinsurance shortfall (at June 23 this year) in Western Pacific’s Christchurch claims. Mr McNally and his wife Adele owned 80% of the company. The remaining 20% was held by his brother-in-law, Queenstown lawyer and property developer Graham Smolenski. 34
Mr McNally’s letter to the minister concentrated on Western Pacific’s Christchurch exposures: he believed they could reach $NZ24.4 million, but they actually topped out in June this year at $NZ64.8 million. He emphasised the financial impact to local policyholders if the “New Zealand-owned and operated insurance company with a commitment to the people of New Zealand” was allowed to collapse. What he didn’t say in his letter – on which the minister declined to act, anyway – was that Western Pacific’s collapse would also affect cover for billions of dollars written in Australia by Australian insurance brokers. In its short life Western Pacific earned a reputation among Australian underwriters for generous commissions to brokers and premiums so low its liquidators concluded they were unsustainable. It was the type of insurance company most people thought had vanished from the scene many years ago. Formed in unusual circumstances, Western Pacific’s ambitions insuranceNEWS
far exceeded its abilities. It existed on the edge of a financial precipice, until it eventually – and some would say inevitably – fell off.
Following the trail After a two-year investigation, Insurance News has pieced together the history of Western Pacific Insurance. It is a story that reaches well beyond the shores of New Zealand. Our investigations have led to Australia, Hong Kong, the United Kingdom and the Dutch Antilles in the Caribbean. Our report covers some 14 years, and examines the key players in this remarkable tale. While Insurance News has uncovered a considerable amount of information that has never before been published, there remain many unanswered questions. The central figure in the story of Western Pacific is Mr McNally, a broker who lives in Melbourne and whose business interests extend to many countries. He is still working in insurance.
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Pacific We make no conclusions or judgements regarding his business practices, his previous business ventures or his part in the collapse of Western Pacific Insurance. Nor do we suggest he or anyone else named in this report, his associates or his companies, have engaged in illegal activities. Our intention is only to reveal the extraordinary background to Western Pacific Insurance’s formation, and to show how this minor insurer was able to take on major exposures – exposures that ultimately killed it. Points of particular interest include insurance brokers’ role in Western Pacific’s expansion in the Australian market – to the point where it was covering $5.8 billion in various classes – and how a small and undercapitalised insurer with a B (stable) rating from Standard & Poor’s managed to survive and, for a time, thrive. Had the Christchurch quakes not happened, Western Pacific might have survived and scaled even greater heights. Might…
three Singapore residents: Suinee Wong, Eric Lomas and Kevin Proctor. Mr McNally’s early business activities reveal an entrepreneurial and adventurous spirit, but his next step led to a stumble. It involved Allied Asia Holdings (Australia), a company he formed in Balwyn, Melbourne, in March 1995. At about the same time Allied Asia Wholesale Insurance Brokers and Allied Asia Underwriting Agencies were also formed, with the same Balwyn address. The companies acted as wholesale general insurance brokers, writing a range of business including public liability. But the venture unravelled after Allied Asia applied in July 2001 for renewal of its broking registration. Nine months later the Australian Securities and Investments Commission (ASIC) responded with a refusal. Allied Asia Holdings (Australia) took ASIC to court over the decision, and from there things just got worse.
Pacific, it is neither registered nor incorporated in the Marshall Islands”. In a letter to NIBA publication Insurance & Risk Professional, Mr McNally dismissed APRA’s claims about Atlantic & Pacific. “The issue with Atlantic & Pacific Insurance centred on a legal failure to properly register a change of company name of an actual insurance company operating in the Republic of the Marshall Islands,” he wrote. “Allied Asia had acted on the advice of the principals of that company that it had changed the name to Atlantic & Pacific Insurance and was trading under that name.” Mr McNally did not elaborate on the business’ previous name or the identity of its officers. Where Atlantic & Pacific was based remains a mystery.
A brush with the law Aside from Allied Asia using an insurer with a questionable background, ASIC had
An enterprising spirit Jeffrey Ronald James McNally was born in Sydney and educated at the prestigious private school St Kevin’s College in Toorak, Melbourne. He started his general insurance career at Gibbs Bright Insurance Group in Melbourne in 1979. He established his first business – Corporate and General Insurance Brokers – in 1984. This business was sold in 1991, and the following year Mr McNally established Allied Asia Consultants in Singapore. Its stated purpose was to provide consultancy services to insurance companies in Indonesia, Malaysia and Singapore. The following year Mr McNally started Allied Asia Insurance Consultants in Hong Kong, which eventually became Entertainment Insurance Brokers, a company he still runs today. The Hong Kong business provides contingency and special risks cover and operates throughout Asia. It lists both Jeffrey and Adele McNally as directors, with a share capital of $HK300,000. They each own 50,000 shares in the company, and 150,002 are owned by an Australian company with Ms McNally as the sole director and shareholder. A further 49,998 shares are owned by
Aside from Allied Asia using an insurer with a questionable background, ASIC had other problems with the company, accusing it of acting “in a false and misleading manner in dealing with its clients”. According to the Federal Court judgement, one of ASIC’s primary reasons for refusal was its belief that Allied Asia was placing business with an overseas insurer of dubious origins. The insurer was Atlantic & Pacific Insurance, which claimed to be registered in the Marshall Islands – a small Pacific republic where regulatory supervision is supplied by the United States Government. The Australian Prudential Regulation Authority (APRA) said Atlantic & Pacific’s assertions on its status “are incorrect”. APRA said it “received advice from the Office of the Attorney-General of the Republic of the Marshall Islands that contrary to representations made by Atlantic & insuranceNEWS
other problems with the company, accusing it of acting “in a false and misleading manner in dealing with its clients”. Among its claims was that Allied Asia arranged policies for clients after increasing the premium quoted by the insurer. “The increased premium was charged to clients without the knowledge or consent of the clients or of the insurer that issued the policies,” ASIC said. “Allied Asia retained the difference in the premium quoted by the insurer and the premium paid by the client, in addition to the commission it was entitled to receive from the insurance company.” Mr McNally “hotly contested” this statement. “The matter centred on the accounting 35
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treatment of Allied Asia fees and actual premiums charged,” he said in the letter to Insurance & Risk Professional. “Allied Asia argued its clients were always fully informed of the nature of the costs.” ASIC also said Allied Asia failed to lodge audited accounts for the 1999, 2000 and 2001 financial years. Again, Mr McNally disputed this. The court judgement said that in 2002 Allied Asia had about 225 clients and premium income of $4.5 million a year. Commissions were estimated to be worth about $2 million a year. ASIC won an injunction stopping Mr McNally arranging policies with Atlantic & Pacific through the Allied Asia companies. And in a statement in April 2002 the regulator said it would stop Mr McNally from sending premiums overseas. Allied Asia Holdings was deregistered with ASIC in June 2012. It is not known if it traded after it was stopped from dealing with Atlantic & Pacific. While Allied Asia was still active, Mr McNally was establishing other companies in Victoria. In March 2000 he formed Wholesale Insurance Brokers, and the next month Wanchai Investments, both based in Melbourne. This latter is still registered today. It was formerly Insmart Holdings, a company that lasted less than a year before it was turned into Wanchai. The name is not original; it is the district
in Hong Kong where Entertainment Insurance Brokers is based. According to the ASIC companies register, Mr McNally is a director and company secretary, holding both roles since the business was established. Wanchai has four shares owned by ACN 077 141 872 and the paid up capital is $4. ACN 077 141 872 has the same Melbourne address as Wanchai. Again according to ASIC’s company register, Wanchai’s shareholder is owned by none other than Adele McNally, who is both the sole director and company secretary. The two shares, valued at $2, are owned by Ms McNally, although until December 1998 they were owned by Adele and Jeffrey McNally. The Wanchai parent was formed in January 1997. It is also the major shareholder of Entertainment Insurance Brokers in Hong Kong. When examining Wanchai’s historical shareholders, another familiar name crops up: Alan Clive Whittle. He and Jan Christine Whittle owned one share each from the company’s inception until October 2003, when he became a director at one of Mr McNally’s UK companies, IPA (Europe) Insurance Brokers.
Into New Zealand
the same time, when Wholesale Insurance Brokers became an initial shareholder of Auckland-based Inzbroker (NZ). According to that company’s registration documents, Wholesale Insurance Brokers was granted 800 shares, with a further 200 taken by Inbroke Corporation of Auckland. Mr McNally and Andrew McCarrison, the sole shareholder of Inbroke, became directors of Inzbroker. The following year the company was dissolved, with no accounts lodged with the New Zealand regulator, suggesting it may not have traded. However, another company formed by Mr McNally in 2001 was to play a major role in the Western Pacific saga. In July 2001 Dominion Underwriting Agents was set up in Townsville, and Mr McNally merged Allied Asia Underwriting Agencies into the new company. His codirector was his wife Adele. The business was approved by ASIC to sell general insurance to wholesale clients, and in March 2004 was granted an Australian financial services licence (AFSL). It would seem that initially Dominion acted for a Philippines-based insurer named South Sea Surety and Insurance Company, but later switched to Western Pacific Insurance after a falling-out with the Manila insurer. Finding information on South Sea Surety 12 years later has not been easy, but
Mr McNally’s first move into the New Zealand market seems to have come about
Western Pacific 12 July 2002
15 July 2002
11 Sept 2002
08 Aug 2003
23 Sept 2003
23 July 2004
16 Nov 2004
Two directors appointed to Western Pacific Insurance on formation: Leonard Stanley Housewright, c/o The Trust Company of St Maarten, Dutch Antilles, and Linda Dill Nelson, c/o The Trust Company of St Maarten, Dutch Antilles
First shareholding registered for Western Pacific Insurance. 1000 shares for Globalvest, The Trust Company of St Maarten, Dutch Antilles. Note: sole director of the company is Mr Housewright
Mr Housewright resigns as director and is replaced by new English director Clive Edward Meade, Turkey Farm, Bexhill-on-Sea, UK
Another director appointed, Jeffrey Ronald James McNally, Templestowe, Australia
Ms Nelson resigns
Globalvest ceases to be a shareholder. IPA Asia becomes shareholder with 1000 shares
Mr Meade resigns as director and is replaced with a New Zealand director: Graham Leslie Smolenski, Queenstown, New Zealand
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Insurance News has established its chief executive was Efen O Docena. Mr Docena was also a director and shareholder of New Zealand-based Hemisphere Insurance Company, which wrote business in Australia and also collapsed in 2011. He was the subject of a public warning from the Philippines Government in 2010. It said arranging insurance with him should be avoided because policies he issued were “fraudulent”. In 2004 then-Dominion chief executive Don Christie told Insurance News predecessor Sunrise Exchange News he had become concerned about South Sea Surety when it told him it had changed its reinsurer from the Government Services Insurance System (GSIS), a government-owned insurer. According to Mr Christie, GSIS had, in fact, never acted as South Sea’s reinsurer. In a statement to brokers at the time, Dominion said GSIS “was not, at any stage, on risk as South Sea’s reinsurer in respect of any of the current Australian contracts of insurance we have arranged on its behalf”. Mr Christie was contacted by Insurance News, but declined to be interviewed for this article.
Tropical origins This is where Western Pacific Insurance comes in.
The insurer was formed in July 2002 by two residents of the Dutch Antilles, with the capital coming from Globalvest, based in St Maarten. The first directors of Western Pacific were Linda Dill Nelson and Leonard Stanley Housewright, both giving the Trust Company of St Maarten as their address. The sole director of Globalvest was Mr Housewright, and the initial shareholding in Western Pacific was 1000 shares. The big question is: why would two people in a Caribbean country want to set up a general insurance business on the other side of the world? At that time New Zealand had gained notoriety for its lax financial services laws and supervision. All an insurer had to do was have $NZ100,000 in capital and lodge a $NZ500,000 bond with the Public Trustee if placing insurance offshore. An annual return had to be lodged, and the insurer needed to be rated by one of the ratings agencies. It was only in 2010 that the Insurance (Prudential Supervision) Act introduced tighter controls, similar to Australia’s. Nothing much is known about the two St Maarten-based directors’ backgrounds or motives, except that Mr Housewright also became a director of UK company T-Co Distribution (Europe) in June 2001. This company was formed in 2001 by UK-based
broker and professional company director Clive Edward Meade, who lived at Turkey Farm in Bexhill-on- Sea, Sussex. Mr Housewright remained a director of T-Co until March 2003. He had resigned from Western Pacific in September the previous year and was replaced by Mr Meade.
The UK connection It is not known when Mr McNally came into contact with Western Pacific Insurance in New Zealand, but at some point his company, Dominion Underwriting Agents, started selling its general insurance policies in Australia. As will be seen, Australia became Western Pacific’s biggest market, despite the general view that it generated most of its business in New Zealand. Mr McNally was made a Western Pacific director in August 2003. The following month Ms Nelson resigned, ending the insurer’s links with its Caribbean directors. But ownership of Western Pacific stayed in the Dutch Antilles for another 11 months, when Globalvest sold its shares to IPA Asia, a company associated with Mr McNally. Insurance News has been unable to access Western Pacific’s early accounts, but the insurer was writing a variety of covers. The relationship with Mr Meade seems to have started before Mr McNally bought a stake in Western Pacific. In October 2003 he formed IPA (Europe) Insurance Brokers with Mr Meade, and the company’s office was registered at Turkey Farm in Bexhill.
Insurance timeline 07 Mar 2005
29 Aug 2005
14 Sept 2005
24 Nov 2005
9 Sept 2008
3 July 2009
4 Apr 2011
8.2 million shares issued by Western Pacific Insurance
300,000 shares issued by Western Pacific Insurance
IPA Asia removed from share register. New shareholders are: • Karuell Properties, 4.1 million shares • GL Smolenski Investments, 4.1 million shares • Graham Smolenski, 1000 shares
Mr Smolenski removed from share register. Revised shareholdings are as follows: • GL Smolenski Investments, 4.251 million • Karuell Properties, 4.25 million
Share register changed: • GL Smolenski Investments, 317,865 • Karuell Properties, 317,865
Share register changed: • GL Smolenski Investments, 79,466 shares
Liquidator appointed to Western Pacific Insurance
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Another director of IPA (Europe) was Queensland broker Alan Clive Whittle. Mr Meade was also a director of IPA Europe Reinsurance with Mr McNally, with the Bexhill farm again registered as its base. About this time Mr McNally was actively forming companies in Australia, New Zealand and London. Most were short-lived, although Karuell Properties, formed in the New Zealand tourist centre of Queenstown, is still operating. Its directors are Mr McNally and his wife, whose brother Graham Smolenski was a significant shareholder in Western Pacific. In September 2005 Western Pacific’s share ownership changed, with IPA Asia selling its 1000 shares to Mr Smolenski. Two new shareholders came onto the register with 4.1 million shares each – Karuell Properties and GL Smolenski Investments. These two companies were to remain Western Pacific’s shareholders until the end of the business.
Running the numbers The earliest accounts for Western Pacific that Insurance News has obtained are from the year to March 31 2006. Gross written premium (GWP) was $NZ5.3 million, with $NZ4.4 million of reinsurance ceded. Underwriting fees were $NZ372,405 and commissions $NZ39,329. Claims expenses totalled $NZ467,909 and operating costs $NZ337,721. This delivered an after-tax profit of $NZ109,683, compared with a loss of $NZ16,272 the previous year. Western Pacific earned $NZ3 million of its revenue from the Australian market in the year, while only $NZ19,089 came from New Zealand. The US was the second-biggest market, with $NZ1.5 million of revenue, while $NZ670,757 came from Asia. The Australian business carried the most liabilities, with $NZ1 million, followed by the US with $NZ318,948. New Zealand had only $NZ68,777 of liabilities. In the 2005/06 accounts, no premium income or claims figures for previous years are given. This begs the question: did Western Pacific sell any policies at all before Mr McNally took over the business? The company’s total equity at March 31 2006 was $NZ617,752, compared with $NZ170,433 the previous year. Total assets jumped to $NZ2.1 million from $NZ519,435. 38
The 2005/06 accounts also reveal the relationship between Australian-based Dominion Underwriting Agents and Western Pacific. Some $NZ1.3 million of services were bought from Dominion. In that period, Mr Smolenski also become a director of Dominion. Dominion owed Western Pacific $NZ344,189 at March 31 2006, but Western Pacific in turn owed Dominion $NZ2.6 million. In 2007, for the 15 months to June 30 (the company changed its reporting dates), Western Pacific’s GWP was $NZ12.6 million, with $NZ5.5 million of reinsurance ceded. Net claims totalled $NZ1.9 million, giving an after-tax profit of $NZ244,001 once operating costs were taken out. A breakdown of Western Pacific’s business in 2006/07 shows Australia remained its biggest market by far, with $NZ8.6 million of
ceded. But net claims also fell, to $NZ1.5 million. However, after deducting underwriting expenses Western Pacific still turned in a respectable $241,091 after-tax profit. There is no breakdown in the 2008/09 accounts to show where business came from, or how much was paid to Dominion Underwriting. This might be explained by the change in Australia’s rules for foreign insurers.
Foreign bodies Until 2008 a foreign insurer could sell cover in Australia through any organisation that held an Australian financial services licence. The insurer was not required to be registered with APRA. This meant Western Pacific’s sales into Australia were perfectly legal; it was using AFSL-holder Dominion Underwriting Agents.
Dominion employed 11 staff in three offices in Australia, and dealt with more than 300 brokers acting on behalf of 1000 small business clients. revenue. New Zealand revenue totalled just $NZ718,669. The American business seems to have stopped that financial year, but Asia contributed $NZ538,154 of revenue. Claims for the Australian business were estimated at $2 million, while Asian and New Zealand claims were not stated. The 2006/07 accounts also reveal $230,770 of Western Pacific funds were used to form Western Pacific Insurance Australia, with Mr McNally as director. The following year, the accounts show GWP of $NZ9.3 million, with $NZ2.6 million of reinsurance ceded. Net claims were $NZ3 million for the year to June 30. After underwriting expenses were deducted, the after-tax profit was $281,474. The 2008/09 GWP dropped to $NZ7.1 million, with $NZ1.5 million of reinsurance insuranceNEWS
But after a couple of very public scandals involving questionable overseas insurers, the Federal Government reviewed the rules on unauthorised foreign insurers. Not surprisingly, since Western Pacific was earning most of its revenue from Australia, Dominion made a submission to the Treasury review. The submission, written by Mr Christie, provides interesting insights into Dominion’s business in Australia. It states Dominion employed 11 staff in three offices in Australia, and dealt with more than 300 brokers acting on behalf of 1000 small business clients. Insurance News has been unable to ascertain which brokers used Dominion. Dominion’s turnover in the 2006 financial year was expected to be about $8 million, according to its submission to
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Good times: Jeffrey McNally (left) with Inzbroker Partner Andy McCarrison and Western Pacific director Graham Smolenski
Treasury. The bulk of the business was public liability (55%) followed by property cover (25%). Unsurprisingly, the submission was strongly against the proposal to bring unauthorised foreign insurers under APRA oversight. The protestations were ignored. From July 1 2008 direct offshore foreign insurers operating in the Australian general insurance market were required to be authorised with APRA. The Government also restricted AFSLholders to placing business with APRA-registered insurers only. However, there was an exemption: if a broker could not find an Australianregistered insurer willing to carry its clients’ business, it could use a foreign insurer. APRA has confirmed to Insurance News that “Western Pacific and its Australian operation were never registered as general insurers in Australia”. It is not known what impact this change in regulation had on the trading positions of Dominion Underwriting Agents or Western Pacific Insurance; there are no accounts for 2010. Soon after this period, the Christchurch earthquakes struck.
Shaken to the core As Mr McNally’s letter to the Finance Minister in March 2011 shows, things became desperate for Western Pacific as claims from the Christchurch quakes ate into its reserves and reinsurance cover. The letter states small businesses in New Zealand were Western Pacific’s target market, which is at odds with the evidence of 40
previous trading years, when Australia was by far its biggest market. Its foreign exposures included a $NZ200,000 provision for a disputed claim from Fiji’s Yasawa Island Resort and Spa, which the insurer had denied for “nonpayment of premium and arson exclusion in policy wording”. The letter also contains a clue to the state of Western Pacific’s Australian business: $100,000 of claims were waiting to be paid and a further $1.9 million was reserved for Australian claims. With the Government refusing to rescue Western Pacific, the directors had no choice but to close down the company on April 1 2011. Accounting firm Grant Thornton was appointed liquidator, and in its first report to creditors said there were about 7000 policyholders in New Zealand. The report confirmed the Christchurch exposures were the final nail in the coffin, but there were other factors. Grant Thornton attributed the failure to “a significant lack of capital and an aggressive approach to winning market share”. It said premiums were priced low, probably in an attempt to gain share and grow the business. Underwriters in Australia have told Insurance News they lost business to Western Pacific. One prominent underwriting agency says the insurer consistently underpriced Australian risks, and brokers who used Western Pacific were then forced to convince clients to take policies with insurers that charged far more. Western Pacific also paid hefty commisinsuranceNEWS
sions to brokers – often 20-25% – and had only 40% of its premium income to cover operating costs and meet claims not covered by reinsurance. It accepted risks outside the scope of its reinsurance policies and chased premium income in numerous countries. Apart from Australia, it covered risks in Abu Dhabi, Chile, Fiji, Cook Islands, Samoa, Singapore and Vanuatu. A clue to Western Pacific’s operations in Australia appears in a submission on foreign insurers to Treasury by Rural and General Insurance Brokers – run by the notorious Charles Pratten. The submission says the broker arranged public liability and professional indemnity cover from Western Pacific for the Australian Herbalist Association. It says Rural and General approached QBE, Vero and Western Pacific Insurance through Dominion Underwriting. “Both QBE and Vero declined to provide terms. However, we were successful in obtaining standardised terms and policy wording, including a standard premium, from Western Pacific Insurance NZ.” The liquidators said Western Pacific’s cost of reinsurance was also too high, amounting to about 40% of total premium income. The total sum insured by Western Pacific was $NZ2.3 billion, with commercial property the largest segment at $NZ1.8 billion. But this figure excludes casualty insurance, professional indemnity and public and product liability written by Western Pacific globally. This amounted to $NZ7.8 billion, with the bulk in public liability ($NZ7.7 billion). Casualty insurance in Australia was
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ACCIDENT & SICKNESS
Vehicles we insur insu e:
Liabilities we insure:
Accident & Sickness we insure:
• Vintage • Classic • Prestige • American Imports
• Budget Accommodation • Cleaners • Events & Markets • General • Property Owners • Restaurants
• Scaffolders • Shopping Centres • Supermarkets •T Transport ransport & Logistics Logistic •V Vacant acant Land • Welders & Boilermakers
• Group Personal Accident & Sickness • Individual Personal Accident & Sickness • Sports Group Personal Accident • Volunt Voluntary W Workers orkers Personal Accident
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$137.4 million for 208 policies. Professional indemnity cover was $119 million on 52 polices. Australian public liability cover was $5.4 billion on 645 policies. Australia was also responsible for a $20 million Japanese policy, a $10 million Singapore policy and seven Vanuatu policies covering $17 million. Initially, Grant Thornton put claims at $NZ41 million, with a reinsurance shortfall of $NZ8.4 million. But by August 2011 the claims had risen to $NZ46 million, with a reinsurance shortfall of $NZ14 million. By June this year the total earthquake claims were put at $NZ64.8 million, but with the reinsurance shortfall estimated at $NZ31 million. The liquidation of Western Pacific is continuing, with no end in sight, although Grant Thornton says it hopes to wrap things up by the end of this year.
After the fall And the fate of Dominion Underwriting Agents? Its AFSL was cancelled in August 2011, but the company still exists. In January this year Dominion moved its registered office to Cairns, but its principle place of business is Kew. Adele McNally is the sole director and company secretary. The majority of shares are owned by ACN 077 141 872, which is a shareholder in the couple’s other active businesses. Western Pacific Insurance Australia was deregistered by ASIC in February 2010. And what has happened to all those involved in Western Pacific Insurance? The two Caribbean directors who set up Western Pacific are not involved in any Australian or New Zealand insurance businesses. Clive Meade is still active in the UK, having last year become a director of Special Risks Insurance Brokers in London. He is also a director and owner, with his Filipino wife, of Alladem Services, which is based in Hampshire. It is not known what this company does, but prior to 2013 it traded as South East Asian Projects. Mr Meade has also become a director of My Risk Services, based at Battle, Sussex. Mr Smolenski remains a director of numerous property companies and is Chairman of JB Attachments, an earthmoving accessory business based in Melbourne. 42
Mr McNally is still involved in the insurance industry in Australia. Apart from being a director of Entertainment Insurance Brokers in Hong Kong and Karuell Properties in New Zealand, he is also the responsible manager of Trade Credit Risk in Melbourne. The Managing Director of this broker, Sharon O’Hanlon, told Insurance News she is aware of Mr McNally’s past. “He has been very open with me,” she says. According to ASIC’s regulatory guideline (RG105) on responsible managers, a person must be of “good fame and character”. It states: “Responsible managers are the people whose good fame and character we consider when we assess an application for an AFSL.” Insurance News asked ASIC about Mr McNally’s role as a responsible manager for Trade Credit Risk, taking into account his
an investigation into Western Pacific Insurance and its role in the Australian general insurance market. The New Zealand regulator hasn’t spoken about Western Pacific Insurance, other than to express concerns for the Canterbury earthquake victims who were left without cover. Nor have the directors of Western Pacific faced any action from the New Zealand regulator for running an insurance company without an adequate level of reinsurance. Fortunately there was not a serious run of claims in Australia – although a large number of clients saw their premiums disappear and were forced to buy new cover at higher prices. Perhaps the lack of understanding about Western Pacific’s significant activity in the Australian market has allowed local regulators to ignore the matter. But Dominion Underwriting Agents’ revelation that it serviced 300 brokers acting
“Responsible managers are the people whose good fame and character we consider when we assess an application for an AFSL.” earlier brushes with Australian regulators. “ASIC’s involvement is essentially to assess that they have sufficient organisational competence, as opposed to an ‘approval’ of their standing or operations or similar,” a spokesman said.
on behalf of 1000 small business clients, and the amount of insurance business Western Pacific gained in Australia, indicates there are a number of systemic issues that deserve * serious attention.
Questions for the regulators This investigation into Western Pacific Insurance has raised a number of troubling questions about how some Australian brokers buy cover for their clients. The tightening of rules on the use of foreign insurers may be problematic if a company as small and under-resourced as Western Pacific can write $5.8 billion of professional indemnity cover in Australia, despite the fact a significant number of APRA-registered insurers operating in Australia provide such cover. Neither ASIC nor APRA have pursued insuranceNEWS
We recognise there are still many unanswered questions about Western Pacific Insurance and other small insurance companies that have operated from New Zealand into the Australian market. If you have any information that may assist our ongoing research, please contact us at email@example.com.
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CERTAINTY At United Insurance Group, we believe authorised reps should know who theyâ&#x20AC;&#x2122;re dealing with. We want them to be part of a true partnership. UIG is committed to maintaining that partnership and ensuring a clear future for your business. Call Trevor on 03 8676 0344 or 0431 705 660 or you can email firstname.lastname@example.org to discuss why weâ&#x20AC;&#x2122;re growing so quickly.
At UIG your future is certain
UIG offers: s
A competitive fee structure with no extra charges for PI or additional fees collected directly from clients
An easy transition with data transfer, on-site training and constant management support
Real-time response from experienced staff who really can assist you, and access to discuss business with a wider network of your broking peers
Access to the wider range of underwriting and support services through the Steadfast Group.
ww www.uig.net.au w.u i g .n et.au | Co Contact n ta c t Ge General n er a l Ma Manager n ager TTrevor revor How Howard a rd | 03 8676 867 6 0344 0 34 4 | email@example.com trevor@ u i g .ne t . a u
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Bringing on the shakes The arguments around fracking and pollution are well worn, but in the US a new threat has been linked with the controversial process. In Australia, the risks are different By Andy Swales
FRACKING HAS BECOME A HOT TOPIC IN RECENT YEARS, WITH debate swirling around a word that most people know but far fewer fully understand. The process, which involves pumping water into underground rock to create fissures and flush out natural gas or oil, has made headlines in recent years as new reserves are exploited by nations striving to build their domestic energy and export stocks. Controversy abounds. Environmental campaigners raise concerns around the pollution of neighbouring water courses, highlighted in April by a startling video showing an allegedly methane-spiked Condamine River in Queensland on fire after a Greens MP put a kitchen lighter to it. (The gas industry insists it is not to blame and “bubbling gas in the Condamine River pre-dates gas production activity in the area”.) Now another threat has been linked with fracking: man-made earthquakes. Swiss Re’s latest Sonar report on emerging risks, published in May, warns this is a concern in areas not normally associated with seismic activity. “Many regions around the world face a moderate level of seismic hazard without having experienced a recent earthquake, such as the mid-continental US and many parts of Latin America, Europe and Asia,” the report says. “This results in little awareness of earthquake risk, and earthquake insurance is deemed unnecessary by many – leading to a potential protection gap. “This may be exacerbated by a rising number of earthquakes linked to human activities such as hydrofracking, enhanced geothermal systems and carbon dioxide sequestration.” Earlier this year the US Geological Survey (USGS) released its first hazard assessment for “induced” or man-made seismic activity, which it largely attributes to a secondary process linked to some fracking operations, as well as oilfields: the injection of wastewater – produced during the extraction process – into deep disposal wells. “Within the central and eastern US, the number of earthquakes has increased dramatically over the past few years,” the USGS says. “Between the years 1973-2008, there was an average of 21 earthquakes of magnitude three and larger in the central and eastern US. This rate jumped to an average of 99 magnitude-three-plus earthquakes per year in 2009-13, and the rate continues to rise. In 2014 alone, there were 659 magnitude-three and larger earthquakes.” The USGS says the largest documented induced earthquake was a magnitude-5.6 event in Oklahoma in 2011. It says man-made quakes 44
Methane flares in Queensland’s Condamine River: but gas industry experts say it’s a natural phenomenon not associated with fracking August/September 2016
Max Phillips – Greens
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This is a particularly American problem. In Australia we’re not looking at anything like the same risk as in Oklahoma.
“are a concern” for some 7.9 million people across parts of Oklahoma, Kansas, Colorado, New Mexico, Texas and Arkansas. Swiss Re cites Oklahoma as a “prominent case in point”. “The state has experienced an enormous increase in earthquake events since 2010, as documented by the USGS. There is strong evidence that these are caused by the hydrofracking industry,” it says. “The Oklahoma Geological Survey has determined that the majority of recent earthquakes in central and north-central Oklahoma are very likely triggered by the injection of wastewater into disposal wells. Other states such as Kansas, Texas and Ohio have also seen increased earthquake activity that has been linked to wastewater disposal.” The USGS acknowledges “uncertainties are high” in its current analysis, and calls for further research on the issue. It also notes that fracking itself is not the problem, and not all injected wastewater derives from fracking operations. The Sonar report rates man-made earthquakes as a medium risk over the next few years. It warns: “As the increase in earthquake activity associated with man-made actions is a relatively new situation, most risk models used by the insurance industry do not incorporate the associated increase in seismic hazard. “Losses arising from the rapidly rising number of human-induced seismic events are largely uninsured or fall into the deductible of traditional earthquake insurance products, which have been designed to protect against a total loss rather than damage arising from frequent small earthquakes.” Swiss Re forecasts “an increasing likelihood for litigation/class actions against hydrofracking operators, with significant accumulation risks for (re)insurers when events trigger claims on the property and on the casualty side”. However, according to Geoscience Australia Chief Executive Chris Pigram, this is a particularly American problem. “In Australia we’re not looking at anything like the same risk as in Oklahoma,” he tells Insurance News. Here, fracking is largely associated with coal seam gas (CSG) extraction – a growing industry, mostly based in Queensland. At the end of last year there were 7331 active wells in the country, up from 6781 at the end of 2014 and 5460 in December 2013, according to data from industry body the Australian Petroleum Production and Exploration Association (APPEA). Fortunately for property owners and the local insurance industry, insuranceNEWS
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“Australian home and commercial building insurance policies typically do not make any distinction between different types of earthquakes.” Central US earthquakes 1973 – Jan 2016
On shaky ground: A US Geological Survey diagram shows earthquake activity in the midwest from 1973-2008 (blue) and 2009-January 2016 (red)
Number of M>=3 Earthquakes
855 M ≥ 3 Earthquakes 1973 – 2008 2310 M ≥ 3 Earthquakes 2009 – Jan 2016
2500 2000 1500 1000 500 0 1975 1980 1985 1990 1995 2000 2005 2010 2015
we do things a little differently from our US cousins. Most of the fracking activity is taking place in New South Wales and Queensland. Victoria – which has ample offshore gas reserves – has banned the practice, and Tasmania has placed a moratorium on fracking until 2020. Dr Pigram says CSG fracking occurs at shallower depths – up to 1000 metres – than other extraction operations, and “the energy that’s released is similar to having a truck drive past your house”. Crucially, the treatment of wastewater is different from in the US. “We have a much better regulatory system, but also the only reinjection that’s happening in Australia is in a deep aquifer that was depleted by agricultural activity, so the water that’s going back is cleaned up, I understand... and put back in, so it’s actually quite a beneficial use, restoring a depleted aquifer and providing benefit to the farmers in the areas where it’s being restored.” As for wastewater disposal in Oklahoma, Dr Pigram is “astonished they allow it to continue. They are pumping water down under high pressure and pushing it into the aquifer, and it happens to be adjacent to a major [geological] structure, so effectively they’re lubricating the structure, so it’s moving, and that’s what’s creating the earthquakes. “There’s no doubt, the evidence is very clear that it has accelerated [earthquake activity] and some of them have been quite big. People are appropriately concerned about that scenario, and I remain amazed that it’s allowed to continue.” He is unaware of similar examples elsewhere in the world, and says the situation in the US central states reflects “irresponsible practice and poor regulation. It damages the whole industry, unnecessarily.” A spokesman for APPEA tells Insurance News that in Queensland, where most of Australia’s natural gas production from coal seams occurs, “97% of water produced is made available for beneficial use, with the majority going to agriculture – for example, irrigation, livestock watering. Geoscience Australia has a monitoring network to detect general seismic activity, and there is no correlation with CSG production.” Insurance Council of Australia General Manager Risk and Disaster Planning Karl Sullivan says he is not aware of any quakes “definitively linked to human activity” here. “Australian home and commercial building insurance policies typically cover damage from earthquakes, and do not make any distinction between different types * of earthquakes,” he tells Insurance News. August/September 2016
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Hover bother When new technology clashes with the desire for a fast buck, lives and property are at risk By Andy Swales
WHEN BACK TO THE FUTURE Part II hit cinema screens in 1989, it painted a vivid picture of everyday life in 2015: flying cars, smart-clothes and, of course, hoverboards – skateboards without wheels that allowed cool kids to glide over pavement and water alike. It was an enduring image. Last year, 27 years on from Michael J Fox’s time-travelling adventures, the world (the Gen Xers, anyway) spoke with one voice: “We want our hoverboards!” Well, we got them... and frankly they’re a bit rubbish. In real life, “hoverboards” are closer to motorised skateboards. At best, they’re fun but disappointingly compliant with the laws of gravity. At worst, they’re on fire. Citing six known house fires and three destroyed homes since January – plus “a number of incidents of hoverboards sparking, overheating or producing smoke, both in Australia and overseas” – the Australian Competition and Consumer Commission (ACCC) has this year introduced a series of interim bans on the supply of models that fail to meet strict safety guidelines. In July a new mandatory safety standard was introduced. In the same month the US Consumer Product Safety Commission recalled about 500,000 boards made by a handful of brands, while major airlines worldwide have banned transit of the toys. Actor Russell Crowe famously took to Twitter early this year to gripe after Virgin 48
Australia welcomed him and his children on board, but banned their hoverboards. The problem is, hoverboards – many produced in China – vary widely in price and quality. And, as is so often the case, some producers’ rush for a fast buck has put people and property at danger. Liberty International Underwriters recently issued a technical update on the threat. “The risk of fire and explosion associated with hoverboards is thought to stem from the use of rechargeable lithium batteries as their power source,” it says. “These hoverboard batteries are bigger in capacity than those found in typical consumer electronic applications such as smartphones, tablets and laptops. “To meet market demand, especially at the lower end of the price range, some hoverboards are made from cheaper components. Typically, this includes cheaper, and often therefore poorer-quality, batteries that are more likely to fail during charging, or even during normal use.” Liberty says hoverboards comprise a gyroscope, an electric motor and a lithium-ion battery, and given the wide availability of such components, “it is not surprising multiple variations of hoverboards from different manufacturers flooded the market to meet the pre-Christmas  consumer demand. The range included hoverboards that cost less than $300, as well as higher-quality insuranceNEWS
brands that cost as much as $1500.” Liberty says its casualty risk experts have been “in the forefront of identifying the safety concerns of lithium batteries, well before their association with hoverboard fires”. They have made site visits to rechargeable battery makers in China, and to manufacturers that use the items in their products. Overheating lithium-ion batteries have also been associated with fires in phones, laptops and even aircraft: in 2013 the new fleet of 787 Dreamliners was briefly grounded after reports of fires started by batteries in the planes’ electronics bays. Such incidents may be relatively rare, but the risk is clear. Harry Rosenthal, General Manager of Risk Management Services with higher education and research sector mutual insurer Unimutual, says the problem with hoverboards and other battery-powered products can be viewed in the wider context of humanity’s quest for new energy solutions. “Battery power is the challenge of the 21st century,” he tells Insurance News. “The people who get this right will change history as we know it. “We’re pretty good at creating electricity and power, but we’re pretty poor at storage. And because of that we always need to have power stations to maintain that base load... what will change that will be our ability to store electricity. “We’re stumbling now. Lithium-ion, we thought was August/September 2016
the answer, but it turns out it’s just too damn hot, and we see laptops catching fire, [aircraft] catching fire and now hoverboards catching fire, too. It’s just not quite the solution yet, but we’re getting better at it.” Of course, these stumbles along the path of progress are not helped by unscrupulous producers such as rogue hoverboard manufacturers. “As soon as you commoditise something, you’re going to have crap products and you’re going to have quality products,” Mr Rosenthal says. LMI Group Managing Director Allan Manning tells Insurance News the risk is “part of living in a mobile world”. “There are millions and millions of lithium batteries out there in phones and laptops. We’re in a mobile world now. I’m sure the laptop I’m looking at right now has got a lithiumion battery in it, and certainly my phone has. They’re just everywhere.” And while unscrupulous producers are an issue, not all problems can be pinned on the cowboys. “Yes, there’s stuff coming out of China... [but] if you go to the Government’s [consumer] website and look at the product recalls on electrical appliances, it curls your hair,” Professor Manning says. “There are crappy brands that you’d expect to be crap, but some really, really good brands as well.” For example, on June 20 the ACCC announced a recall of some HP Notebook batteries
“supplied with certain HP, Compaq, HP ProBook, HP Envy, HP Pavilion Notebook computers”. It warned they “have the potential to overheat”, causing a fire and burn risk. Liberty warns incidents like those surrounding hoverboards are “unlikely to be isolated in this world of constant innovation and easily accessible, cheap manufacturing”. “Consumers have a voracious appetite for fun, innovative and reasonably priced products – we need look no further than the increasing popularity of drones, e-scooters and wearable technology for proof – and where there is demand, someone will find a way to satisfy it,” it says. The risk posed by lithiumion batteries may persist for some time, and fresh risks will likely emerge as new technology is developed. It’s the price of progress and, in the long run, a price worth paying. As Mr Rosenthal notes, developments such as the Tesla Powerwall – a large battery unit that can store a home’s solar energy for use during the night-time hours – “is something to get excited about”. As for hoverboards, in their current guise they could already be a thing of the past. “At the end of the day, hoverboards are going to be like in-line skates. They’re going to be fun for a while, and then people are going to move on,” Mr Rosenthal says. “I don’t think it’s got legs, * so to speak.”
Hot – sometimes too hot: Melburnian Tony Tran exercises his hoverboard
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Culture club A unique working environment is central to the McLardy McShane success story By John Deex McLARDY McSHANE IS NOT YOUR average insurance brokerage. Not only does it run a significant authorised representative (AR) operation alongside its expanding branch network, but it also has a decidedly “non-corporate” culture. Staff happiness and giving back to the community rank right up there with the more traditional indicators of success. “We’re big on having fun,” Chief Executive Don McLardy says, producing as evidence a stuffed toy gorilla that serves as a monthly staff award (more on that later). “Of course, performance is vital too,” he adds. And who could doubt it. From humble beginnings business is booming and growth shows no sign of slowing, despite these difficult economic times. From his stronghold in the inner Melbourne suburb of Richmond, Mr McLardy explains that he “fell into” insurance – like pretty much everyone else in the industry. He was at an accounting practice in the 1980s when he began working on the Oil Agents Mutual Provident Society scheme, or OAMPS, run by one of his clients. He later accepted a role as OAMPS’ inhouse accountant, and spent the next 18 years there as the business developed, eventually shifting into insurance and running the Australian operation. But after some original shareholders were bought out, the direction of the company changed, and in 1996 “we decided to part ways”. Then came a call from Ian Carr, who was about to set up Insurance Advisernet (IA). “It was really the start of the AR model,” Mr McLardy tells Insurance News. “I started by looking after Victoria, South Australia and Tasmania, and got a bit of equity in the company. Under that I started to build my own little book of business.” Also at IA was Mr McLardy’s great friend, Mike McShane. In 2007 they decided to bring their books together and McLardy McShane was born. The business grew quickly. In 2011 it separated from IA and joined the Steadfast Group. 52
“McLardy McShane outgrew the IA model, which was really designed for smaller ARs,” he says. “We were an AR, but I was also a director and shareholder. “Our own business was growing quite big and that was giving us a few internal conflicts. It just came to the point where we thought it was best to go our own way, so we left and got our own Australian financial services licence.” A three-year non-compete agreement restricted McLardy McShane from building its own AR division, so the initial focus was on building the branch network of the broking business. But from 2014 “we kept getting approached by people who wanted to join us, to become ARs. Because we had some experience in the AR space we thought we could probably develop that. It has snowballed from there.” Today McLardy McShane has branches in Melbourne, Bendigo, Shepparton, Rosebud, Warrnambool, Albury, Horsham, Kingscliff, Kerang and Swan Hill, and more than 20 ARs. There are also a number of other joint ventures, with the company diversifying into
more than just a general insurance provider.” Mr McLardy became the president of AFL club Melbourne in 2012, and freely admits the role took him away from the business for a while. “I was on the board and close to [late AFL legend] Jim Stynes. When he became president he made me vice-president. We had a mutual love of the Melbourne Demons footy club. We were going to save the world and win a premiership. “Then, of course, Jim got terribly sick with cancer. When Jim died and I assumed the presidency, I was virtually in there fulltime. Mike and the guys here were fantastic and held the fort.” In 2013 Steadfast listed and an equity swap took place, sparking the end of Mr McLardy’s Demons tenure. “Steadfast bought into our business, and we took a bit of equity in the float. Part of that deal was that I had to really get myself back into the business. I’ve only been back the past couple of years, and we’ve grown really strongly. “We’ve just finished our figures and we think we’re about 9% up over last year. Some
“If you can team up with the right people, why wouldn’t you have a mortgage service or a funding service or equipment finance?” financial services including life risk, trauma cover, corporate superannuation, mortgage finance and equipment finance. “We’ve also got a little premium funding business we are looking to develop,” Mr McLardy says. “We’ve got a full range of products and services, and I guess that’s the masterplan. “We’re the ones who make that division between general insurance and life insurance. The client doesn’t see it that way – they think insurance is insurance. I’ve always thought that was a bridge we should be able to cross. “It’s logical. If you can team up with the right people, why wouldn’t you have a mortgage service or a funding service or equipment finance? A lot of our clients use that sort of stuff. “We haven’t mastered it completely yet, but it’s definitely part of our strategy to be insuranceNEWS
areas and some branches are better than others, but overall we think that’s a really good result in a tricky market. “That’s organic growth – with acquisitions we’ve been growing at about 60-80% the past three years in terms of turnover. Rapid growth brings its own challenges, but even though we are growing quickly we’ve put in a structure that allows us to grow. “We don’t feel like we’re totally out of control. A little bit out of control, but that’s the way we like it. We can keep growing.” Group premium income sits at about $70 million, with an almost even split between the AR and broker divisions. In 2011/12 it was less than $20 million. And, he says, it’s profitable. “We want to get to $100 million [in premium] as fast as we can. We just think it helps our range of services, buying power, ability to invest in businesses…
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Don McLardy: our culture is like an amoeba
“All those things are served by being a bit bigger.” It’s a remarkable growth story – and Mr McLardy believes the company’s culture has played a huge part. “We are just massive on our culture and what we are trying to build. I have an amoeba theory. I think our culture is like an amoeba. It attracts the same type of people, and they get sucked into our environment. “But also it expels people that don’t fit in. It means we are very good at attracting and growing with the same types of people.” The firm also seems a long way away from stereotypical corporate cultures. “We’re very big on having fun,” Mr McLardy tells Insurance News. “We’re very professional, but you’ve got to enjoy what you do. It’s about old values with new thinking. “We value the things that we loved about the past 40 years of doing business – the relationships, not just with the clients but with insurers, with all your staff, with all your families. We have tried to keep that in what we do. “We don’t want to be too corporate, too pedestrian. We like to have flair and fun and be entrepreneurial. “The culture is the most important
thing. Our parties and get-togethers are sensational fun because everybody’s got the same feel and way about them. We love what we do, we’re proud of what we do and we enjoy it.” The gorilla trophy is just one example of this mini-rebellion against corporate philosophy. Mr McLardy introduced it during his OAMPS days, as a veiled reference to the fact his team had to act as guerrilla fighters because they weren’t able to go head-to-head with the bigger players. It was deemed inappropriate – but he took it with him when he left and 20 years later it’s still going strong (minus one eye). “This is our business and we’re driving it the way we want with the people we want and building the culture we want,” he says. Relationships are also at the core of the business, and those strong bonds have been worth their weight in gold as soft market pressures have squeezed brokerages. “We’ve always been a relationship broker and we are not in the business of squeezing rates down. “Obviously clients want a good price, but we advise all our clients about the value of having a long-term relationship with insurers. insuranceNEWS
“There is a prize that you get for loyalty when those claims issues come up. If a [client’s] entire operation is lying in ashes, it’s nice to be able to say, ‘I’ve been with the same insurer for 12 years’. “Pricing pressure is always there, but we are not movers of business simply for price. Our good clients understand and agree. “We don’t like those mercenary clients that chew you up and spit you out just to get a cheaper price. If they come to you on that basis, they are going to leave you on that basis. “We want clients that will listen to advice and respect it. That’s the value we add. It’s really critical. That, in a nutshell, is how we try to build the business.” Mr McLardy believes a strong focus on relationships can cut through some of the vagaries of the insurance cycle. “We’ve been through all cycles. I am a bit ambivalent about where we are at the moment because we’ll be somewhere in between a really soft market and a really hard market and you’ve got to be able to deal with it. “You need different skills to survive in a hard market, soft market and everywhere in between. The one thing that holds through is relationships. If you’ve got your relation53
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Reaching out PART Of THe McLARDy McSHANe culture is giving back to the community. A number of good causes are supported, but none more than the Reach foundation. The charity, cofounded by the late Jim Stynes, aims to improve the wellbeing and build the resilience of young people. McLardy McShane has raised more than $1 million in total. “That’s something we are really proud of,” Mr McLardy says. “Reach does some fantastic things. We love being involved and so do our staff. “We just think we are very lucky. Mike [McShane] and I have got happy, healthy families, and if we don’t give back, then maybe we’ll get hit by the karma bus. “Supporting communities is a key part of our culture.” Mr McShane (left) and Mr McLardy (right) are pictured with entertainers Hamish Blake and Andy Lee at a Reach function
ships right, there’s a good chance you’ll hold on to your business, whatever the market is.” The AR model has a bright future, Mr McLardy tells Insurance News, despite the recent Winley collapse and Westcourt’s sale to IAG. “It’s obviously a changing part of the industry,” he says. “It started off with the traditional brokers hating the AR model because they saw it as an insult to the broking industry. “I think everyone’s progressed past that. There’s a great role for the smaller operator who wants to have support at the back end, but who’s better at the client end. I reckon that’s fantastic. “It’s given heaps of professional insurance people the opportunity to run their own business while being free of the corporate role, which is also a huge plus. “IA has been a great success story, Westcourt the same. There is a future for ARs and I think there will always be a place for them.” The Winley collapse was no reflection on the AR model, or the ARs themselves, he says. “Mike and I were really disappointed for the industry. It was pretty poor that it could be allowed to occur. 54
“And we were disappointed that the ARs were put up as the bad guys. We knew some of them as former IA guys, and we were talking to them and they basically had no contact and no idea what was going on. “They were left in the lurch. We contacted as many as we could to say we’d be happy to talk. “You could say it was about capitalising on a collapse and, sure, that’s part of it. But the real driving force was that we knew some of those guys and thought this was a really unfair position for them to be in. “We ended up getting about six of the Winley ARs coming across to us. The problem with Winley wasn’t based around the ARs or the AR model.” Mr McLardy says plenty of brokers have dipped into the trust account and bolted in the past. “It’s no different to that. It’s not an AR issue, it’s an industry issue.” Brokers will always have a role, he believes, but understanding the growing popularity of the online space will be vital to surviving the changes and challenges of the next decade. “Being able to access products online is massive, and it’s going to be the way of the future, so we’ve got to get our heads around that. It’s one of the key planks to look at over insuranceNEWS
the next couple of years and to get right. “We’ve dipped our toe in the water already with McLardy McShane Direct, which is backed by CGU, but there is a lot more to do. “I am a huge fan of Uber, I’ve been on it for several years now. My question to our people is, what’s the Uber of insurance, what is coming, and what can we do to make us the Uber? “Who knows what is going to happen and what will be possible, but why shouldn’t we be doing that stuff? “We keep a really innovative and entrepreneurial thought about where we’re going and we can be at the forefront of all that.” So what now for McLardy McShane? More of the same, really – growth, teaming up with like-minded people and sticking with that unique brand of workplace culture. “[Mike and I] reckon we’ve got five or six more good years of building the business,” Mr McLardy says. “People keep asking, are we growing it to sell? “We’re sort of not. We’re more into thinking that this is a business our families can keep going. It is certainly not being geared up to float or anything like that. “We are just a little bit different and we’re * having a lot of fun. Long may it last.”
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Seven Sisters, by Gabrielle Possum Nungurrayi
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Closing the gap Insurance companies are backing up words with actions on indigenous employment By Michelle Hannen
WHILE THEY MAY LAG BEHIND THE BANKING SECTOR, Australia’s insurers are beginning to throw their weight behind efforts to increase indigenous employee representation in their own companies and in corporate Australia generally. IAG is further along the path than others, but its commitment to indigenous communities runs much deeper than aiming to bolster the numbers of Aboriginal people working within its ranks. The company also backs the Reconciliation movement and the campaign to have Aboriginal and Torres Strait Islander people recognised in the Constitution. IAG launched its Reconciliation Action Plan (RAP) in 2013, accredited by Reconciliation Australia, becoming the first insurer to do so. To support its work, the insurer has a dedicated Indigenous Engagement Manager, Phil Lockyer, who joined the company in 2014 from Commonwealth Bank, where he was indigenous employment manager. Late last year a second RAP was adopted, furthering IAG’s commitments. Classified as a “stretch” RAP, it sets targets to ensure good words turn into actions. The plan comprises 15 commitments, ranging from embedding awareness and understanding of indigenous cultures among staff to making Aboriginal communities more resilient and providing career development opportunities for talented indigenous university students. IAG has formed partnerships with a range of indigenous organisations to fulfil its RAP commitments, including Jawun, which helps
deliver projects led by indigenous people. The insurer’s staff complete secondments to lend expertise to indigenous organisations. IAG is also involved with the Australian Indigenous Mentoring Experience, with staff participating in mentoring sessions with students. As a foundation member of Supply Nation, an organisation that links the supply chains of corporate Australia with certified indigenous companies, IAG sources several of its supply chain needs from Supply Nation-certified businesses. It has a commitment to increase the number with which it works to 12 over the next three years. While cynics might dismiss such initiatives as box-ticking on the corporate social responsibility scorecard, Mr Lockyer says the RAP work is crucial to bolstering numbers of indigenous staff. “You have to build the foundations,” Mr Lockyer told Insurance News. “The more our people understand the issues and are engaged, it is a natural progression to ask, ‘What does our employment base look like?’.” This is a view supported by Reconciliation Australia. Last year’s RAP Impact Measurement Report – an annual review the group conducts of RAPs in place across corporate Australia – found RAP partners employed 35,000 indigenous people. Mr Lockyer says IAG is starting from a low base, with less than 1% of its Australian workforce currently identifying as Aboriginal or Torres Strait Islander. It aims to increase that to 1.5% – or 130 employees – by the end of 2018, when the current RAP ends. It is working towards a goal of 3% by 2020, which Mr Lockyer says would achieve parity with the Australian population.
While cynics might dismiss such initiatives as box-ticking on the corporate social responsibility scorecard, the work is crucial to bolstering numbers of indigenous staff.
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Making an impact: Adam Rhodes (far left) and David Liddiard
Origin Insurance Brokers is all about opportunity and ambition ANOTHeR INSURANCe BUSINeSS COMMITTeD TO CLOSING the gap is Australia’s first majority Aboriginal-owned corporate broker, Origin Insurance Brokers. The company was launched early last year, set up by thenchief executive of Lockton Australia Adam Rhodes. Mr Rhodes says the formation followed his attendance at a Harvard Business School seminar about creating shared value in business, and how aiding societal change has moved beyond simply donating to charities. He says closing the gap is not a question of “throwing money around, but about changing the attitudes of middleclass Australians”. “As an industry we just completely live in a bubble,” Mr Rhodes says. With the concept forming, a chance meeting with former rugby league player and pioneer in creating business opportunities for Aboriginal people, David Liddiard, followed. That led to the question: why can’t we develop an Aboriginal insurance brokerage? The formation of Origin followed, with Chief executive Mr Liddiard owning 54% of the business and Lockton Australia the remainder. Origin received Supply Nation certification earlier this year, becoming Australia’s first Supply Nation-certified corporate insurance broker. This helps businesses that buy insurance through Origin meet their indigenous procurement thresholds, which are required by many large organisations under their corporate social responsibility scorecards, and by all businesses that contract to the Australian Government. Origin has 10 employees, three of whom are young indigenous people. Aside from Mr Liddiard and Mr Rhodes, the remaining five are on permanent secondment from Lockton. It has offices in Sydney, Perth and Darwin, shares Lockton’s office in Melbourne, and currently trades as an authorised representative of Lockton. Origin is applying for its own Australian financial services licence, and Mr Rhodes says it will trade as a registered broker in its own right “sooner rather than later”. With Origin looking to emerge from Lockton’s shadow, Mr Rhodes recently stepped down as chief executive of the latter to take up a full-time appointment as Managing Director of Origin. The business wants to become a major national broker, and Mr Rhodes says his role is to help Mr Liddiard grow the business, to compete with the “big boys”. “It’s a hugely powerful opportunity, not only from a business perspective but also to lead the way in the financial services industry,” Mr Rhodes says. However, merely being an Aboriginal broker is not enough. Origin’s business also comprises the Origin Leadership fund. The fund, sponsored by insurers Vero, Allianz and CGU, provides financial support to indigenous Australians undertaking postgraduate qualifications and pursuing leadership roles. Suncorp says it is committing significant funding toward the fund over the next five years. It also opens up fast-track leadership positions with participating financial institutions. Mr Rhodes says the fund will play a significant role ensuring indigenous people fill more senior executive positions in the industry. “We wanted to be genuinely having an impact,” Mr Rhodes says.
Employing such talented graduates and retaining them as they climb to positions of responsibility and influence can have a huge trickle-down effect.
“It’s a big target, given we’re starting from a very low base,” he acknowledges. “It’s a target that might be difficult for us to achieve, but we want to be aspirational.” One of the insurer’s strategies is to make 22 internship opportunities available to indigenous university students each year through a partnership with CareerTrackers, an organisation that helps indigenous students work with corporations during their university breaks. Based on INROADS – a successful internship program in the US that has been introducing ethnic minorities to private sector employment for more than 40 years – CareerTrackers offers interns paid, multi-year placements with the aim of converting them into full-time employees upon completion of their degrees. IAG began working with CareerTrackers in 2013, and in 2014 it became the second of 15 Australian companies to agree to provide a minimum of 15 internships a year for the next 10 years. It is the only insurer among the companies, which include major banks, law firms, energy suppliers, construction businesses and airlines. IAG currently has 22 interns working in Sydney, Melbourne, Brisbane, Wollongong, Newcastle, Darwin and Perth. They are rotated through different parts of the business (see panel on page 56). Mr Lockyer says IAG now takes the third-largest number of interns among companies with which CareerTrackers partners. He says, so far, IAG has taken one intern on as an employee, while two interns graduating from the program this year are “potential employees”. With six interns graduating next year, the numbers should begin to increase. “In the space of a few years, hopefully, CareerTrackers interns will be managers,” Mr Lockyer says. While indigenous Australians are usually found in lower-paid, entry-level roles, Mr Lockyer says employing such talented graduates and retaining them as they climb to positions of responsibility and influence can have a huge trickle-down effect, changing the culture of a company and building its reputation in the indigenous community. He acknowledges that increasing the number of indigenous employees in everyday roles remains a challenge, but it is a target for which IAG’s RAP has several measures. August/September 2016
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Q&A with IAG intern Samuel Rasmussen A PROUD DHARAWAL MAN fROM SOUTHeRN SyDNey, 20-year-old Samuel Rasmussen has lived in the area all his life. He is in his third and final year of a bachelor of arts degree majoring in history, politics and philosophy at the University of Wollongong. He became involved in the CareerTrackers program aged 17 and has interned at IAG for three years across five internships. What has been the most valuable aspect of CareerTrackers? I found it hard to transition into university. even with the assistance of my community and university, it was difficult to find a connection between my studies and personal life. My grades were appalling and finding a place for myself was difficult. Nearing the end of my first semester, a student adviser from CareerTrackers asked me to come and join one of their meetings. I am certain that if I hadn’t been brought into the program, I would have lost interest in my studies and dropped out of university. CareerTrackers does so much more than provide an internship for indigenous university students. Instead, it is a pervasive organisation that changes not only the way you see yourself, but also transforms relationships between friends and family, university and communities. What was your view of the insurance industry before you started working with IAG, and has it changed? I understood next to nothing about insurance or financial services before joining CareerTrackers and IAG. At the time, New South Wales was recovering from severe fires in the Greater Blue Mountains, which destroyed so many homes and lives. However, even through that loss and hardship there would be protection for those who planned ahead. Making a difference is essential to driving my work ethic, and providing safety in terms of insurance is really rewarding. What are your ambitions beyond finishing university? My ambitions for my career and future are still unclear. But with my gained experience, knowledge and passion I’m sure there will be exciting and challenging times ahead. I plan to travel the world and meet as many different people from as many different backgrounds as I can. I think it is important to understand people, because this is the foundation to building relationships and growing stronger together. Would a career at IAG be something to which you now aspire? Aligning with a company such as IAG would be an aspiration for me after my studies because I believe it would sharpen my skills immensely. The corporate world is changing, I believe for the better, in terms of understanding that people and culture are important to delivering outcomes for consumers and investors. IAG is a company I am proud of for its leaders who emphasise the importance of culture and understanding, and I’m honoured to work here in these exciting times.
QBE Australia is also working to increase indigenous representation in its workforce, as part of a wider diversity and inclusion strategy.
The document lists promoting the insurer as an employer of choice through indigenous media outlets, employment agencies and community organisations, advertising career opportunities with IAG through indigenous media channels and engaging with indigenous employees to consult on employment strategies, including professional development strategies, to help it meet its ambitious 2020 target. QBE Australia is also working to increase indigenous representation in its workforce, as part of a wider diversity and inclusion strategy. It introduced a RAP last year, formulated with input from a diverse group of employees and an indigenous consultancy. “As a listed Australian company, we thought it was very important to have a RAP,” Chief Human Resources Officer Sally Kincaid tells Insurance News. QBE has partnered with Jawun since 2011, with staff completing six-week secondments to lend expertise to indigenous organisations. Senior QBE executives, including Australian Chief Executive Tim Plant, have completed two-day executive immersion programs in indigenous communities through Jawun. The insurer also has an indigenous ambassador – former Sydney AFL player Michael O’Loughlin, who recently addressed staff about Aboriginal issues during NAIDOC week. Ms Kincaid says such involvement is crucial to raising awareness. Like IAG, QBE is also involved with CareerTrackers, offering internships to indigenous university students since last year. Ms Kincaid describes its involvement as a “pipeline approach” to increasing Aboriginal employment. The insurer also uses its graduate recruitment program to advertise QBE to indigenous students, has begun advertising employment opportunities in the indigenous media and plans to develop an indigenous employment and retention strategy by March next year. Australia’s other major listed insurer, Suncorp, has an employee diversity strategy with a focus on gender equality, mature age and people with disabilities. It, too, participates in secondments via Jawun, but does not have a RAP. A spokesman says Suncorp is looking – at * group level – at ways to boost indigenous employment. August/September 2016
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The blockchain gang Distributed ledger technology could revolutionise the way the industry operates By Wendy Pugh A DECADE FROM NOW INSURERS MAY look back on 2016 as the year blockchain announced its arrival and heralded a transformation in the way business is transacted. Lloyd’s is looking into the technology’s benefits, it’s on the agenda of companies such as Allianz and Swiss Re, the Insurance Council of Australia (ICA) has started to use it and a bevy of start-ups are exploring opportunities. Just a few years ago blockchain was mainly associated with the elusive Satoshi Nakamoto, an alias used by the inventor of the Bitcoin digital currency, which was proposed in a 2008 paper and established using the new technology in 2009. Since that mysterious beginning Bitcoin has had a chequered existence, while the blockchain technology underpinning it has gone from strength to strength. Swiss Re says the European Central Bank and NASDAQ, the second-largest stock exchange in the US, are contemplating blockchain technology for multiple applications, and it could reduce worldwide banking infrastructure costs by $US15$US20 billion a year by 2022. “The blockchain could revolutionise industries where heavy documentation is 62
needed, including the insurance sector, where it could challenge the traditional underwriting value chain thanks to its potential for efficiency,” Swiss Re says in its latest Sonar report on emerging risks. Ideally, blockchain will make transactions more transparent and secure, increasing trust and combating fraud while lifting speed and efficiency. “Blockchain is a very interesting and even, actually, a brutally simple approach to handling the transaction of data,” ICA General Manager for Policy, Risk and Disaster Planning, Karl Sullivan, tells Insurance News. “Once you divorce yourself from it being a currency model there are some really interesting things that you can start to do with it.” The technology allows blocks of tamperproof information to be “chained” together, shared and verified by participants, creating a watertight record that removes the need for confirmation by middle parties. It is also known as distributed ledger technology, because the same cryptographically secured data is shared in a decentralised network, with the verification process continuing as new actions build on the chain. Mr Sullivan says it has the potential to handle natural hazard data from millions of addresses in Australia, where currently it is a major challenge to move around information and exchange it across the industry. “We are using it internally to manage some of our processes, a little bit around insurance fraud but mostly around hazard data analysis and research, and we think from that we will start to see it adopted in some of the cross industry processes,” he says. insuranceNEWS
Combine digital smart contracts with the technology and its potential goes to another level. In insurance, examples could include inserting triggers for claims that are automatically confirmed and paid when an event such as a natural disaster or crop frost damage occurs. “The benefit for the customer is an automated transaction without any effort needing to be exerted on their part,” Accenture Insurance Strategy Lead for Australia and New Zealand Ravi Malhotra tells Insurance News. “For the insurer, there is a minimised transaction time, as well as minimal to no cost associated with the claims assessment and settlement process.” Allianz Group Head of Disruptive Technology Michael Eitelwein says blockchain is “obviously a fascinating technology and we are starting to explore the use of it in several fields”. Catastrophe swaps and bonds – where investors take on the claims risk for disasters such as hurricanes in return for assured payments – are prime candidates for the technology. Allianz Risk Transfer (ART) and Bermuda-based Nephila Capital have this year successfully piloted a blockchain smart contract for a natural catastrophe swap. “By replacing the human interventions, which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed, with a radical effect on the speed and efficiency of the process and, in the case of bonds, on the tradability of such securities,” ART’s Bermuda-based Chief Underwriting Officer Richard Boyd says.
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Lloyd’s is also investigating the technology, as it seeks to improve market efficiency through its Target Operating Model (TOM) modernisation program. London Market Group Innovation Council Chairman Justin Emrich – also Atrium Underwriters Chief Information Officer – says blockchain is one of several emerging technologies that could bring innovative, and possibly even disruptive, opportunities for new products and market-changing processes. “As part of the TOM innovation stream we are investigating the potential the technology offers and will be exploring what its real capabilities are beyond just Microsoft PowerPoint demonstrations,” he tells Insurance News. “We are undertaking research through a series of proof of concept initiatives to learn more about the technology and the market’s appetite to adopt it.” Start-ups using blockchain capabilities include UK-based SafeShare, which offers insurance, underwritten at Lloyd’s, for homeowners renting out rooms in the sharing economy. The company won “insurance start-up of the year” at the British Insurance Awards in July. Meanwhile, Everledger is digitally capturing the features of individual diamonds and recording transactions through the life of each stone with an immutable distributed ledger, tackling a global problem in document tampering and insurance fraud. Gary Nuttall, Managing Director of London-based Distlytics and a consultant to Lloyd’s TOM project, says the technology
has potential throughout the insurance chain, with any process involving multi-party information exchanges a likely area for uptake. “Risk placement, settlements and claims are all areas that are obvious candidates, but there are many others too,” he tells Insurance News. “The marketplace between broker and underwriter is already a peer-to-peer model, which lends itself well to using blockchain.” Anything that requires significant effort in reconciling between participants’ ledgers will benefit, he says.
pared with insurance. Banks have deep pockets and are willing to spend more money on technology more quickly if it gives them a competitive advantage.” Worldwide, more than 50 financial institutions – including banking giants Credit Suisse and HSBC – have joined the R3 consortium, which aims to design and deliver advanced distributed ledger technologies. Commonwealth Bank, National Australia Bank, Westpac and Macquarie are also involved, while Asia-Pacific life insurer AIA Group announced its membership in June, as the consortium diversifies.
“The marketplace between broker and underwriter is already a peer-to-peer model, which lends itself well to using blockchain.” Still, the insurance industry has remained comparatively cautious so far, with banks taking the lead in much of the early blockchain momentum. Mr Nuttall says that, anecdotally, technology adoption in the banking sector is typically several years ahead of insurance. “This is due to a number of reasons, including culture and aversion to risk – ironic in an industry for which risk is its forte,” he says. “Perhaps the greatest influence, though, is the investment appetite of banks cominsuranceNEWS
Stock market operator the Australian Securities Exchange has teamed up with USbased Digital Asset Holdings to investigate distributed ledger technology as a possible replacement for its CHESS trading settlement system. Despite the explosion in interest, doubts linger over whether the technology really offers the security that is touted, while unknown consequences may lie in store. “At the moment, the technology is immature and doesn’t have the level of robustness and maturity that more tradi63
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tional technologies provide,” Mr Emrich says. “Executing a series of [proofs of concept] will give us an opportunity to properly evaluate the potential. “Another risk to the sector is if a new incumbent uses the capabilities the technology provides to develop new products or markets and gains a ‘first mover’ advantage over the existing incumbents.” Swiss Re, which judges blockchain to be a medium risk more than three years down the track, warns reliance on distributed ledgers in many walks of life may increase exposure to cyber risks, despite the technology seeming difficult to hack by conventional methods. Regulators may also rush in with illadvised rules, in a desire to act early and to avert criminal activities. “Regulators are seeing the blockchain as uncharted territory to be penetrated, which could eventually result in over-regulation or inadequate regulation, distorting and stifling the growth and application of the technology,” Swiss Re says. The Australian Securities and Investments Commission and counterparts such as the UK Financial Conduct Authority and the US Securities and Exchange Commission are keeping a close eye on developments. The Australian Transaction Reports and Analysis Centre (Austrac) – a financial intelligence unit that fights money laundering and terrorism funding – is also alert to the opportunities and dangers. The Turnbull Government’s March fintech statement highlights the need for a guiding legislative framework and rules for 64
algorithms encoded by the software to ensure resilience against criminals. “Austrac will work with stakeholders to realise the potential of new technologies such as blockchain,” the statement says. Looking ahead, there may be implications from European regulations to step up personal data security from 2018. And the arrival of quantum computing, once in the realm of science fiction, could present challenges for existing crypto-security. Mr Nuttall says the pace and scale of blockchain adoption may have a precedent in
being caught off guard should a revolution in the financial system take place, while insurers can also benefit from being ahead of the game. “This is an opportunity to develop new blockchain-based products, which by virtue of their transparency and greater efficiency will be able to reflect new risks and markets,” it says. Accenture says early movers in the banking sector are stepping up their investment, with global spending specific to the capital markets alone estimated to rise to
“This is an opportunity to develop new blockchain-based products, which by virtue of their transparency and greater efficiency will be able to reflect new risks and markets.” the rise of the internet and World Wide Web based on the TCP/IP and HTTP protocols. “Both took in the region of 10 years from initial establishment through to industrialisation,” he says. “It doesn’t seem unreasonable to assume that blockchain will follow a similar timeline of 10 years to mainstream adoption.” If Satoshi Nakamoto’s first paper on Bitcoin is used as a starting point, that would take the timeline to 2018. Munich Re advises it is wise to take a serious look at the issue now, to avoid insuranceNEWS
$US400 million by 2019 from $US75 million in 2015. Early adoption by financial services businesses will likely take hold next year, with applications maturing by 2025, the consulting company estimates. Other industries are likely to follow suit as take-up widens. “Blockchain also has the potential to become a general-purpose technology – a breakthrough like the steam engine, electricity or the internet that changes how society and the economy work,” Accenture * says.
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Time to get moving A new report suggests insurers in Australia and around the world are still struggling to align their transformation strategies with new business realities By Bernice Han
INSURERS HAVE HALF THE equation right: they know they need a new plan to avoid succumbing to a growing wave of unorthodox challengers. Where they’re struggling is figuring out exactly what that new plan should be. Unless they get that bit right, efforts to revamp their business models will most likely fail. A new KPMG global report illustrates just how wide of the mark some insurer transformation initiatives have proved to be. It interviewed more than 70 senior insurance executives around the world, and found only 5% rate the results of their change initiatives as “close to ideal”, while more than half say their outcomes are “not ideal or far from it”. “Many seem to feel they are not seeing sufficient value from their change initiatives,” the report says. “More than half of the insurers in our survey [say] they are not capable of extracting and maintaining value from their business transformation initiatives. “And more than onequarter… failed to achieve the value they expected from their last transformation initiative.” Their cause is not made easier by the industry’s selfdescribed management skill deficit when it comes to running transformation programs. About 42% of survey respondents say they lack the management acumen to achieve change objectives, while just 47% say they are capable of organising transformation strategies into a portfolio of interdependent initiatives. 68
“To truly reinvent the business, insurers need to be able to look across the organisation to understand all the interdependencies and then bring a robust change management capability to bear, to ensure all the initiatives align to achieve their future-state vision,” KPMG Canada Partner People and Change Soula Courlas says. “Taking a portfolio view of your transformation allows organisations to pull multiple levers at once, finding the right combination for their organisation and objective.” The area in which insurers appear to get it wrong is the influence of changing consumer needs on their transformation agendas. They acknowledge the requirement to stay attuned to clients’ needs, but less than a quarter of respondents to the KPMG survey expect changing consumer behaviour to disrupt their operating models. More than a third expect government policy or enforcement agendas to affect their models over the next three years, and another third say they need to change to balance the pressure for new growth against the reality of tighter budgets. “We would argue that customer behaviour should actually be the inspiration behind insurers’ efforts to reinvent themselves,” KPMG Canada Global Insurance Innovation and Change Lead Partner Mary Trussell says. “The fact less than onequarter expect to be disrupted by changing demographics and preferences suggests insurers may not have their eyes on the ultimate prize.” insuranceNEWS
Perceived as the greatest threats to organisational transformation objectives Regulatory changes
Organisations outside your industry Disruptive technologies Start-ups and venture capitalists Changing customer demographics Traditional competitors in your industry Technology giants
37% 36% 32% 30% 25% 23%
Organisations in adjacent industries
22% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Perceived as the greatest barriers to a successfulbusiness transformation initiative Lack of change 42% management acumen Metrics poorly defined 40% Inadequate or legacy 37% technology Underestimation of the 34% significance Existing corporate 25% culture Resource constraints 21% Limited or poor decision-making Poor alignment with customers’ needs
21% 19% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Source: Global transformation study, KPMG International, 2016
French insurance giant Axa – one of the case studies featured in the KPMG report – believes it has found a formula to place the customer at the heart of its transformation program. It has made significant efforts over the past five years to create a centralised core in Asia with a common set of adminisAugust/September 2016
tration systems and practices, to achieve its vision of becoming the “most customer-centric” insurer in the region. Reaching out and staying relevant in Asia, where insurance demand is widely expected to outpace the global industry, is a priority for the French insurer. “The notion of having an ongoing relationship with a cus-
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We’re always thinking about brokers. Specialist Underwriting Agencies Pty Ltd is an independent, Australian owned and operated underwriting solutions provider. Since 1992 our thinking has been about our broker customers, and providing you with a diverse range of quality products. SUA is one of the few truly independent underwriting agencies in Australia. We don’t engage in retail broking. We don’t deal with unlicensed intermediaries nor unauthorised Insurers. Product development and claims management are our strengths, meaning we are Always Thinking of ways to achieve the best possible solution for your clients. We are aware of the ever-changing demands of the Australian insurance market, so better able to offer a range of products that will satisfy your clients’ needs.
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The world is speeding up: KPMG Australia’s Scott Guse
“The incumbent insurance companies are now in an epic race to transform themselves to avoid becoming disintermediated by new digital competitors.” tomer is now actually quite realistic for insurers,” Axa Asia Regional Chief Transformation and Customer Officer Peter Roschke says. “We have a regional transformation team that works closely with local transformation teams to share ideas, solutions and often even talent, in order to bring great ideas to the wider group. “We work hard to attract the right talent with a collaborative mindset, to allow good work to be replicated quickly and costeffectively. This diverse culture of inclusion, innovation and trust we foster enables us to build strong teams to drive mindset change.” Australian insurers face the same pressure to find answers as their global counterparts, but their singular focus on the local market has afforded them some advantages over foreign contemporaries. “They are generally smaller and are confined to one geographical region, which means they are more nimble and able to accept change easier than some of these global giants,” KPMG Insurance Partner Scott Guse tells Insurance News. Local insurers have so far been spared much of the grief experienced by their global counterparts as the technologyled invasion makes significant inroads, especially in Europe and the US. And on the regulatory front, Australian insurers have proven adept at meeting new benchmarks. But they should not be lulled into a false sense of security. “I can’t see an Armageddontype event in the next 10 years for the insurance industry, but I 70
can see a lot of changes on the horizon, which will transform [insurers’] business models considerably,” Mr Guse says. “They do certainly need to change various parts of their business to be competitive.” Suncorp’s $US5 million equity investment in US-based technology developer Trov provides a strong hint on the nature of this change, Mr Guse says. “Digital and online models will be mandatory. It will be more cost-effective to do it. Customers are heading more towards online. I can’t imagine people wanting to fill out forms like they are doing now.” The Trov app allows customised contents insurance, giving clients the flexibility to decide which items they want covered using their mobile phones. Following the investment Suncorp rolled out its “world-first” on-demand insurance platform, Trov Protection. The platform is aimed at tech-savvy Millennials who treat mobile devices as more than just communication tools. Their phones have become indispensable for routine tasks such as banking, booking air tickets and scouting for insurance products. “People are investing in new technology advances – the world is speeding up, it’s not slowing down,” Mr Guse says. The KPMG report cautions against underestimating the digital threat, which could drive some household names to extinction. “The incumbent insurance companies are now in an epic race to transform themselves to avoid becoming disintermediated by new digital competitors,” KPMG Global Head of Insurance insuranceNEWS
Asked to rate outcomes of business transformations at their organisations, respondents replied:
57% Not ideal or far from it
Between ideal and not ideal
Close to the ideal
Source: Global transformation study, KPMG International, 2016
Strategy Tom Nodine says. “There’s a possibility that a number of major insurance names we know today may not be here in 10 years.” About 36% of respondents surveyed list disruptive technologies as major threats to their transformation plans, just behind the 37% who name regulatory changes and non-insurance industries as the joint top risks. “This reinforces the need to be able to pivot and adjust your transformation strategy as the market changes,” KPMG Partner Strategy in Hong Kong Simon Phipps says. “Organisations that are looking 5-10 years out with the right vision, the right futurestate business model and a flexible approach to transformation should be able to adapt to disruption and still achieve their objectives.” Insurers should be given credit for making the effort to revitalise their agendas. August/September 2016
About 27% of respondents have started implementing a transformation initiative within the past two years, and 8% have completed several major projects recently. Some 53% rate themselves capable of achieving short-term transformation gains and 63% consider themselves capable or highly capable of designing a robust target operating model. “Insurance organisations are, on the whole, rather good at tweaking, monitoring and improving their business and operating models,” KPMG UK Management Consulting Partner William Pritchett says. “Insurers can often be very keen to optimise the suboptimal and reiterate the process.” KPMG International commissioned Forbes Insights to carry out the survey early this year. Almost half the insurance respondents are from Europe, with 33% from the Americas and 19% from * the Asia-Pacific region.
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Starving to death
The National Motor Vehicle Theft Reduction Council has done a great deal to tackle car crime, but now it faces a fight to survive By Kate Hanley
ON THE DAY INSURANCE NEWS VISITS Ray Carroll, Executive Director of the National Motor Vehicle Theft Reduction Council (NMVTRC), Victoria Police is holding a forum with external parties to discuss tackling car theft in the state, which has spiked 30% in the past year. It is painfully ironic, given Mr Carroll’s organisation has been doing exactly that for the past 17 years – and successfully so. Since the NMVTRC was formed in 1999, car theft has fallen nearly 300%. Despite this, the Victorian Government has withdrawn its $300,000-ayear funding contribution, putting the group’s existence in jeopardy. Given insurers match governments’ contributions dollar for dollar, the true loss of Victorian support is $600,000 a year – a potential death blow for an organisation that has been running on a meagre $2 million a year. Its only hope is that either Queensland, which withdrew in 2012, or Victoria will jump back on board. If the council is forced to wind up, Australia risks returning to the “bad old days” of the 1990s, because even though insuranceNEWS
much has been achieved, the landscape of car crime is constantly changing. Car theft increased exponentially throughout the 1990s, peaking in 2001 at 142,000 cars stolen, 34,000 of which were never seen again – in other words, profitmotivated thefts. Since the council was founded car theft had plummeted to 53,000 by March this year, with only 10,500 suspected profitmotivated thefts. The NMVTRC has helped achieve this through reforms that made it harder for organised criminals to steal or launder vehicles and parts. “If you just take the value of the missing cars, that reduced car theft is saving the overall community $450 million a year,” Mr Carroll says. The council has also helped police reduce the number of short-term thefts through data analysis, targeted education and programs aimed at turning around young offenders. Mr Carroll, the former head of Victoria Police’s crime prevention unit, is adamant his organisation is now more relevant than ever. He says the council plays a vital role
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“There are four of us working here. We don’t go out and catch car thieves. All the things we do are about structural reform.”
bringing industry and police together to combat an increasingly complex crime. “Police were saying then [in the 1990s], as they are now saying again with this spike in Victoria, you can’t just arrest your way out of this,” he tells Insurance News. “It takes a much bigger response from a whole lot of parties to actually create the environment where you can start bringing this crime rate down.” And car crime, particularly profitmotivated theft, needs a national approach. “We’ve developed what we call the ‘closed loop’ in terms of vehicle identification. So every car coming into the country is on NEVDIS [the National Exchange of Vehicle and Driver Information System, a national database]. “If it is written off, it is now recorded. When it is re-registered, you know it is coming back into the system. It’s this really nice closed loop across jurisdictions.” Mr Carroll says globalisation is the next big challenge for law enforcement, threatening to “put cracks” in that closed loop. “Export of parts particularly and increasingly whole cars – that is the next big challenge.
“And you can’t fix this by checking containers at the docks, because the manifest will say car parts, or cars. So what? It’s legal. “So what you’ve got to do is control all that at the place where the container gets loaded – at the scrap metal and recyclers’ yards.” Another looming threat to the closed loop comes from the Federal Government’s plan to allow personal car imports that do not require use of a local dealer, a change which is expected to take effect in 2018. Mr Carroll says there will be no way of checking the provenance of such cars, because they will not necessarily have the same identification systems. “In our written-off vehicle regime we’ve said, and insurers have agreed to it and now it is law, if your car is flooded over the door seals it is a total write-off,” he says. “If that happens in a huge yard in the UK, they hose them out and put driers in them and they look perfectly fine. “Those cars will be available to be imported into Australia and there is no way you’ll be able to know the history of the car. insuranceNEWS
“If you are Russian mafia and you’re stealing cars out of the UK, you can stick them in a container and bring them into Australia as a personal import.” Mr Carroll says the answer is regulatory reform – and he wants the NMVTRC to be around long enough to see it. “Being around long enough” has meant Mr Carroll convincing all governments to renew funding every three years – a constant challenge made difficult by the fact many people do not fully understand the council’s role. “There are four of us working here. We don’t go out and catch car thieves. All the things we do are about structural reform, and any sort of structural reform takes time to impact. So this current spike, where car crime has gone up 30% in Victoria in 12 months, isn’t something we would be able to fix immediately. “The response to that is what Victoria Police is actually doing. They’ve formed investigative taskforces that are arresting as many people as they possibly can. That’s how you respond to those sharp spikes.” Mr Carroll says the NMVTRC, in contrast, would look at the fact a lot of 73
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“It is a terribly bureaucratic, convoluted process inside governments to get results. One thing governments are really bad at is dealing with industry.” Proudest reforms are in the youth area: NMVTRC chief Ray Carroll
offenders in carjackings and home invasions are juveniles, and the juvenile justice system is failing to turn youths’ lives around. “The system is actually perpetuating their offending,” he says. Enter Synergy, a social enterprise smash repair workshop based in Melbourne. It was established in 2014 as a partnership between the NMVTRC, Mission Australia and Suncorp. It evolved from previous NMVTRC youth programs including U-Turn and Handbrake Turn. The scheme takes young offenders and capitalises on their obsession with cars, training them to work in smash repairs. Unlike its predecessors Synergy is selffunding and guarantees motivated and hard-working youths a job at a Suncorp workshop. “In terms of our proudest reforms, it is probably in the youth area, because you are not talking about processes and dollars, you are actually talking about changing people’s lives,” Mr Carroll says. If the NMVTRC lives to see another day, Mr Carroll wants Synergy expanded nationally. 74
He says Synergy “provides the skills to know you have to get up in the morning and go to work. You can’t explode when someone asks you to do something you don’t want to do. It’s all these life skills. “Then once they can learn those, they learn technical skills. “And if you’re going to turn around one of these young offenders from a hopeless lifestyle of drugs and theft, the thing you are going to have to give them is a meaningful job.” Mr Carroll says the council’s effectiveness is a direct result of its independence, allowing it to execute projects any government department would deem too risky. “It is a terribly bureaucratic, convoluted process inside governments to get results. One thing governments are really bad at is dealing with industry.” If the NMVTRC ceases to exist before its job is done, Mr Carroll believes the cohesive national approach to car theft will be replaced by a lack of co-ordination and lack of focus, and government agencies stepping back from making change. “I think in a very short space of time, given the way the world works, people will insuranceNEWS
go, ‘Didn’t we do something about car theft once?’ And people who are interested in car theft and in its reduction will be saying, ‘Why don’t we have someone to co-ordinate what happens in this space?’.” The council’s biggest advocates, including the Insurance Council of Australia, the Victorian Automobile Chamber of Commerce and state police forces, are dreading the end of the line. “They’ve all said to me, ‘Once you’ve gone, we go back to where we were 17 years ago, where there was no co-ordination, no one putting a focus on the issue and just expecting the police to do it’,” Mr Carroll says. Police may return to blaming insurance practices for making their job harder. The fact that on the day of our interview officers in Victoria are meeting external parties to discuss rising car theft is proof the problem is too big for police alone. Without a national and independent approach, it will be hard to maintain that closed loop on organised crime, which the NMVTRC has done so much to help * create.
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THE LEGAL VIEW
Artificial Intelligence: Underwriting discipline or underwriting excellence? Riaan Piek, Partner at Wotton + Kearney, explores how the ever-changing digitalised insurance market is being impacted by developments in Artificial Intelligence (AI) and what it might mean for underwriters
Many large insurers and consulting firms are progressively investing in technology and partnering with start-ups that are geared towards disrupting the traditional approaches to underwriting customer services and claims management. Significantly,, AI technologies have the Significantly ability to make decisions based on particular environments. For example, machine learning applications, a component of Robotic Process Automation (RPA), (RPA), have built-in algorithms analysing behaviour and patterns enabling it to make fairly accurate data-driven predictions. Not only do these types of technologies look to automate tasks that historically required significant human involvement, they have the capacity to adapt to the environment of assessments of risks and claim adjustments, detecting any deviation from usual consumer patterns, while also being able to discern human emotions and facial expressions. Having moved from simple computational programming through to machine and deep learning and now cognitive computing and virtual assistance, technology with the ability to make significant decisions is already being utilised in the insurance space. These technologies allow tasks to be undertaken simultaneously,, with the filtering of large simultaneously amounts of data in a short space of time enabling the identification of irregularities to ensure virtually error free analysis and stronger risk-based decisions. Traditionally raditionally,, underwriters might spend around 30% of their time in risk selection and the remainder on routine tasks such as conducting searches and selecting appropriate information. A new cloudbased application available directly to underwriters called Intellect Risk Analyst1 assists underwriters by prioritising highervalue projects over ones of lower value. It also provides underwriters with the ability to access unprecedented insight and data, giving underwriters a thorough
understanding of a business and its commercial exposure, providing them with insight and data to make better informed or quicker decisions. Thereby eby,, effectively mitigating risks. In terms of customers, we are seeing a shift away from traditional methods of communication in favour of the self-service checkout. However, customers still expect assistance when complex processes, including policy recommendations, arise. The ideal compromise might therefore lie within a combination of automation and human intelligence which is already happening in the form of ‘expert systems’. A question answering system (QA) can augment human capabilities by answering more complex issues such as particular risks to which an insured might be exposed to in the environment in which it operates. A further example of this hybrid approach to underwriting is “J.A.R.V.I.S” “J.A.R.V.I.S” (Just A Rather Very Intelligent System) which allows automation to eliminate low risk work, and enables expert discernment solely on specific features of decision making. The combination of ‘smart humans and smart machines’ can clearly deliver a strategic advantage to a business. At the risk of resembling an extract from the Terminator series, this undoubtedly calls for man and machine to co-exist. Insurance revolves around the analysis and processing of information and AI certainly relieves humans from mundane and repetitive tasks. Notwithstanding this, having an expert underwriter in place is conceivably not only easier, but also more cost-effective geographically as opposed to the cost of teaching an ‘algorithm’ to ‘learn’ complex underwriting expertise. The unique skill of underwriting, particularly in complex commercial insurance, provides a particular culture; an abstract term but one which cannot currently be imparted to AI.
1. Roger Peverelli, Digital Insurance Agenda: Intellect SEEC: The future of underwriting is here http://www.diabarcelona.com/intellect-seec-the-future-of-underwriting-is-here/.
Riaan Piek, Partner Partner | Wotton + Kearney
Wher Whereto eto fr from om her here? e? Not only is AI in software form, but just this July the legal fraternity got to meet ‘Lexi’, the first interactive robot, or ‘chatbot’. While Lexi is used predominantly to produce legal documents, the unique feature is that she is able to provide an interactive experience in completing forms online, similar to the experience of interacting with a human. Like financial and legal services, insurance will invariably be influenced by developing technology,, particularly AI, in the coming technology years. To To remain current with the trend, insurers will need to provide seamless experiences for clients in designing cover for risk profiles to ultimately retain business and ensure increased client satisfaction. While intuitive judgement developed by expertise and experience acquired over a prolonged period will remain critical to achieving positive results, there is a case for the many benefits in utilising AI in the insurance space, particularly in the ability to collate data thoroughly. Developments in technology have resulted in greater accuracy in decisions about the risks faced by insureds, meaning that underwriters can better tailor their offering to meet the customer’s needs, better predict emerging trends with appropriate pricing and better support their clients. Machines have arrived and the digital transformation we are experiencing will only become more aggressive. The underwriting community will invariably be faced with an opportunity to either merely follow an old-age discipline, or embrace the new opportunities in the perpetual strive for excellence.
For more more legal updates rrelevant elevant to the insurance industry, visit: www.wottonkearney.com.au www.wottonkearney ney.com.au .com.au
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End of the road? Transport operators’ consignment notes promising only ‘all care, no responsibility’ for small business are about to become history By Barton Phillips, Head of Transport & Logistics, Berkshire Hathaway Specialty Insurance Australia
AUSTRALIAN DOMESTIC TRANSPORT operators are in a unique position where they are not subject to any specific carriage of goods legislation. As a result they’re free to contract out services as they see fit. This has led to the widespread use of the “all care, no responsibility” consignment note, which favours the transport operator by excluding all liability, including where damage to goods has been caused by the transport operator’s own negligence, recklessness or wilful misconduct. At the opposite end of the spectrum, large corporate users of transport services often seek to impose onerous terms on transport operators on a “take it or leave it” basis. This wide variation in contractual responsibilities has created a difficult and uncertain environment for transport operators in Australia, both in terms of ensuring profitability and arranging adequate liability insurance protection. In contrast, transport operators in the United States, Europe and New Zealand are subject to various statutory regimes which impose a minimum standard of liability on the transport operator – but then allow the operator to cap its liability according to a specified formula. These liability caps are 76
based on a dollar value per unit received/ damaged, or on the weight of the cargo. Generally, these rules seek to strike a balance between the interests of the contracting parties, and provide the parties with greater certainty when seeking to price freight rates. From an insurance perspective, they allow greater certainty in the pricing of insurance and allocation of risk between cargo owner and transport operator, which often leads to more competitive insurance terms. Currently, the only limitation on an Australian transport operator’s freedom to contract arises from the carriage and storage of “consumer” goods, where the Competition and Consumer Act 2010 implies a guarantee from the transport operator to exercise due care and skill in the performance of their duties. It also imposes a prohibition against “unfair contract terms” in consumer contracts. However, this is about to change. In October last year the Federal Government passed the Treasury Legislation Amendment (Small Business & Unfair Contract Terms) Bill, which will extend the unfair contract terms regime. At present the regime only applies to standard form “consumer” contracts, but insuranceNEWS
when the new legislation takes effect in November this year it will encompass standard form contracts involving small businesses. This change is likely to have a major impact on the transport sector, because at present standard form contracts exclude the transport operator’s liability [see liability wording in panel on page 78]. The probable result is that transport operators in Australia will no longer be able to rely on an “all care, no responsibility” style of contract for services offered to consumers or small businesses. Many transport operators will need to amend their standard terms of contract to ensure they don’t contravene the new legislation. However, we caution against any dramatic changes in acceptance of risk. Transport operators should not increase their liability in standard form contracts without first considering what is a fair acceptance of risk, taking into account freight rates, insurance cost and competitiveness. Which contracts will be affected? From November 12 an “unfair term” in a standard form small business contract
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entered into, varied or renewed will be void and unenforceable. The new legislation defines a “small business contract” as one in which: • At the time of agreement, at least one party is a business that employs fewer than 20 regular staff; and • The upfront price payable: a. does not exceed $300,000 (if the contract duration is 12 months or less); or b. does not exceed $1,000,000 (if the contract duration is more than 12 months). There are some exceptions to this, including contracts for the carriage of goods by ship, which are already subject to a comprehensive legal framework. Defining an “unfair term” A term will be “unfair” if it: • Would cause a significant imbalance in the parties’ rights and obligations; • Is not reasonably necessary to protect the legitimate interests of the party relying on it; and • Would cause a detriment to a party if applied or relied on. When considering whether a term is unfair, a court is required to consider whether it is transparent by being clear, leg-
ible and readily available to the other party. If it is held to be unfair, the term will effectively be removed from the contract and the remainder of the parties’ agreement will remain in place only if it can operate without that term.
the company’s negligence or forms of misconduct); • Require a full and complete indemnity irrespective of fault; • Impose time limitations on claims that are overly onerous on customers;
“Many transport operators will need to amend their standard terms of contract to ensure they don’t contravene the new legislation.” The legislation provides some examples of terms that might be caught under this expanded regime. However, it is the courts that will ultimately decide what is deemed unfair as disputes come before them. When navigating this new terrain, a transport operator should consider whether its standard form contracts contain terms that: • Exclude liability beyond industry norms (for example, excluding liability for insuranceNEWS
• Permit the company to vary its contracts with customers unilaterally or without notice; or • Impose liability on the customer in circumstances that are outside the customer’s control. Navigating the new regime The new unfair contract terms legislation will apply to small businesses across Australia and has not been specifically tailored to any 77
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“Transport operators should not accept a contract drafted by a client without carefully considering its liability provisions.”
particular industry. However, it has the potential to have an especially significant impact on the transport sector, where standard form contracts are common. We recommend that transport and logistics operators adopt a measured approach to amending existing standard form contracts. Importantly, transport operators should not over-react by accepting full responsibility for loss or damage to cargo in their care, custody and control. In order to prepare for the new regime, transport and logistics operators should seek advice from a qualified transport or corporate lawyer, and adopt an open and transparent approach to advising customers of their standard form contracts. If a company contracts with both small and larger businesses, they should consider using customer questionnaires to determine if a customer qualifies as a small business, and whether to offer separate and distinct contracts for small businesses and other businesses. They could also implement cascading terms that apply differently to consumers, small businesses, and other customers. Or they could structure contract clauses to allow severability if deemed unfair, and modify terms that may be considered unfair for small businesses. Specific consideration should be given to “all care and no responsibility”; exclusions for negligence or breach of contractual terms; unreasonable indemnity clauses; time bars; and loss of rights for failure to comply with notice clauses. They should also consider adopting a lia78
bility framework for standard form small business contracts that includes: • Accepting liability for loss and/or damage to cargo caused by negligence but excluding liability for causes outside reasonable control (for example, force majeure); • Excluding liability for indirect or consequential loss; and • Limiting the amount of liability to a financial level based on a reasonable formula (that is, a fixed amount per kilogram of cargo, per unit of cargo, or per incident); • Consider reviewing pricing of services to reflect any enhanced business risk and possible higher insurance premium; and • If issuing multi-modal bills of lading, consider how the terms will apply to each component of carriage, and whether those terms should be amended for particular sectors of the carriage. At the same time, transport operators should not accept a contract drafted by a client without carefully considering its liability provisions. If they do, they may unwittingly agree to compensate clients for the full value of goods, consequential loss of income and liquidated damages, as well as other financial penalties. In some extreme cases, transport operators are asked to provide a warranty that goods will be delivered in the same condition as received, effectively assuming strict liability. The commerciality of the cargo transport transaction is relevant. Generally, value of cargo has no bearing on cost of freight. Underlying all transport services is the assumption that the owner of the cargo will insuranceNEWS
bear the risk of ownership of the goods as opposed to the risk of transport of those goods. The risk to the goods increases during transit and only this increased risk should be passed to the transport operator. There are many examples of losses caused to cargo during transit where the transport operator should have no responsibility – inherent vice of the goods, inadequate packaging by the shipper, damage caused by third parties, or any other cause outside the reasonable control of the transport operator. These are all inherent risks of ownership that should remain with the cargo owner; the owner can control
This is what the standard form contract states at present LiAbiLiTy: AT ALL TiMeS ANd iN ALL circumstances and for all purposes the Goods shall be and remain at the sole risk of the Customer and the Carrier shall be under no liability whatsoever for any loss of Goods, or non-delivery, mis-delivery, delay in delivery or, damage to or deterioration, evaporation or contamination of Good occasioned during Carriage or otherwise or for any Consequential Loss arising from any reason whatsoever, including without limiting the foregoing, arising from negligence or breach of contract or wilful act or default on the part of the Carrier or otherwise.
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“Current market freight rates are not nearly sufficient to allow transport operators to absorb the risk of the full value of cargo.”
those risks with cargo insurance, which is designed to insure the owner’s risk of goods during transport. Contracts which impose strict liability on the transport operator may breach the conditions of the transport owner’s liability insurance policy – a major issue that can leave an operator denied indemnity if such contracts were not disclosed to the insurer. When a transport operator is at fault, should it accept liability for the full value of the goods damaged? We suggest not. Current market freight rates are not nearly sufficient to allow transport operators to absorb the risk of the full value of cargo. This position is well supported internationally by various national legislation and international conventions that enshrine the proposition that transport operators should be liable for damage to goods where they are at fault, provided such liability is limited to a financial formula based on either the weight or number of units in the consignment. The way forward The new regime in Australia may revitalise discussions about the country’s lack of comprehensive transport operators’ lia80
bility regulation. In our view, both Australian domestic transport operators and cargo owners may be better served if the Australian Government was to consider a specific carriage of goods regime. There are some sound precedents in international regulations that balance the interests of the cargo owner and the transport operator. In fact, the New Zealand Carriage of Goods Act provides a suitable template for Australia to consider. In the meantime, a risk conscious business should carefully consider the terms of the contract it enters into with customers, specifically the liability, indemnity and insurance terms. Being mindful of the issues raised in this article and understanding principles of risk allocation in contracts will give transport operators an edge in re-establishing contract equilibrium, while ensuring compliance with the impending new legislation. When dealing with these contractual risk issues, a transport operator should feel well supported by its insurance providers, and discussion between the insured, broker and underwriter is encouraged. *
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Two into one goes: Shieldcover rebrands as Ryno under a ‘more products, one brand’ strategy SME support: Vero launches an online tutorial for brokers VERO HAS DEVELOPED A FREE ONLINE tutorial to help brokers train and educate their staff on the behaviours and needs of SME clients. The tool comprises a seven-minute video that breaks down the key findings of the 2016 Vero SME Insurance Index and translates them into practical, workable actions that anyone can apply to their business. It also features testimony from real SME owners on their attitudes towards insurance and brokers. The Index revealed many insights into the changing attitudes and purchasing habits of Australia’s SME business decision makers. It reported that many clients are looking to their brokers for general counsel on the broad range of business risks they face. Vero says this creates a great opportunity for brokers to become more than an insurance expert, and adopt the role of trusted business adviser. “Investing in training to help building this understanding could reap real rewards for brokers, both in the short term and over time,” says Suncorp Head of Commercial Intermediaries Anthony Pagano. “Vero’s online tutorial is a versatile tool to help brokerages invest further in the professional development of their key staff.” Once brokers have finished watching the video, they can complete an eight-question assessment based on the video content and receive a digital certificate. Six correct answers are required to pass the assessment. “Brokerages can use this video tutorial and online questionnaire to ensure their staff have a good understanding of the latest intelligence on the key SME market,” Mr Pagano says. “It can a be good way to encourage professional development in your team without consuming too much time and can help your brokerage stand out from the crowd when attracting new SME customers.” Vero plans to release two more tools later this year that will also be based on the findings of this year’s Index. These will be marketing tools that brokers can use to promote their services to clients and prospective clients. The tutorial is available now through * the VeroCentral website.
FOR EAST WEST INSURANCE BROKERS founder and Managing Director Greg Rynenberg (above), keeping things uncomplicated is a principle that has stood him in good stead for many years. The trouble is, the Brisbane broker who is known almost universally as “Ryno” keeps having good ideas that he then develops into businesses. A couple of examples are Ryno Insurance, a specialist division of East West Insurance, which offers tailor-made insurance solutions for classic and prestige cars with underwriting support from Lloyd’s. Then there’s Shieldcover, another underwriting agency that was set up in 2014 as a spin-off from Ryno Insurance. Mr Rynenberg says that like Ryno, Shieldcover has enjoyed tremendous success since it was set up to provide public and product liability, and accident and sickness covers. “Because we are backed by a Lloyd’s syndicate, we have the ability to arrange these covers with triple A-rated insurance companies,” he says. But after a while a new problem confronted Mr Rynenberg and his team – a problem that many brokers would be happy to have: how do you most economically and efficiently market to brokers two distinctly different underwriting agencies selling distinctly different products? The problem was compounded by the fact that Mr Rynenberg is very well known and respected in the wider broking community, and his older “Ryno” brand carries a lot of market muscle. Shieldcover, by comparison, is a worthy but generic sort of name, and while it’s a successful business in its own right the name lacks cut-through in an increasingly crowded and competitive insurance sector. In marketing, familiarity with a brand is something every marketer strives for – and all too often fails to deliver. The solution for Mr Rynenberg and his team was clear: they should phase out the Shieldcover brand and market its products under the far more familiar and distinctive Ryno Insurance brand. “A lot of it has to do with being able to give one message with one brand,” Mr Rynenberg told Insurance News. “Shieldcover has been extremely successful and really, it’s about positioning and taking the company to the next level insuranceNEWS
of growth. It’s better to do it under one brand than two brands. “It will be a seamless transfer of one brand into another brand. It will be the same people but a new brand.” Mr Rynenberg is now finalising the arrangements for public and product liability, and accident and sickness covers to be provided by Ryno Insurance alongside its specialist motor policies. He says the rebranding exercise will elevate the former Shieldcover products to another level, “one that draws on the older and more established recognition associated with Ryno”. “A lot of our growth is coming from the ability of our underwriters to talk with brokers and design covers that are tailored to suit their clients’ needs,” he tells Insurance News. “The number of opportunities being submitted to Shieldcover has been growing by 100% monthly with the gross written premium growth for the 2016 financial year being up around 30%. That’s impressive, but Mr Rynenberg believes his “more products, one brand” strategy will pay even greater dividends. “We are expecting in the 2017 [financial year] to grow our gross written premium by a further 50%.” The decision to pull the Shieldcover products into the Ryno Insurance stable reflects the results of a global internet survey of 29,000 people in 58 countries conducted in 2013. The survey, mounted by the US-based marketing and advertising giant Nielsen, found 60% of global consumers prefer to buy new products from a familiar brand rather than switch to a new brand. Neilsen concluded that brand familiarity is one of several key characteristics that resonate strongly with productbuyers. “Innovating on established brands that are already trusted can be a powerful strategy,” senior Nielsen executive Rob Wengel says. When it comes to brand recognition and trust, can insurance brokers making decisions on which products to recommend to their clients always recognise the difference? Probably not. In an insurance market where competition and choice are constantly expanding, Mr Rynenberg has hit on a solution that sharpens the profile of his underwriting agencies’ products and streamlines their marketing and adminis* tration costs. 83
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Sura expands menu: Small contractors embrace new product SURA PLANT AND EQUIPMENT SAYS ITS CIVIL contractors insurance policy has been “warmly embraced” by clients since its launch on July 18. The product is designed for smaller contractors and operators with up to 15 items and annual turnover of $5 million or less. It offers automatic coverage for unspecified attachments of up to $10,000, hired-in items of up to $100,000, additions of up to $100,000 and finance payout protection of 20%. The policy will appeal to small operators in businesses such as concreting services, plumbing, electrical contractors, civil contractors, excavation and building. “We have had a very positive response from brokers who are genuinely interested in this offering,” National Manager Stephen Borg told Insurance News. “There has been a noticeable uptick in activity on a national basis. “It adds another string to our bow, by offering a bespoke product in our sector aimed at the smaller contractor.” The product was acquired in 2014 from another underwriting agency and was relaunched to tie in with the recent rebranding of Sura Plant and Equipment, known previously as CEMAC, which had been in operations since 1994. Security for the policy is provided by Allianz Australia. Sura Plant and Equipment now offers two products, the other being its mobile plant and machinery insurance policy, which was launched in April to coincide with its rebranding. The mobile plant and machinery policy offers coverage for material damage, road risk and broadform liability including contractual liability exposures for covered contracts. Sura’s many other specialty offerings include hospitality, travel/accident and health, professional risks, commercial, labour hire, engineering, construction, * taxis, marine, and film and entertainment.
BHSI builds: New products signal entry into the cyber and A&H markets BERKSHIRE HATHAWAY SPECIALTY INSURANCE (BHSI) HAS CONTINUED its expansion in Australasia, entering the growing cyber-liability market and introducing a suite of accident and health (A&H) products. Emma Osgood has been named Head of Cyber Liability for the region, with the company focusing on the mid to large-tier market segment. BHSI has also teamed up with Symantec to provide incident response services to policyholders, such as access to legal experts, forensic IT services to identify and contain breaches, and public relations assistance. Ms Osgood says there has been a significant rise in demand for cyber cover in Australia over the past four years, with the premium pool for insurers estimated to be about $25 million a year. “Awareness is definitely increasing, but like any new area of risk it will take time for awareness to increase universally,” she told Insurance News. “Without doubt, I think cyber risk is still underestimated by many, and this is in part due to the fact threats are evolving at such a pace even the most advanced IT defences will struggle to keep up.” Ms Osgood has 17 years’ insurance experience and was previously national cyber liability and professional indemnity manager at AIG Australia. She has also worked at various UK broking houses, including Alexander Forbes and Heath Lambert. BHSI has also entered the cyber market in New Zealand, with Senior Underwriter Executive and Professional Lines Ian Marshall leading the product line there. The new A&H line-up includes corporate travel insurance, group personal accident insurance, expatriate insurance, inpatriate insurance, journey insurance and voluntary workers’ insurance. BHSI has contracted IAG-owned Dynamiq, a round-the-clock emergency management company, to provide emergency travel, medical and security assistance and concierge services to policyholders. Daniel Kenny is the new Head of Accident and Health, and Shaun Higgerson is Senior Underwriter Accident and Health, having both joined BHSI in March to prepare for the recent launch of the new products. “The financial strength of BHSI and the skill and responsiveness of our team will give us unique flexibility in tailoring A&H protection for companies and employees throughout Australia,” Australasia President Chris Colahan said. “Our A&H solutions will be distinguished by our innovative underwriting and deployment of technology to enhance worker wellness and benefits, while lowering employer costs.” Mr Kenny was previously Chubb’s national manager broker market accident and health, and Mr Higgerson was a senior development underwriter, * also at Chubb.
Filling a niche need: dual expands in specialty consumer products DUAL AUSTRALIA IS EXPECTING STRONG demand from the retail and manufacturing sectors for a new specialty consumer products offering that it is rolling out. The company plans to initially focus on extended warranty, accidental damage, theft and loss and cancellation insurances as it pursues new business in the key market niche. The specialty consumer products team will be led by Alan Brewis, who has more than 20 years’ experience in the industry. He joined Dual this year, bringing significant knowledge of the local and London markets, including previous roles at The Warranty Group/National Underwriting Agencies. “This is a niche market where Alan’s extensive experience and existing relationships will 84
be a huge asset to the business,” Australia General Manager Leo Abbruzzo says. Dual has identified a number of opportunities with brokers and direct clients who are keen to partner with the company to provide understanding and innovation through both product and delivery. “We anticipate significant further interest as we launch to our broader network of brokers,” Mr Abbruzzo says. Down the track, the specialty consumer products team is likely to expand on the initial offering as opportunities arise, while the local launch may also provide a platform for future offerings in the wider region. “There are opportunities for us to look at expanding the product range into Asia insuranceNEWS
and New Zealand, but initially we are going to focus on Australia,” Commercial Manager Emily Winwood told Insurance News. She says initial discussions with brokers have identified a strong demand for products that can meet a variety of client needs, with retail and manufacturing among the core markets. There are plans to add to the team led by Mr Brewis as the business builds. “It is an established market in Australia and globally but it is still a very niche area,” Ms Winwood says. “We think there is real opportunity, as Dual does with all of its products, to look at how the market currently operates and how we can create something that’s innovative * and new.”
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QBE biggest winner in Queensland Day awards The Council of Queensland insurance brokers’ (CQib) annual Queensland day bash drew almost 380 guests and members to honour outstanding performers in the local industry. Qbe was the night’s biggest winner, taking out three of the six awards presented by CQib at the brisbane Convention Centre’s Sky Room. The insurer claimed the prestigious Queenslander All-rounder of the year Award for the second straight year, and the Claims Service award. Qbe Regional State Manager intermediary distribution Leigh Stalker accepted both awards on the insurer’s behalf. Qbe claim specialist Jalani McCarthy received the Mick Lambert barker Award for a CQib business partner’s employee who has shown “service above and beyond” as well as a $500 cheque to go with the trophy. The Peter McCarthy CQib young Professional of the year Award went to Gerald Lodewick from insurance Aid General broking. The award is given to an up-and-coming broker who has demonstrated outstanding commitment and service over the past 12 months. CGU State Manager ian Garbutt represented the company to accept the domestic insurer award while UAA Regional Manager North Greg Thompson received the underwriting agency award on his company’s behalf. The council also used the occasion to name HWL ebsworth partner david Muir as its first honorary member in appreciation of his “exceptional counsel, support and thought leadership” for more than 15 years.
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Team SA edges Victorians in Allianz Young Eagle event The Allianz young eagle event was this year won by Team SA, which took some bold decisions during the market simulation competition to nudge rivals from Victoria into second place. Team SA claimed the title for the second time in the event’s six-year history, after also coming out on top in 2012. Over the course of the two-day event teams competed against each other in a simulation that involves running a general insurance company over a seven-year cycle, including dealing with the catastrophes that are a normal part of the industry. For each year of the simulation the contenders present the rationale for their decisions to a board of senior executives consisting of Allianz Chief General Manager, broker & Agency david Hosking, General Manager – Commercial (broker & Agency) denis Morrissey and General Manager Customer intelligence Leanne Stagnitta. “it was without a doubt the best professional experience i have been part of,” South Australian team member Jodie Piddington, from Allianz, said. “The simulation showed us the importance of working together as a team to make our decisions, rather than making them individually based on our roles.” The winning team also included Will Ray (Richard Ray insurance brokers), Kelly Keast (Holdfast insurance brokers), Michael Carpinelli (brecknock insurance brokers) and Jasmin O’daniel (MGA insurance brokers). Places at the 2016 event, held in Sydney in May, were hotly contested with more than 85 people nominated by their principals for the opportunity to take part in the competition. The teams from New South Wales, Victoria, Queensland, Western Australia, South Australia and insurance Advisernet were this year also joined by a One Allianz partners team comprising representatives from Global Transport, Hunter Premium Funding, Workers Compensation, Primacy and Club Marine. The event also gave the participants opportunities to mix with senior managers, including Allianz Australia Managing director Niran Peiris, who spoke in a “fireside chat” of the importance of being inquisitive and his experiences in the business.
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peopleNEWS Drinks by the river High Street Underwriting Agency took the opportunity to host supporting brokers at a private function after the Underwriting Agencies Council (UAC) expo in brisbane in July. The event was held at the Riverbar & Kitchen, a popular local venue which gives diners views over the brisbane River. High Street is a Lloydâ&#x20AC;&#x2122;s coverholder offering bespoke products for customers in Australia, New Zealand and the islands of the South Pacific.
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Five years old and ready to party young insurance Professionals (yiPs) have celebrated the groupâ&#x20AC;&#x2122;s fifth anniversary in Australia with lolly bags, balloons and birthday cakes. branches around Australia marked the milestone, which was also a dual celebration to welcome the new financial year. Around 700 people attended the events. yiPs has grown from the eight original founders to 6600 members currently, with participants generally aged in their 20s and 30s but also older as many people join insurance later in their careers. The group was founded in 2011 in Melbourne before spreading across Australia and over the Tasman Sea to New Zealand. The recent celebrations also welcomed Andrew Shepherd as the new Australasian yiPs president and farewelled founding president Sampath Soysa. Membership of the group is open to all those working in the insurance industry including underwriters, brokers, claims personnel, risk managers, loss adjusters, insurance lawyers, accountants and other service providers.
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Crabs, cooking and brokers – HDI Global’s recipe for a fun night Hdi Global treated key brokers to a threehour class learning all about the cooking of Singapore chilli crabs and black pepper crabs at the Sydney Fish Market in July. Some 27 brokers from Aon, Marsh, JLT, Willis and ebM and nine Hdi Global staff were shown how to cook the crustaceans and were then left to recreate the two dishes themselves. The budding masterchefs then sat together in a communal dining area and enjoyed the fruits of their labour. Hdi Global office manager Catherine Falkner says everyone was able to successfully recreate the recipes. The exercise “demonstrated a variety of cooking techniques” among the brokers.
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UAC’s Brisbane expo plays to a full house you know things are going well when the only problem you have with an event is that you need more space. Last month’s brisbane expo organised by the Underwriting Agencies Council in collaboration with the National insurance brokers Association (NibA) was a resounding success. More than 60 exhibitors managed to get a spot for the event at the Pullman Hotel. but with 300 brokers pouring through the expo space, the organisers will be looking for a bigger venue next year to accommodate more delegates. Renowned security expert Rob Redenbach, who has previously worked with the british Army’s elite SAS, the Fbi and a wide range of private companies in Australia and overseas, was the guest speaker. Sharing top billing at the event was the announcement of NibA’s Queensland brokers of the year. Austbrokers Coast to Coast Managing director dale Hansen received the broker of the year award and Strata insurance Solutions’ Tyrone Shandiman was named the young broker winner.
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Two N New ew Wordings and a Cyb Cyber er Extension ate products tto o be market Be rkley IInsurance nsurance Au stralia has ccontinued ontinued to update update and cre Berkley Australia create Product called called le ading in tthe he SME SME space. The most re cent update update is to to the IT Liability Product leading recent aking policy offers broad based Civil Liability PI and PL cove rage. ground bre ITOPS. The ground breaking coverage. ractice Product which has been named named Berkley has also rele ased its new Medical Medical Malp Berkley released Malpractice Practice Protection (HCP P). Health Care Practice (HCPP). In addition Cyber Liability is now available under ou ourr Manag Management ement Liability policies. 716'5 +557'& 9+6*+0 FH *1745 716'5 +557'& 9+6*+0 FH *1745 1.+%; +557'& +056#06.; 1.+%; +557'& +056#06.; '12.' 9*1 70&'456#0& 241&7%65 #0& 6*' +/2146#0%' 1( 5'48+%' '12.' 9*1 70&'456#0& 241&7%65 #0& 6*' +/2146#0%' 1( 5'48+%'
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THE GREAT WINLEY SAGA THAT featured in this mag’s last issue attracted a lot of attention, and thanks to all those who passed on compliments. Shucks, it wrote itself. Or, in the words of Mr Publisher, it was the sort of story that just keeps on giving. No doubt about that. A mysterious American couple in Perth who clean out the safe at their authorised rep company and skip town, leaving behind aggrieved intermediaries and insurers counting the millions they’ve lost is a pretty good yarn. And then the appearance of the very same couple in Los Angeles who even while they’re planning the heist are also planning a freaky and death-defying stunt to raise many millions of dollars online. We end up knowing where they are but no one seems to care. This is the stuff that makes TV current affairs, isn’t it? The intrepid reporter pulling up at the front door of Chandanie and Steve Godwin’s palatial Spanish-style mansion in Canyon County, the foot in the door, the “aren’t you ashamed of yourselves?” barrage of question/statements – it’s all there. Except it ain’t going to happen. One television current affairs show did read the article in Insurance News and contacted Mr Publisher for more information. All was going well until a researcher called and asked, “Ummm, exactly who are the victims in this story?” Well, he says, the authorised reps who didn’t get paid, and of course the insurers whose premiums were in the trust fund as well. “Well, ummm, what about customers?” No, he says, the customers are deemed to have paid the insurer once they’ve paid the intermediary, so they’re safe. “So well, ummm, there’s no actual victims then, are there? Sorry? “Well, they’re insurance companies, aren’t they? They’re not really victims.” And so it came to pass that 60 Minutes decided to drop the great Winley saga – well, we assume they did because they never called again – and the television 98
Sam Pentecost Contributor
viewers of Australia will never get to see the Godwins being confronted at their own front door. Great story, but no victims, you see. But two winners. No doubt about that.
This negativity towards the insurance industry is pretty entrenched among journalists and commentators in the general media, by which we mean the airheads in print, TV and radio who approach any insurance-related issue from the instinctive and usually wrong viewpoint that the insurer is being dodgy. And some politicians are no better, shooting from the lip in front of the cameras and microphones to threaten insurers without having the foggiest idea what they’re talking about. Stand up and take a bow, Senator Jacqui Lambie of Tasmania – you’re the latest in an illustrious line. (see her comment on Page 6) In recent years the industry has got its act together on flood, and we no longer have people wandering dazedly around after their home has been inundated saying, “I didn’t know we weren’t insured for flood, despite the huge coloured sticker on the cover of the policy that said just that”. Now we have people wandering dazedly around after their home has been inundated saying “I chose not to insure against flood to save a few bucks, but now I’ve been flooded and it’s not fair”.
Never mind. I don’t know if this is entirely correct or apocryphal, but I did have to applaud the insurance company who had a local office flooded in June. Apparently it wasn’t covered for flood.
It’s always risky making jokes about actuaries, but the insurance industry and golf go so well together this one has to be told. Two actuaries are playing golf. The first actuary’s drive off the tee ends up on the green, 10 metres left of the hole. The second tees off and his shot also has the insuranceNEWS
range. But the ball ends up 10 metres right of the hole. Both immediately start jumping up and down and doing untypically actuary things (I’m stereotyping here) like laughing and shouting and doing high fives. And why not? Between them they’d scored a hole in one.
Over a few reds the other night a bunch of us got into conversation about valuable things that you wouldn’t expect to be insured. The best example anyone could come up with was Dolly Parton’s breasts, which were insured in the 1970s for $US600,000. Fair enough – that’s Dolly’s most famous feature, just as German model Heidi Klum has her legs insured for $US2.2 million. The right leg is allegedly worth more than the left, which has a small scar. The blokes are in it, too. Footballer David Beckham insured his legs for $US151 million at the height of his career, and additional research in a quiet moment has revealed that Wales’ own nightingale, Tom Jones, once had his chest hair insured for $US7 million. Singer/actor Jennifer Lopez allegedly has her derriere insured for $US27 million, and Julia Roberts’ smile is covered for $30 million.
Anyone can insure their, ahem, distinguishing assets if they can find an underwriter to take their money. And at Lloyd’s, plenty will. For example, Italian coffee taster Gennaro Pelliccia’s taste buds are insured for £10 million because, he says “my taste buds and sensory skills are crucial”. But not all are quite so agreeable to consider. Gene Simmons of the ’70s rock band Kiss once insured his tongue for a cool million, David Lee Roth of Van Halen fame insured his semen for the same amount, and British male stripper Frankie Jakeman obtained cover for his most famous feature for £1.6 million. And that’s enough about that.
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“and we fly 200km an hour, three feet off the ground.” Andrew Mason bought his first aircraft to start Ramair Flying Services almost 30 years ago. This family business initially specialised in aerial agriculture, but when drought dried up business in Mildura, they diversified to include joy flights, fire spotting and student training. At QBE Insurance we recognise each business is unique. That’s why our aviation experts take time to understand what, where, when, and how each company operates, so we can develop policies and premiums tailored to meet their particular needs. Companies like Ramair Flying Services, who we’ve insured since it first took flight in 1988. Find out more about Ramair’s story: www.qbe.com.au/stories
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