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MULTIPLE WOES FOR INSURERS
WHY THE CLIENT STILL REIGNS
THE WORLD OF AJIT JAIN
WHY NOT NOW? Kelly Lyles is an industry leader who believes making diversity happen beats waiting
October/November 2016
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Contents 6 Newsmakers » 10 Losing interest » Insurers are grappling with a ‘new normal’ as benchmark rates and investment earnings stay low.
14 Under siege » The annual Pendulum report tells a now-familiar tale of an industry struggling against multiple foes.
20 The client is still Number 1 » JLT’s Dominic Burke has grown the company by emphasising the basics of broking.
26 Still going strong » The close relationship between SMEs and insurance brokers prevails despite a plethora of digital distractions, according to the latest research.
32 Diversity: the changing face of insurance » Meet a leader who believes waiting for change across the industry isn’t as good as making it happen now.
38 Capital punishment » The global industry is taking hits on all sides, but our trillionaire investors aren’t being scared.
42 Space invaders » As astronomers identify more asteroids on potential collision courses with Earth, it pays to keep an eye on the skies.
46 Smart investment » He was untried and untested, but Warren Buffett’s belief in Ajit Jain has paid off for Berkshire Hathaway.
52 Standard-bearer » ACORD chief Bill Pieroni says stronger communication can help the insurance industry survive and thrive.
56 Group mentality » New Zealand’s broking market is undergoing rapid change as independents cluster within larger organisations.
60 Going global » Multinational insurance programs are taking off, says AIG’s Tony McHarg.
62 Portfolios in a storm » Amid tight regulations and economic uncertainty, there is no easy solution to insurers’ investment malaise.
companyNEWS 70 Cloud-based Evolution » Ebix Australia debuts its new broking system.
70 Zurich shows DigitalResolve » 24/7 hotline for cyber hacks.
71 Local upgrade » Chubb boosts mobile P&E offering.
71 New capacity, new name » Fleetsure scales new heights.
71 CHU goes digital » New arm plants flag in insurtech sphere.
peopleNEWS 72 Easing the transition to retirement » Mature-age workers are too valuable to just ‘let go’. Strategies that benefit them and the company are increasingly important.
76 Wotton + Kearney goes an extra mile for African charity » 77 McLardy McShane gathers deep in the country » 78 Rising stars, bigwigs share spotlight at AILA event » 81 Wonderful winter, the way they do it in Germany » 82 APIG conference draws a crowd » 83 Adelaide expo takes centre stage » 84 Trivia but not trivial: YIPs show brainpower » 87 PSC Connect celebrates in Auckland » 88 Big hearts on show at Quill Club’s annual charity luncheon » 90 Work and play mix as Queensland brokers gather » 92 Heading to the Bledisloe Cup in style » 94 Resilium revs up at resort » 96 Cocktails close remarkable Dive In festival » 98 maglog »
66 Chop and change » Vero’s risk advice pays off for a timber firm.
October/November 2016
Cover: Kelly Lyles, Deputy Chairman, Insurance, XL Catlin Image: Cameron Ramsay
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newsmakers at
61 81 LOCAL
CORPORATE
57 REGULATORY & GOVERNMENT
72 FINANCIAL SERVICES
68 THE PROFESSIONAL
81 INTERNATIONAL
9 ANALYSIS
5 BREAKING NEWS About 23,000 news articles – including 215 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
Lost in cyberspace New Zealand brokers are still struggling to access crucial data lost during the outage at insurance technology company SSP. SSP says its system’s “core functionality” is back, but admits “work continues to restore some document archives and other non-transactional data”. New Zealand Manager Samuel Finkle told insuranceNEWS.com.au there is no timescale for resolving those issues. The failure followed a power cut last month at a data centre in England, where the impact on brokers was even greater. NZ brokers continue to face SSP data issues, 26 September
Two into one goes, says Greco Zurich’s decision to merge its commercial and global corporate operations worldwide may mean jobs are cut in Australia, the insurer admits. The new unit, called commercial insurance, will be led globally by James Shea, who has been recruited from AIG. Group Chief Executive Mario Greco says the move “will allow us to better utilise our skills, systems and capabilities in the individual countries and across the world”. Asked about the impact for the Australian operation, a Zurich spokesman told insuranceNEWS.com.au the focus is “on simplifying our go-to-market approach and to share skills and resources that would otherwise be scarce or duplicated”.
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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 August/September we published 439 articles online. These were made up as follows:
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“This will naturally lead to efficiencies in a number of areas, not just (and mostly not) headcount.” Chief Executive General Insurance Australia and New Zealand Raj Nanra says the commercial and corporate teams already work “extremely closely”. “The changes… will enable us to build on this teamwork as well as our success to date and further strengthen our customer focus,” he said. insuranceNEWS.com.au also understands from market sources that previous Asia-Pacific chief executive Stuart Spencer has left the company to pursue other opportunities. Zurich restructure may bring local job losses, 26 September
I believe we are going to see brokers having to broke again, rather than just getting quotes. Some younger brokers can’t believe they have been told ‘no’.
– JLT Australia and New Zealand Chief Executive Leo Demer tells a conference insurers are being more selective about the risks they’re prepared to cover
Barber quits, Boal steps in
Former Willis Towers Watson chief executive Tony Barber will join JLT next year as Chairman of Specialty in Australia. As reported in a Breaking News bulletin on Thursday, Mr Barber resigned last week from Willis Towers Watson after less than a year in the job. He has been replaced by Andrew Boal (left), who has been made Regional Head of Australia. He was Australia managing director of Towers Watson prior to the merger with Willis. Mr Barber joined Willis in 1998 and stayed until 2009, after which he spent three years with Aon. He rejoined Willis in January 2013 as deputy chief executive prior to his appointment to chief executive. He will join JLT in March after serving six months’ gardening leave and be responsible for business development. Ex-Willis chief joins JLT in specialty role, 19 September
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Forbes floods: insurers respond and has mobilised staff to work directly with local services and people. Several insurers have started setting up disaster response teams in the Forbes region, ICA says. Australia this year recorded its secondwettest winter since records began in 1900, and the four months from May to August were the wettest on record. It follows the double impact of Pacific and Indian Ocean temperature change patterns, which are each typically associated with increased eastern Australian rainfall. The breakdown of an El Nino weather pattern to the east has come at the same time as a negative Indian Ocean Dipole phase to the west. Forbes floods declared a catastrophe, 26 September
Reuters
The Insurance Council of Australia (ICA) has declared flooding around Forbes in central west New South Wales a catastrophe, after the Lachlan River inundated properties at the weekend. Chief Executive Rob Whelan says the extent of residential, business and crop damage is not yet clear and it will take several weeks to be known, but the industry had escalated its response to help policyholders. “Early reports indicate the region has suffered extensive crop losses, while about 100 businesses and homes may also have been affected by flooding,” he said. “It’s likely that insurance losses will be in the tens of millions of dollars.” ICA has established an industry taskforce, activated a disaster hotline for policyholders
Fels fires warning shots The abolition of the $800 million New South Wales emergency services levy (ESL) next July should lead to reduced property insurance premiums – and insurers who put up prices to boost margins will be heavily penalised, according to guidelines issued to the industry. ESL Insurance Monitor Allan Fels says the guidelines set out penalties of up to $10 million for corporations and $500,000 for individuals engaging in price exploitation or false and misleading conduct. “I want insurers to understand we are already closely watching to ensure they do not take early advantage of the opportunity to put up premiums as a result of the levy’s removal next year,” Professor Fels (left) said. “The NSW Government has provided me with extensive powers to ensure consumers are protected in the transition, under a price oversight regime that is in place ahead of the abolition of the levy.” The ESL will be replaced with the emergency services property levy – a charge on property rather than insurance. Fels warns insurers on NSW ESL reform, 19 September
June storm costs mount Estimated losses from the east coast low that hit Queensland, New South Wales and Tasmania in June now stand at $421.69 million – 64% of which are domestic and 36% commercial. The Insurance Council of Australia has told insuranceNEWS.com.au less than 2% of claims have been denied and more than half are closed.
Lodged claims total 46,363, comprising 27,700 residential building claims, 9624 contents, 3308 domestic motor, 234 “domestic other”, 5018 commercial property, 249 commercial motor, 189 business interruption and 41 “commercial other”. East coast low claims pass $420 million, 26 September
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October/November 2016
We’ll get you Allegations that Youi staff in Australia used unscrupulous sales tactics have triggered industry concerns about the severity of the issue and its wider ramifications for other insurers. “The insurance industry is all about trust,” LMI Group Managing Director Allan Manning told insuranceNEWS.com.au. “The thing that frightens me the most is, if this is true, it is damaging the brand ‘insurance’. If people lose faith in that… they buy less of it and we as an industry suffer.” Melbourne-based Consumer Action Law Centre Senior Policy Officer Susan Quinn says the centre has been aware of consumer issues or problems with Youi in the past. “Youi being charged in New Zealand for what looks like very similar conduct raises the question of whether this is a systemic issue. “When similar practices are happening across borders… there are big questions to be answered. It is unsettling for people who deal with insurers.” Youi has said it will plead guilty to the 15 misconduct charges filed by New Zealand’s Commerce Commission, but denies any wrongdoing in its Australian arm. The insurer has rejected Fairfax Media’s whistleblower accounts of clients being billed for products they never took out and staff manipulating customer data to reject claims. The Australian Securities and Investments Commission last week told insuranceNEWS.com.au it is “making enquiries” into the matter. The insurer, regarded as a major challenger to established insurers in the direct sales space, is owned by South Africa’s Outsurance Holdings. It started selling cover direct to consumers in Australia in 2008 and expanded to New Zealand in 2014. Youi fraud accusations ‘risk damaging industry brand’, 5 September
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Ayton takes over at NAS, Westcourt IAG has appointed long-serving manager Paul Ayton (right) as Managing Director of authorised representative (AR) groups Westcourt General Insurance Brokers and National Adviser Services (NAS). The insurer bought Perth-based Westcourt on July 1, adding to its NAS business, and is working on plans to combine the two AR groups. Westcourt interim managing director Jeff Hollands will continue with the combined business as National Manager Network Relationships. Mr Ayton has been with IAG for more than 16 years and was most recently responsible for corporate partnering. He was Swann Insurance general manger from 2011 until this year. The name of the combined business will be considered in the review, but in the near term Westcourt and NAS will continue under their current names, a spokesman told insuranceNEWS.com.au.
From the “The perfect storm” has become a cliche for the convergence of a series of negative events, and if it wasn’t so overused it would be a suitable description for the state of the insurance industry at present. Several articles in this issue of Insurance News illustrate the extent of the pressures being experienced across the industry. Insurers’ profitability continues to be affected by low investment returns, while high levels of competition are dampening premium rises. When the going gets tough, policy terms are tightened and claims disputes tend to rise as a result. Recent statistics from the ombudsman indicate that’s already happening. The competition has also flowed across reinsurance. The influx of capital from the world’s largest pension and investment funds into reinsurance over the past few years has resulted in new approaches and new premium pressures. Swiss Re Chief Economist Kurt Karl’s comments in this issue are well worth reading. 2016 has been about the rise of technologydriven innovation. Increased competition and the struggle to be more efficient and profitable can only accelerate the process of change across insurance. For brokers, the challenge is, as always, to keep adapting to the circumstances imposed on them. They are working harder to find cover for many risks, and insurers’ drive for lower distribution costs will affect them if this “perfect storm” keeps raging. It’s a whole new game, and keeping up with what’s happening, and why, is important for all players.
IAG veteran is new chief of Westcourt, NAS, 19 September
XL Catlin acquires Brooklyn XL Catlin has agreed to acquire Brooklyn Underwriting and Brooklyn IT Pty Ltd from Paul Hines, their beneficial owner. The acquisition, which was the subject of speculation around the market over the past few weeks, was announced this morning. Brooklyn offers more than a dozen specialist insurance products for SMEs, from high-risk property to complex liability, encompassing tailored liability products for specific professions. It serves more than 700 brokers across Australia. It was named Underwriting Agency of the Year in the Australian and New Zealand Institute of Insurance and Finance industry awards for four consecutive years between 2012 and 2015. “The acquisition of an award-winning business with established market relationships aligns well with our focus on underwriting, claims and service excellence”, XL Catlin’s Regional Chief Executive Asia Pacific Craig Langham said. “We look forward to further profitable growth in this important market, serving the sophisticated needs of clients and brokers in Australia.” The cost of the acquisition has not been disclosed. The transaction is expected to be completed within the next month.
Diversity and inclusion aren’t mainstream insurance issues, but as Lloyd’s inspiring three-day festival in Sydney last month demonstrated, there are plenty of reasons why they should be. The Dive In festival brought together industry luminaries and various experts to look at what can be done to encourage a more diverse workforce. One of those speakers was XL Catlin’s Kelly Lyles, one of the most senior women in the industry. Our interview with her addresses the point that it’s going to happen anyway, so why not now? I’m sure you’ll find this issue of Insurance News thought-provoking and useful. Terry McMullan
XL Catlin buys major underwriting agency, Breaking News, 16 September
Publisher/editor: TERRY McMULLAN McMullan Conway Communications Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 Email: publisher@insurancenews.com.au Advertising: NAOMI CONWAY McMullan Conway Communications Pty Ltd Tel: +61 3 9499 5538 Fax: +61 3 9499 5535 Email: naomi@mccmedia.com.au Address: McMullan Conway Communications Pty Ltd PO Box 116, Ivanhoe VIC 3079 Australia or Level 1, 120 Upper Heidelberg Road Ivanhoe VIC 3079
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ISSN 1837-4972
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Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion. Printed on FSC paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.
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Losing interest Insurers are grappling with a ‘new normal’ as benchmark rates and investment earnings stay low By Wendy Pugh
EIGHT YEARS HAVE PASSED SINCE THE COLLAPSE OF investment bank Lehman Brothers pushed the global economy deep into financial crisis, and insurers are still feeling the lingering shockwaves. The money from investments that once buoyed earnings is no longer flooding in. Interest rates are mired at record low levels, and there is little sign of change on the horizon. At the same time, premium levels are under pressure as competition increases. Results reported by Australia’s major listed insurers – IAG, QBE and Suncorp – show varying impacts from sliding interest rates, highlighting the new paradigm. “Ten years ago, classically, an insurer made two-thirds of its money from its investment returns and a third from underwriting,” QBE Group Chief Executive John Neal told a half-year results briefing. “That metric is reversed now.” Insurers can still make a return on investments, but it is far lower than in the past, he says. Companies are responding by trying to lift underwriting performance through pricing and cost cuts, while also tweaking investment portfolios to maximise returns. “Unfortunately, there’s no ‘free lunch’ in investment markets,” Suncorp Executive Manager, Investment Research and Economics Steven Milch tells Insurance News. “Improving returns is a challenge that involves trade-offs.” KPMG Head of Asia-Pacific Insurance Accounting Scott Guse says the latest problems are part of a longer history of interest rate cycles. In the 1980s and 1990s companies were making underwriting losses and investment profits on soaring interest rates, but the retreat of rates from the high teens and the collapse of insurer HIH in 2001 put the focus on improving underwriting performance. Since then the sluggish global economy has taken interest rates to unprecedented lows, and put ever more pressure on investment returns. Australia’s benchmark rate was at 7.25% in 2008 before the global financial crisis started shaking investment market foundations, triggering waves of global cuts. Forecasts two years ago that the market was about to turn have proved wrong. The Reserve Bank of Australia lowered the cash rate to 1.5% in August, its fourth cut since the start of last year. That is still high compared with other developed countries. In Europe rates have gone negative, in a sign of monetary policy desperation. Theoretically, if central banks charge for holding cash
reserves rather than paying interest, as is normally the case, more money will be pushed into the wider economy, spurring growth. Mr Milch says Suncorp is continually aiming to optimise investment returns in this environment, taking into account not only return prospects but also factors such as risk and liquidity, plus regulatory and capital requirements. “Suncorp has increased portfolio allocations to convertible bonds, property and infrastructure assets in recent times,” he says. The company’s general insurance profit fell 17.5% last financial year to $624 million, with investment income sliding 36.3% on insurance funds and dropping 38% on shareholder funds. Even if insurers were tempted, they can’t throw caution to the wind in a chase for high-yielding returns, given Australian Prudential Regulation Authority restrictions. They must maintain certain levels of capital as part of financial stability measures, and riskier assets are penalised when it comes to totting up the numbers. KPMG’s Mr Guse says there has been no major move by insurers towards alternative instruments such as hybrid convertible notes and shares. “It is not really in their best interests from a capital perspective to deviate from predominantly fixed-interest securities,” he tells Insurance News. IAG’s net profit fell 14.1% to $625 million last financial year, including a significantly lower contribution from investment income on shareholder funds amid relatively flat equity markets. The company’s $8.7 billion in technical reserves, which back insurance liabilities, were invested in fixed interest and cash as of June 30, while 48% of the $4.2 billion in shareholders’ funds was in growth assets, comprising Australian and international equities and alternative investments. IAG has increased its shareholder funds’ exposure to growth assets from 40% four years ago. Global insurer QBE had 9.5% of its investment portfolio in growth assets at the half-year, down from 14% early last year and up from about 0.5% at the end of 2012. Mr Neal says the current level is “incredibly conservative” compared with global peers, which often have growth allocations of 15-25%. The company has previously said it would be prepared to go as high as 15%, but Mr Neal says QBE plans to keep the level about 10% for the rest of this year, while still aiming to increase returns from its holdings. “Quite a lot of that is still in cash and short-term money markets, so you have almost got 20% of our investments earning very little money at the moment,” Mr Neal says. “That really is the area we are looking at, but it won’t be growth assets, it will be looking quite carefully at credit.”
“Companies are... trying to lift underwriting performance through pricing and cost cuts, while also tweaking investment portfolios.”
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Related stories: Under siege, page 14 Portfolios in a storm, page 62
The company reduced its exposure to emerging market debts and equities to just 0.2% in the first six months of the year, while raising its holding in corporate bonds to 54.7% from 46.4%. QBE’s reported profit figure in August was also hit by a $US283 million adjustment related to accounting for outstanding claims. More claims reserves are needed to meet future obligations when falling interest rates mean the money set aside earns less. Across the wider insurance market, the task of raising premiums and improving underwriting earnings is made more difficult by other cascading effects from low interest rates. Insurers are not the only ones looking for higher yields in a weak environment, with some investors seeking returns by putting money into the insurance industry itself. Allianz Australia General Manager Corporate Affairs Nicholas Scofield says equity investments in primary insurers overseas have increased competition locally, as bulked-up companies expand their reach and enter new markets. “To get a return on that capital they will go out and write business,” he tells Insurance News. “That is then flowing through to a soft cycle in the commercial insurance sector.” The Pendulum report from Finity Consulting and Deutsche Bank predicted 2016/17 will be another difficult year, with top-line growth remaining anaemic amid strong competition and surplus capacity. In the commercial arena there appears to be a “flattening” of premium rate reductions, but no strong signal that decent increases are on the way. “For the domestic players that are here for the long-haul, the low interest rate environment is hitting them from two different directions,” Mr Scofield says. On the flip side, investment money targeting the reinsurance sector has helped primary insurers, because extra capacity leads to better deals and lower rates. Claims cost increases and other expenses are also curbed in a low-inflation environment. Standard & Poor’s analyst Mark Legge says the underlying performance of Australia’s three major listed insurers was generally solid in their latest reports, despite the trying conditions. “We are not seeing any of these players react to that challenge by markedly increasing the level of high-risk assets they invest in,” Mr Legge says. “We are comforted that all these players are keeping quite conservative investment portfolios.” Globally, mergers and acquisitions have emerged as a response to the market problems, with companies taking advantage of
reduced borrowing costs. Takeover activity was headlined last year by Switzerland-based Ace’s $US28.3 billion acquisition of US rival Chubb. Dublin-based XL announced the purchase of Bermuda-based Catlin for $US4.1 billion, among other deals. “These are tough times in our industry and mergers and acquisitions are the tune of the day,” XL Catlin Country Head Australia Robin Johnson told a forum in Melbourne in August. Tyre-kicking is likely to continue as rates remain low, although Mr Guse says opportunities in Australia may be limited because prime targets have been acquired. “It does make market participants look at what acquisitions are out there and certainly investigate them more thoroughly, but I don’t think there are too many opportunities that present themselves at this point in time,” he says. Insurers could be excused for questioning the point of all the interest rate pain after a slew of global cuts, as economies continue to struggle despite the best efforts of central bankers. Former Reserve Bank governor Glenn Stevens, who ended 10 years at the helm in September, suggests lowering rates is not the tool it once was. “We can’t just assume monetary policy can simply dial up the growth we need,” he said in one of his final speeches. “We need some realism here.” Still, no one knows what would have happened if interest rates had not fallen following the global financial crisis. Suncorp’s Mr Milch says Australia’s monetary policy transmission is mainly through the property sector, which has been a key support for the economy at a time of weak business investment. “In fact, Australia’s real GDP growth has been among the best of the developed nations,” he tells Insurance News. “I have no doubt, therefore, that the Australian economy would be in a weaker position had rate cuts not stimulated housing to the same extent.” Several years ago Mohamed El-Erian, chief executive of global bond trader PIMCO, popularised the phrase “the new normal” to describe lingering low growth and low interest rates. There are few signs of change to that scenario. The US Federal Reserve lifted rates last December for the first time in nearly a decade, and has flagged more rises this year. But the central bank has backpedalled from previous projections for a potential four increases this year. Insurers probably shouldn’t hold their breath for a return to the days when high investment returns filled coffers. “The ‘return to normal’ at the global level looks like being a very, very slow process,” Mr Stevens warns. “And normal is a different place now.” *
“It does make market participants look at what acquisitions are out there, but I don’t think there are too many opportunities at this point in time.”
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Under siege The annual Pendulum report tells a now-familiar tale of an industry struggling against multiple foes By Bernice Han
INSURERS YEARNING FOR A RETURN to the good old days of strong profits and investment returns will no doubt be left dejected by the latest Pendulum report from Finity Consulting and Deutsche Bank. The familiar cast of villains that have tormented the industry over the past few years shows no signs of exiting the stage any time soon. And what Pendulum has to say is pretty much in line with what other industry analysts have been saying. Excess capacity, ultra-low interest rates and cut-throat competition, among others, continue to chip away at the bottom line, but the encouraging news is that insurers are somehow still managing to stay profitable. The report predicts a return on equity (ROE) of about 10-12% in the current financial year, after coming in below 10% last year. In contrast, average ROE of 15% was the benchmark before the industry descended into its current gloomy state. “Both 2014/15 and 2015/16 produced relatively poor results, and we don’t see 2016/17 as likely to produce anything much different,” says the report, which is now in its 10th year. “The current environment remains challenging, with headwinds coming from weak top-line growth, an economic environment characterised by low inflation and low economic growth, and ever lower investment returns. 14
“As a result, we believe the industry is now in a period of subdued profitability.” Premium growth last year barely crept above 2%, and the prognosis for this year doesn’t look good either. “The factors driving this weak growth outcome are strong competition, an abundance of capacity and limited areas in which the industry can grow,” the report says. “In our view, these factors look set to continue and strong growth for the industry will be hard to come by in 2016/17.” The Pendulum report covers eight classes: home insurance, personal motor, liability, compulsory third party (CTP), commercial property, professional indemnity, directors’ and officers’ (D&O), and workers’ compensation. It flags a “poor” outlook for commercial property and D&O – defining “poor” as loss-making. Premium rates in commercial property declined 5% on average last financial year and the misery is set to be compounded unless there is a dramatic turnaround in the operating environment. “The year-to-year variability driven by large and catastrophe claims makes it challenging to predict the profitability of this portfolio. On average, we assess the business will be unprofitable at current and forecast rate levels. “The key challenge for insurers in this class is managing the portfolio across the softer phase of the cycle. insuranceNEWS
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GWP growth outlook 8%
7.3%
6% 4%
3.4%
2%
1.2%
3.9% 2.7%
1.3%
0% 2013
2014
2015
Source: Deutsche Bank, APRA
2016F 2017F 2018F
Looking at a loss: the Pendulum report says commercial property’s outlook is “poor”
“While some have expressed the view that rates have bottomed out, rate increases averaging about 15% are needed if profitability is to be restored.” In D&O, some signs of bottoming out have emerged, but the class remains unprofitable, with loss ratios of about 100% since the global financial crisis. Profitability is also hampered by class actions. “Class actions are the key contributor to the poor claims experience in this class,
and with an uncertain economic outlook there is additional pressure on claims costs,” the report says. “The tort environment continues to be ‘warm’ – recent decisions around indirect causation, proportionate liability and child abuse have not been favourable for insurers. “While we see some signs of the soft market bottoming out, this will not be enough to bring this class back to profitable levels.” insuranceNEWS
October/November 2016
CTP underwriters will find it tough to meet profit targets, the report says, putting current loss ratio estimates for New South Wales and Queensland at 82% and 78% respectively. The NSW Government’s bid to install a hybrid no-fault CTP model will not completely drive away the blues. “The reforms are expected to reduce claims volatility and legal costs significantly, thereby accommodating significant premium reductions. But they will also apply 15
News Ltd
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“The drive for top-line growth will benefit policyholders… in the long term we anticipate a slow decline in profitability due to intense competition and the expected increase in average claim size.”
Avoiding a crash: CTP underwriters will find it hard to meet profit targets, but the outlook for motor insurance is “good”
pressure to insurers’ profit margins.” Home insurance and personal motor receive “good” outlooks, meaning the classes should achieve ROE well above 15%. They are the only lines expected to do so. Personal motor enjoyed overall premium growth of 4% last year and is expected to maintain its overall level of profitability. But the growing threat from challenger brands, which already account for 10% of the car insurance market, may erode margins further down the road. “Competition, especially from the challenger brands, is putting pressure on premium rates,” the report says. “The drive for top-line growth will benefit policyholders as competition will lead to lower premiums… in the long term we anticipate a slow decline in profitability due to intense competition and the expected increase in average claim size.” Home insurance profitability is now more sustainable and average premiums will rise marginally despite pressure from challenger brands, which have managed to almost double their market share to 7% in the past year. “The key challenge is to keep financial performance stable in a competitive market and with changing climatic patterns. “Affordability is still an issue for households in areas susceptible to natural disasters, indicating Australia’s built environment needs to be more resilient to [them].” Professional indemnity and workers’ compensation have “borderline” outlooks, 16
Motor and home growth rates 40% 30% 20% 10% 0% –10% FY12
FY13 Majors Others
FY14
FY15
Challengers Total
FY16F Banks
Source: Deutsche Bank, company data, APRA. Note: Coles history included within IAG (major insurers)
meaning the lines are profitable but ROE will be less than 15%. Loss ratios for workers’ compensation remain about 75% and a “typical” insurer will probably find it a stretch to deliver target profit margins. “Profitability remains an issue in workers’ compensation,” the report says. The professional indemnity line is profitable, with a loss ratio of about 55%, reflecting the fact premium rates are “adequately priced”, although some downside insuranceNEWS
October/November 2016
risks persist. “Top-line growth continues to be a challenge and this may get harder with more players entering the market. From the claims side, the tort environment continues to be ‘warm’.” The liability class remains profitable but has reached a “turning point”, with operators struggling to meet ROE targets. The report says profitability is expected to deteriorate over the 2016 and 2017 accident years, as competition continues and
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“Achieving rate increase at the top end is more difficult under current market conditions, but we have seen positive momentum on rates in recent months.”
Building relationships: Suncorp’s Anthony Day
investment returns remain low. “We don’t see this weaker profitability position changing for at least another year.” Despite the tough environment, IAG and Suncorp, which hold almost 38% of the market between them, have told Insurance News they’re confident of getting through unscathed. Suncorp Insurance Chief Executive Anthony Day predicts low single-digit gross written premium (GWP) growth in the personal lines space. He sees signs of premium rates stabilising across commercial lines. “We have been leading the market in pushing through rate increases,” Mr Day says. “Achieving rate increase at the top end is more difficult under current market conditions, but we have seen positive momentum on rates in recent months. “Overall, Suncorp expects the Australian market to remain competitive, with insurers focused on best-in-class risk selection. New business opportunities will continue to remain low as insurers focus on portfolio retention.” Mr Day says Suncorp is laying the groundwork for future success by investing in such innovators as US-based fintech Trov. “The rise of fintech has the potential to promote rapid change and disruption to traditional business models,” Mr Day tells Insurance News. “This partnership will help us build relationships with customers who are looking for new platforms that provide financial 18
Return on equity across short-tail classes 60% 40% 20% 0% –20% –40% –60% 2H13
1H14
2H14
Home Domestic motor
1H15
2H15
1Q16
Commercial motor Fire and ISR
Source: Deutsche Bank, APRA
services in a flexible and simple way.” At IAG, a spokesman for Chief Executive Peter Harmer tells Insurance News the group is experiencing tougher market conditions, particularly in commercial markets. “We expect GWP growth for IAG to be relatively flat for the 2017 financial year,” the spokesman says. “However, IAG overall has laid the foundations for the next three to four years, which will see the company focused on delivering world-class customer service insuranceNEWS
october/november 2016
while delivering greater efficiencies across the business.” IAG expects “modest growth” in shorttail personal lines and describes the commercial insurance market as being in a “difficult environment”. “We don’t expect to see a dramatic upturn in pricing,” the spokesman says. “However, we are encouraged by the more rational competitive behaviour we are seeing, particularly in our target segments * of SME and mid-market.”
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The client is still Number 1 JLT’s Dominic Burke has grown the company by emphasising the basics of broking By Terry McMullan AS INNOVATION AND INCREASINGLY diverse services become driving forces for the world’s leading brokers, JLT’s Dominic Burke is swimming against the tide and showing no signs of drowning. Far from it. JLT is growing everywhere it matters, geographically and in the all-essential financial and client numbers. When he took over the helm of JLT in 2005, Mr Burke promised it would grow by sticking to its knitting – which is all about concentrating on client service. His approach seems to have proved his belief that “first and foremost brokers should be fierce advocates for their clients”. “We have always had a reputation of being very, very, very strong transaction brokers,” he tells Insurance News during a visit to his Australian operations in August. “But I believe we have become, and are increasingly becoming, a powerful advocacy consultancy business that adds real value to our clients.” The reason JLT can do so, he says, is because brokers want to work for his company. “We’re employing the best talent in the marketplace. Today JLT can take people from almost anybody. And we do. “If I look at JLT today, I think we’re offering a very different model to that of our major competitors.” 20
Mr Burke doesn’t believe broking operations at the top end of the market can succeed by merely squeezing margins, extracting more out of the distribution chain and “pressurising carriers to find new ways of being paid”. His solution is rather more simple: increase revenue by increasing the number of clients, and attract the clients by offering them the best broking teams. Perhaps it’s the group’s reputation for providing a supportive workplace for brokers that has attracted entire teams of specialists to defect to JLT. As reports in Insurance News and its overseas counterparts in the UK and US over the past few years amply demonstrate, JLT has focused on attracting what Mr Burke calls “the best talent in the marketplace”. The most recent example is Willis Towers Watson Australia chief executive Tony Barber, who last month quit after less than a year in that job to become JLT’s Chairman of Specialty in Australia. While Mr Burke didn’t name any broking company in particular – and our interview took place some weeks before Mr Barber made his leap across to JLT – he remains steadfast in his belief that a focus on commoditisation, facilities and margins is not the way for major brokerages to retain their best talent. “We target who we want, but increasingly we find people over the past three or four years have been beating a path to our door,” he says. An example is JLT’s North American business, which was significantly expanded after the group acquired Towers Watson’s reinsurance brokerage business in 2013. “We find ourselves now with some 220 people in 14 offices. We could have hired insuranceNEWS
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Solving cyber: it’s just a matter of time Mr Burke says the insurance industry is starting to make progress in tackling cyber risks. “Previously, it’s been more about focusing on rectification and providing cover around rectification rather than indemnification,” he tells Insurance News. “Partly that’s because people are trying to understand the nature and the scope of the risk. “After all, until you can define the risk, how do you price it?” Product innovation is necessary, but Mr Burke sees the impact of “regulation and the regulators, and solvency and capital adequacy provisions” preventing the market from innovating. “I particularly challenge Lloyd’s on this, because it was always a market that innovated. The syndicates could take the gamble, an educated risk. “But now regulators and the franchise board get in the way of that, so innovation’s gone to the very big insurance companies. “We’re beginning to see a shift in the ways [risks such as cyber] are handled, and I think over the next few years we will find we have a market that actually starts to provide solutions. “But we’ve got to work with technology companies, and I think capital providers want to see how we can scope the nature of the risk, what is really insurable and what isn’t.” He says cyber is “the most important debate that’s happening around every single board table around the world – the small and the large. And nobody yet has been able to totally define it, because it’s still an emerging and evolving risk. “We at JLT are spending a lot of time and resources on this. We’ve brought a lot of capability into it and we’re providing lectures and workshops and sharing knowledge to educate clients and help them think through the challenges. “The market will ultimately find a solution.”
Attracting top professionals: JLT Group Chief Executive Dominic Burke
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Technology: a means, not an end Technology is changing the industry, but Mr Burke believes adherence to the basics will ensure insurance broking survives and thrives. Technology, he says, is a tool that should enhance brokers’ value to the client. “A broker should be a client advocate, with deep-seated technical skills and great transactional skills. Technology will play a part in facilitating the communication of the risk and the solution, but it will not replace broking. “If you can truly add value, you can bring to your client knowledge about his segment, benchmarking, and other essential data. “Technology plays a part in gathering that, but I don’t think we’re any time soon going to be disintermediated.” He says fintech and disruptor plays may gain traction in the distribution of single products “such as sports equipment or things of that nature”, and personal lines products “may also go down that route”. “There’s a whole generation of people who have lost the ability to talk and who do everything on their iPhones,” Mr Burke says. “I’m sure they’re going to buy their insurance products on the iPhone. “But how do they get that problem solved? Claims, for example, often sits in a grey area. I want to talk to somebody if I’ve got an insurance problem. “My whole career’s always been threatened with disintermediation, you know, and we brokers just keep going. Insurance brokers are remarkable animals. You can’t kill us [because] we know how to reinvent ourselves. “But if you stop adding value and just become a distribution channel, you’re gone.”
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“I think we might surprise a few people with the rate of growth we may now generate in the coming months and years.” double that number. And we have not paid a single dime to a headhunter or a recruitment firm.” Mr Burke makes no secret of his delight in the fact that US brokers who joined JLT North America two years ago, when the expansion program took off, are now completing their contractual obligations to former employers and becoming free to contact former colleagues and clients. “We’re going to be very busy,” Mr Burke says. “You would expect to see an uptake in terms of people we will now be able to talk to and, of course, their clients.” He says JLT’s approach is “resonating with the clients” as well as brokers, and insurers are increasingly jumping on the bandwagon. “I can’t tell you how rewarding it is for me and my colleagues all around the world to see the level of support we’re getting from the major carriers. We’re not beating a path to their door asking for more and providing less. “Major corporations around the world need advice. They need to understand the emerging risks that are happening. And they need to have the expertise and the capability JLT is offering. “We are some 11,500 people now. We’re in 42 countries. We transact just over $US16.5 billion of gross written premium. insuranceNEWS
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For the seventh successive year we have had the best organic revenue growth in our risk and insurance business, and I would be very confident we’ll continue in that vein. “And I think we might surprise a few people with the rate of growth we may now generate in the coming months and years.” He says JLT’s Australian operation is “an extraordinary example” of organic growth. “If I go back five years, we were in the corporate space here but had few top-end clients. Today we could be entitled to claim to have the largest book of such clients. And we are very happily trading at a very successful and targeted margin.” “Getting in front of the client” is a mantra Mr Burke returns to several times in the course of this conversation – and he emphasises that this is as important for a small brokerage as for a company the size of JLT. When Insurance News met him on the third day of his most recent Australian trip, he had already visited three of JLT Australia’s largest clients. “I’ve been to see them to thank them for their business, and we spent our time talking about emerging risk and how much more we can provide them. Wherever you sit in JLT, your obligation is to get in front of the client. “The propositions we put to our clients today can well have come from people
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Brexit: a challenge, but not a disaster The recent decision by British voters to exit the European Union poses significant challenges to JLT, which employs 2500 people in London. The “passporting” freedom that allows companies to do business across the EU has also allowed JLT to base much of its central Europe business in London – which may be impossible after the so-called Brexit is enacted. JLT employs more people in Argentina and Turkey than it does in France and Germany, and Mr Burke admits that equation will have to change. He says JLT already has strong operations in Scandinavia and significant partnerships in Spain and Italy. But as for central Europe, “I have a stronger platform in Latin America, the Middle East and South Africa. We’ve made a couple of small acquisitions in France, and we’ll make more acquisitions in France and Germany.” But Mr Burke sees London continuing as a significant insurance centre, serving global markets. What about the speculation that Paris, Frankfurt or even Luxembourg could assume London’s role as the global insurance centre? “Not in my lifetime.” “London is an extraordinary city,” he says. “It’s got the intellectual capital, it’s got the brokers, it’s got the insurers, the loss adjusters and assessors, the legal, the accounting, the investment. It’s got the education. It’s got an enormously rich infrastructure that supports what we do. “I think there’ll be a lot of noise around this issue, but whether passporting stays or goes, London will continue to prosper.”
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“If I thought three years ago I had a challenge, it was probably around succession. But wherever I look at JLT today, the baton has been transferred to the next generation of leadership.” located all around the world, not just sitting in Sydney or Melbourne or Adelaide or Perth or Brisbane. “A broker has two obligations: to exceed the expectation of our client and to fulfil the promise that we will put the very best of JLT in front of our clients. So there’s an obligation on each one of us to give of our best. We’re a tough organisation; we don’t carry passengers. People have to contribute.” Risks at the top end of the market can be highly specialised, but Mr Burke says the answers can always be found in the group’s expanding global expertise base. “We have an organisation that doesn’t allow economic regions to get in the way of us putting the very best of JLT in front of our clients. So we absolutely collaborate, we share resources and we share experiences.” He speaks proudly of the client who chose JLT as their broker “because your guys walk into a room and they want it, they want to be successful, they want to win, they want to be part of a winning organisation”. “If I thought three years ago I had a challenge, it was probably around succession,” Mr Burke says. “But wherever I look at JLT insuranceNEWS
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today, the baton has been transferred to the next generation of leadership. “We have the most extraordinary cadre of leaders who are in their 40s, who feel the ambition, they sense it, they own it. They are going to build on this great platform we’ve built.” Asked his personal highlight of the past 11 years running JLT, Mr Burke hesitates before answering. “I think it would be the totality of what has been achieved. To have taken what I always thought was a great transactional broker, predominantly Londonbased with a sprinkling of good regional businesses – Australia being one – and to build that into an army that has truly now become a global broker. “Retail is 95% of our revenues. The market analysts’ consensus is that we will do £1.3 billion of brokerage this year. That’s from £400 million. “And we have a balance sheet that’s not loaded with debt, and we’ve grown our headcount by 9% per annum compound over the past 10 years. “To become a global broker, to really challenge and to really take market share – I mean, that’s something special, isn’t it?” *
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Still going strong The close relationship between SMEs and insurance brokers prevails despite a plethora of digital distractions, according to the latest research
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THE CAMERON RESEARCH GROUP HAS BEEN ANALYSING Australia’s small and medium enterprises (SMEs) for close to 25 years, and its biennial study on insurance has just been published. It’s a huge piece of work – based on both qualitative and quantitative research – drawing out some fascinating conclusions on how small and medium businesses buy insurance. “The key topic we examined at length in this study – and have done ever since our first small business insurance study in 1992 – is the distribution channel,” founder and Chief Executive Ross Cameron tells Insurance News. “That is, how are small businesses buying their business insurance now, and how do they expect to buy it in the future?” To answer this question, says Mr Cameron, you first need to define what a small business is – and whether you include the large number of micro-businesses that don’t buy business insurance. About 15% of small businesses rely on personal lines cover, while 4% don’t have any insurance at all. “They could easily find themselves in hot water,” Mr Cameron says. “But the reality is that businesses of that size very rarely have claims, so they never find out that they are underinsured.” Excluding those that choose not to purchase business insurance, about 59% of remaining SMEs buy through a broker, and 39% direct. A small number buy through other channels such as industry associations. The research shows a clear connection between business turnover and purchase channel – the bigger the business the more likely it is to use a broker. “Larger businesses are more complicated and do require greater firepower and greater tailoring,” Mr Cameron says. “That’s what brokers offer. These businesses are also more likely to claim and they want someone onside when they do that. “For larger SMEs, brokers have a very strong proposition.” Mr Cameron says after listening to business owners talk about their attitudes towards insurance purchases, there is no doubt in his mind that that brokers are alive and well. The research shows that of the owners that use a broker, 51% are “very satisfied”, with a further 38% “fairly satisfied”. Business owners tend to highlight six key reasons they use a broker – points that have barely changed in 25 years. These are: • brokers save time; • brokers are knowledgeable; • brokers assist with claims; • brokers make things happen (do the work); • brokers are proactive and offer a tailored service; and • brokers get the business the cover it needs. “Small businesses are highly satisfied with brokers and quite loyal to them,” says Mr Cameron. “That said, [owners] aren’t fools. “They are running a business and while those that use a broker generally realise that they may be paying a premium in order to deal insuranceNEWS
“The reality is that [micro businesses] very rarely have claims, so they never find out that they are underinsured.”
Broker use by business turnover
81% 72% 60% 50% 48% 38% 28% 16%
>$100K
$101-$500K
$501K-$2m
>$2m+
Business turnover Broker
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“The big danger here is that brokers ‘institutionalise’ clients... and the minute they feel as if they are just another number they will shop around.”
No doubt that brokers are alive and well: researcher Ross Cameron
One-track mind Melbourne-based Cameron Research Group, founded by Ross Cameron in 1992, has an unashamedly intensive focus on SMEs. It does not do consumer research, or large business research, and as a result is able to provide a unique insight and understanding into SMEs and their owners. The group’s services include syndicated research, a monthly SME newsletter, custom research and associated consulting/advising expertise. Mr Cameron personally conducts or directs all projects and runs a deliberately small operation.
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with their broker, they are happy to do so, so long as the premium isn’t too significant and the service is good.” In other words, will they pay a premium price for a superior service? The answer is yes. “From our research it seems that around 10% is the price premium they will accept, maybe up to 15% (some much more, some far less). Beyond that point it’s a stretch.” But just as important as price is the service. “Business owners have high expectations of the service level of their suppliers – as small businesses they are in the service business themselves. “This creates an interesting dilemma for brokers – how do they scale their brokerage, yet continue to provide the level of service that customers expect? “The big danger here is that brokers ‘institutionalise’ clients – that is, they treat them as if they are just another number. “This is an obsession of business owners and the minute they feel as if they are just another number they will shop around.” And many do – about 15% of small businesses that buy via a broker sought quotes directly from an insurance company in the last year, while 18% have sought quotes from another broker. A handful did both. But where do online transactions fit into all of this? Undoubtedly it will continue to make inroads, but small businesses buying insurance online is apparently nowhere near as inevitable as some would claim. “It is not as ripe for disruption as other industries, or the drop dead opportunity that those who don’t know insurance might suggest,” says Mr Cameron. “Business owners push back quite hard on the idea of buying their business insurance online. october/november 2016
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“Some are doing it but most are not and indeed they feel quite uncomfortable with the idea.” There are three main reasons for this. Firstly, business insurance is complicated, and not seen as a commodity. This does not lend itself to online buying. “Life insurance or car insurance are quite simple products,” says Mr Cameron. “Business insurance is way more complicated than that.” Secondly, each business believes it is different. Owners aren’t convinced they will fit into the boxes insurance companies want to place them into. Related to this, they don’t think the cover will be sufficiently tailored. Thirdly, they don’t trust insurance companies to pay legitimate claims. “This is a topic of great fascination to us,” says Mr Cameron. “Through the 25 years of conducting this study it has arisen time and time again. “Yet when asked to discuss their business insurance claims experiences, they think underwriters have performed very well.” In fact, of those that have had a claim in the past couple of years, 56% say they were “very satisfied” with the performance of the insurance company while 31% say they were “fairly satisfied”. Only 6% of small businesses that had a business insurance claim indicated they were dissatisfied with the insurance company’s performance. “Nonetheless, they still don’t trust insurance companies to pay out if they have a legitimate claim. This perception/reality gap hasn’t moved in two and a half decades.” There are pockets of the small business market that will – and do – buy insurance online. The online channel is also of enormous use to business owners from a research perspective. “We found that nearly 22% of the businesses we surveyed have used the internet to research their business’ general insurance needs and options in the past year,” says Mr Cameron. “This is where the internet comes into its own.” Mr Cameron accepts that the proportion of SMEs buying insurance online will increase over time. But this growth should not be especially significant “if brokers play their cards right”. “There are very real reasons why business owners push back on the notion of buying insurance online,” he tells Insurance News. “Further, there are compelling reasons why they buy it from a broker. If the broker maintains a suitable level of service – without blowing the pricing out of the water – then they can not only survive but potentially thrive. “We do not envisage the business of the insurance broker falling off a cliff. We expect the broker market to remain stubbornly well supported by small and in particular medium sized businesses well into the future.” Mr Cameron’s in-depth research would appear to prove the marriage between SMEs and brokers is still strong. And as long as brokers continue to deliver, online temptations * can be resisted for a good while yet. 30
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“If the broker maintains a suitable level of service – without blowing the pricing out of the water – then they can not only survive but potentially thrive.”
Business owners on buying online “Even though I use a broker, I use the internet to check out prices and get a general overview of what companies are out there offering the services, but then once I’ve got that information I want to go in a bit deeper and talk to someone.” “I don’t buy it online but I would look or research online. So I’d type in ‘public liability insurance’ and see which companies come up and I’d click on the bigger ones that I recognise. So I’d let the broker do the initial research but I can always go and do my own research after that if I want to.” “There’s a lot of fine print and you don’t have the time to work through it. I searched online for product and services liability insurance and a few came up and I looked at the companies and the price. And there’s a lot of fine print. So I looked at three and I called them to find out what’s covered and what isn’t covered. After I Googled it I didn’t buy it online because each product has a lot of fine print, so it’s hard to understand and hard to compare.” “I got onto Google and typed in ‘management consulting professional indemnity insurance’, like a long-tail thing, and I got to GIO, QBE those sorts of companies. But it was hard to tell which ones were brokers offering products white-labelled or whatever. But whenever I went through a calculator to work out what a rate might be I found a dead-end where it said ‘enter all this information and we’re going to call you anyway’. So I didn’t even have the opportunity to purchase it online if I wanted to, at least not through the methods that I used.”
October/November 2016
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Diversity: the changing face of insurance Meet a leader who believes waiting for change across the industry isn’t as good as making it happen now By Terry McMullan
Kelly Lyles: if we can do something about it, why not do it now?
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KELLY LYLES IS THAT MOST rare of humans, a woman working at the top end of a global insurance organisation. There are others, of course, like Lloyd’s Chief Executive Inga Beale, but it’s a very small number. How can this be in an industry made up of hundreds of thousands of men and women?
Ms Lyles, an American resident in London, flew into Sydney last month to speak as a panellist at a unique event organised by Lloyd’s that addressed diversity and inclusion in insurance. Her input into the issue comes not from research – and there’s been little enough of that despite it being one of the industry’s most pressing coninsuranceNEWS
cerns – but from experience gained in a highly successful career. She held down several senior positions in Europe for AIG before joining XL in 2014, just a few months before its £2.8 billion takeover of Catlin. Today she’s the Deputy Chairman of Insurance at XL Catlin. Diversity and inclusion came fully into focus late last October/November 2016
month at Lloyd’s very successful “Dive In Festival”. Held concurrently over three days in 10 countries – the others included Bermuda, Canada, China, France, Ireland, Singapore, Switzerland, the UK and the US – the festival put the industry’s diversity and inclusion (or its lack of it) front and centre for the first time. The Sydney events attracted 33
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capacity audiences, exploring not just gender-based issues but also the need for action to address culture, racial, social and family aspects. Ms Lyles tells Insurance News there isn't much solid research into the industry’s diversity, but adds with a smile: “I think if you go around to most insurance events you’d see that visually it looks like a lot of white men.” She adds, however, that the audience at the Lloyd’s event she had spoken at in Sydney on the previous evening included “many senior people in the insurance industry, and I was quite surprised personally at how many were women. It was pleasantly surprising.” While research into the Australian industry’s diversity is indeed difficult to come by, you have to hope we are doing better than US insurers. Research by Aon Hewitt subsidiary McLagan, published in April, surveyed 65 leading US listed insurance companies and found 98% of their executive managers are white and 85% of them are males. Just as disturbing, a study covering 23 countries published in May by consultants Ernst & Young found 27% of banking leaders expect a “significant” increase in female leaders in the next five years, but only 6% of their insurance counterparts share that sentiment. Ms Lyle believes that just sitting back and waiting for social change to eventually sweep through the insurance industry isn’t a feasible option. “One of the things we talked about [at the Lloyd’s panel discussion] was, is this a generational thing or does it 34
just happen naturally?” But a lot of people say nothing happens naturally – you have to push it. “I do think the younger generations are much more open-minded. They don’t have a lot of the same biases that their parents have. “So why do we want to just wait? If we can do something about it, why not do it now?” Ms Lyles believes the movement of greater numbers of women into senior insurance
diversity pools and correct them. “But you know, once you’ve started, people get to be more open-minded and to consider people that are ‘different’. So while we are opening it just by starting with women, it’s by no means the end of the road for us – it’s the beginning.” Key to the rise of insurance women is networking, Ms Lyles says. “I’m passionate about networking because I think our industry is a people business.
“If you don’t have the diversity of candidates in your pipeline, I think you’re not going to get them into the senior level.” roles is increasing, and that events like the Dive In Festival will raise the profile of the wider diversity issue. “I’d like to hope with some of the actions that companies are taking, and the interest being raised by things like Dive In will help progress to happen faster,” she tells Insurance News. “And you can accelerate it, so I’d like to think within the next five years you’d see a dramatic difference.” She says XL Catlin is concentrating on the role of women in the company for now “because it’s the largest diversity pool”. “Our feeling is [that] if we can crack that, then we can move on to some of the other insuranceNEWS
It’s really important to network.” She points to research that suggests women “aren’t as good at networking as men – that we network for what is important to us, but we don’t necessarily network for the greater good”. Like most successful senior executives, male or female, she acknowledges the need for a “sponsor” within the corporation – the highly placed person who can offer not just guidance but active support when it comes to career advancement. “We don’t talk about that as much as we do about mentoring. People think of a sponsor as being like a mentor, but a sponsor is someone that October/November 2016
can bang the boardroom table on your behalf and say, ‘It must be this person for that job’. “In my mind, women work very well within their line of management or hierarchy, but they don’t tend to go outside that and try and develop the sort of relationships that might have your sponsor in the room banging the table for you and saying. ‘You haven’t thought about this person’. “I would say a lot of my success has been down to somebody being the one in the room who banged the table, rightly or wrongly, for me. “I tell everyone that that’s the best way to get on – to try and establish those relationships outside your line of command. Because your line of command is going to support you or not support you, but getting other people to help increases your odds.” The McLagan study of US insurance companies also found that in the racially diverse US market, 83% of insurance company employees, male and female, are Caucasian. Ms Lyles says such situations should be changed right at the start – with recruiting. “If you don’t have the diversity of candidates in your pipeline, I think you’re not going to get them into the senior level. We have to start by recruiting from a more diverse base, and then develop those people and fast-track them. “And the best way to attract that more diverse pool is by offering a more diverse and inclusive environment within the workplace. That culture has to exist in order to start the process.” XL Catlin has a policy that
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all jobs have to be posted within the company so anyone can apply. Unsuccessful applicants are told why they didn't get the job, and every senior position requires what Ms Lyles calls “diversity candidates” in the mix. “We don’t have a quota or anything like that, and the most suitable and talented person always wins. But our chief executive has said that if two candidates are of similar talent and ability, diversity will be the deciding point.” Would a quota help in fasttracking diversity? Ms Lyles says no. “If you have a quota and you don’t have the right candidates but you take one just because you need to meet the quota, it doesn’t do anyone any favours.” The sensitive area of employees’ sexual orientation and the impact on the workplace is one that Ms Lyle says can only be met by education and communication within the workplace. Recent state-based legislative moves in the US that have resulted in transgender children being ostracised in public schools has made the issue a major talking point in the US, but she says in the business sphere “it’s more about communication and having people be aware”. Put all these diversity issues together and you have an industry much more capable of being one that people want to work in, rather than something they “fall into” almost as a last resort. Ms Lyles says many more graduates are now “starting to be aware of insurance as a career, and starting to choose it” over other industries.
“There are more courses at university level that have to do with insurance. Insurance is a bigger part of a lot of companies’ spend, too, so there’s an awareness that we need to have insurance in order to operate as a company. So its importance is on the increase. “I think universities are also doing a better job raising awareness of insurance, and we’re doing a better job of recruiting at universities and talking about it.” She says awareness of the industry is increasing in the younger demographics, and with technology making industry more accessible there’s greater understanding of available career paths. “So again it’s about communication and awareness, and to market the industry you need to be able to communicate to the younger demographics, and then attract them by having an innovative company and a diverse workforce.” Ms Lyles also sees the flexibility that working in insurance offers as a major selling point. Working for a US-based company from London because it suits her family circumstances, she’s a classic example, although she regrets “basically living on an aeroplane”. She says XL Catlin staff “never get admonished if you are working from home because the plumber’s coming, or you have to care for a family member, or you have something at your kid’s school, or whatever it is”. “It’s more about your output than the presence that you have in the office. I think that sort of thing makes it more attractive to the millennials.” *
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October/November 2016
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If you live in NSW, chances are that icare is part of your life, though you may never know it. We protect your schools, sports teams, the police and emergency services. We serve the workers and road users of NSW and insure the state’s assets like Taronga Zoo and the Sydney Harbour Bridge. icare is a social insurer – there for you, not for profit. If you get injured at work, we’ll help you recover fast. And if you’re severely injured at work or on our roads, we’ll be there to support you with exceptional care and life-long support if needed. icare is changing peoples’ lives by providing the care they need, when they need it most. We are here to protect, insure and care for the things that really matter to the people of NSW. To find out more go to www.icare.nsw.gov.au
for nsw
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dust diseases care / hbcf / lifetime care / self insurance / workers insurance
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Capital punishment The global industry is taking hits on all sides, but our trillionaire investors aren’t being scared off By Terry McMullan
SOMETIMES YOU HAVE TO WONDER IF A SHARP AND severe natural catastrophe of mammoth proportions is all that’s needed to get the insurance industry back operating the way it did before the investment funds found it. That’s if you listen to people who believe the vast amounts of capital flowing into the industry will flow straight out again once something big bites. They’re the ones who say the new interest in insurance investment among global investors is not the “new normal”, but merely a case of them finding anything that’s still turning a profit. But Swiss Re Chief Economist Kurt Karl says these companies are sophisticated investors that know exactly what they’re doing, and nothing about the performance of reinsurance or insurance fazes them. “That capital’s not going to go away,” he told Insurance News during a recent visit to Australia. “Some of it comes from hedge funds and some of it comes from pension funds, and when we talk to our people who are experts in the insurance-linked securities area, they say these funds are really quite sophisticated. “They understand the risks, they have their own models, or they hire the modelling and have a very good handle on what they are getting into. They know there could be losses, but they still intend to have an allocation in that asset space. So they’re not going away.” Dr Karl says, on a global scale, the investment in insurance and reinsurance is “miniscule – $US75 billion of alternative assets. That’s nothing compared with the trillions that are in pension plans. The insurance industry and the pension plans have in the range of $US25-$US30 trillion in these funds. So $US75 billion is nothing. So is it going to stay? Yes.” He says capital has been attracted to reinsurance in particular because the industry has been making profits off low catastrophe losses and through reserve releases from prior years’ books of business. While reinsurance has been absorbing and accommodating a lot of regulatory change at the same time, “we’ve managed to survive all that, and still our capital is in general
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going up because of the benign news on the [natural catastrophes] side, as well as on casualty books of business. “But now we’re starting to see that change a little bit. Some companies are struggling at this point from either poor investments or poor underwriting in prior years.” Dr Karl says it is an unfortunate fact of reinsurance life that when a sector’s claims experience is benign for a significant period, premium declines begin to happen. “We’ve had benign periods on two large books of business: casualty and particularly property nat cat. We think the declining trend is slowing down, and reserve releases are slowing down also. “And we did see in the first half of this year a significant increase in the catastrophe losses relative to the first half of last year. So that was a bit of a wake-up call. We’ll see how it plays out for the [reinsurance] renewals in January.” On the insurance front, Dr Karl agrees global insurance companies are coming under pressure from their shareholders, particularly as reserve releases slow down. “It’s a tough industry right now,” he says. “Shareholders, I’m sure, are to a certain extent frustrated. “But if you have the capital to pay dividends, with this book pricing, you can have a yield that’s better than a longterm bond. And as a consequence, shareholders are being satisfied with that, and some companies are doing share buybacks.” So where are premiums going in world markets? Are American insurers showing any success in their stated intention to raise premiums? Dr Karl agrees premiums in the US will rise – probably more than in Australia – but that’s only a small part of the equation. “In these kinds of markets, we know from history that you run into a point where you realise that on the standpoint of your own underwriting standards, the pricing is below your technical break-even point. “So you can work with your large clients as an insurer or reinsurer on that, but you can’t do it with new clients or with your smaller clients. “So [premiums] do get to a bottom at some point, they
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Shareholders are satisfied with the industry: Swiss Re’s Kurt Karl
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“We see pricing stress, we see regulatory stress, we see a low yield environment stress, and yet capital in some years continues to go up, and premium volumes in most countries, after inflation, are going up.”
have to; because if you continue to have a prolonged period of below what you’re expecting on technical pricing, then you’ll get burned at some point with a large catastrophe or when wages and healthcare costs go up and change your casualty claims increases each year. “I’m looking at what we have for an outlook for the US compared with Australia, and you’re right – we do expect it to be stronger this year in after-inflation terms and, as it turns out, weaker next year in premium growth terms. “So the US isn’t being so much more robust than Australia, for example, on the property and casualty side. On the life side, our outlook is that you’re doing better. “And I would expect premium growth in Australia. You’ve had some new changes to the way the pricing is going on some of the disability insurance and things.” Dr Karl says European markets are adjusting to the Solvency II reforms, which started earlier this year, “but the real problem in Europe is predominantly on the life side, with respect to interest-rate-guaranteed savings products. The Solvency II reaction has been to delay the actual implementation of the full capital requirements for such books of business. “What we saw in Japan was that the large companies survive in this kind of environment, while the medium-sized ones get together and merge or they get foreign capital. It’s not a disaster for the industry or for the policyholders.” He tells Insurance News government bonds – a staple investment for insurers – are low, and “we don’t see a lot of expectation of yields going up a lot, especially in Europe”. The US is likely to raise rates at least one more time this year, which is expected to push up yields from bonds “a little bit”. “These are still very low yields by historical standards, and that’s in a major country with the highest likelihood of interest rate hikes.” Dr Karl is hesitant to refer to the general insurance cycle, saying an eight-year low trend for investments “makes it a little hard to call it a cycle”. “I don’t think the cycle has gone entirely, but it’s… for example, if we talk about the property and casualty side, and we still talk about a nat-cat cycle. That will change if we have a large catastrophic loss – a large loss that the models simply missed. “So if it’s a shock in a modelling sense, or a shock on capital because of the size of it, that would turn. But it won’t turn like it did in the past because there’s so much capital 40
that can come in from other parts of the global economy in the alternative capital sense, and dampen that price movement.” Dr Karl says the industry is looking to Asia for profits and premium growth. But not all of Asia is likely to provide profits, particularly if underwriting is affected. “I think from a long-term premium growth perspective, you can’t hope to get profits 5-10 years from now if you’re not in the market, taking the lumps with the others.” For the Australian and New Zealand markets, he sees earthquakes, bushfires and floods as the major reason why reinsurance premiums haven’t fallen as much as in “more benign” countries. “But it’s still a good [region] for business on the property and casualty side.” Tackled on the fact that reinsurance premiums for New Zealand are as low, if not lower, than prior to the Christchurch earthquakes, Dr Karl says that’s the result of “a purely competitive issue”. “What happens is, you get the shock from the catastrophe. The prices go up, and then of course you get some alternative capital coming in, and then you also get some new players. “And then you get some more capital from the existing players and the prices go down. That continues for a while, and then you may or may not have another catastrophe. In many countries in the world we haven’t had that other catastrophe, and prices are still declining or stable.” He says at some point reinsurers will realise they’re at risk of underpricing for the past 10 years of catastrophes. “Things start to stabilise at that point. But it does take an event or something else, unfortunately, to turn that around.” For the immediate future, Dr Karl says the industry is “remarkably resilient”. “We see pricing stress, we see regulatory stress, we see a low yield environment stress, and yet capital in some years continues to go up, and premium volumes in most countries, after inflation, are going up. “So we have real growth, even if we still have a lot of work to do. “We do need to close the protection gap. Many countries, particularly in Asia, simply don’t have the protection that would be useful for the typhoons and the earthquakes that we’ll see over the next decade. So we’ve got a lot of work to do, but we seem to be doing well as a very resilient * industry.”
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Space invaders As astronomers identify more asteroids on potential collision courses with Earth, it pays to keep an eye on the skies By Andy Swales
ON THE MORNING OF FEBRUARY 15 2013, people in the southwest Russian city of Chelyabinsk were going about their daily routines when they saw something straight out of a disaster movie: a huge fireball streaking across clear blue skies, arcing down towards them and their homes. The Chelyabinsk “airburst” came when a 20-metre asteroid entered Earth’s atmosphere and began fragmenting at an altitude of about 83km, according to researchers in the journal Science. The blast created shockwaves that shattered windows in more than 3600 apartment buildings, caused a factory roof to collapse and knocked people off their feet. The fireball burned so bright it left some witnesses with “sunburn” and retinal injuries. More than 1200 people were hurt and the damage bill was reported to be about $US33 million, but there were no deaths. The Science report says about threequarters of the meteor evaporated, with “most of the remaining mass converted into dust”. But some rock fragments made it to the ground, with one smashing a sevenmetre hole in 70cm-thick ice on nearby Lake Chebarkul. The strike – captured from all angles in dramatic dash-cam, CCTV and smartphone footage – was the biggest meteor impact over land since 1908, scientists say. According to a paper written by US insurance lawyers Michael Frimet and Silje Roalsvik, the Russian insurance industry’s response was mixed. They say many Russian insurance companies declined coverage for claims submitted because residential policies lacked wording related to meteor damage. Some policies paid out under “explosion” coverage, while some of the larger car insurers did have meteor wording in their policies. In Australia, the residential situation is clearer, according to Insurance Council of Australia General Manager of 42
Communications and Media Relations Campbell Fuller. “Home building and contents insurance policies… typically cover damage caused by meteors, rockets and other space debris,” he tells Insurance News. The time lapse between the 1908 impact in Tunguska, Siberia, and the Chelyabinsk event gives an indication of how rare such strikes are. But that’s no excuse for complacency. In September NASA launched the OSIRIS-REx probe to visit and take samples from a 500m-diameter asteroid called Bennu, which is heading (more or less) our way and has – at last check – a 2700-to-one chance of hitting Earth in about 200 years. If it does strike, the damage will make Chelyabinsk look like a glancing blow from a peashooter. In a recent blog post, Dante Lauretta, Principal Investigator for the OSIRIS-REx project, calculates the impact would “release three times more energy than all nuclear weapons detonated throughout history”. While there would be no existential threat to life on Earth, huge damage would occur to people, property and plant life over tens of kilometres, and the effects would be felt hundreds of kilometres away. An impact at sea would generate a tsunami with wave amplitude of about 28-56 metres, according to his calculations. Still, astronomer Simon O’Toole, from the Australian Astronomical Observatory, says our descendants can probably rest easy, because the odds of Bennu hitting are likely to blow out as more observations are made. “Working out the orbit or motions of an asteroid is pretty challenging, so you need to have quite a lot of observations to see where they’re travelling, and when you do [more observations] you almost always find the probability becomes astronomical – so to speak,” he tells Insurance News. “This is a regular occurrence. You get a headline with an asteroid at a one-in-500 chance. Then it goes to a one-in-50,000 chance the next update, then it’s one in insuranceNEWS
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School of rock Asteroid: a rocky/metallic body in space, orbiting the sun Meteoroid: a smaller fragment of a comet or asteroid travelling through space Meteor: a body that has entered the Earth’s atmosphere Meteorite: a fragment that has fallen to the Earth’s surface.
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The biggest strike since 1908: a fragment from the Chelyabinsk meteorite, which came from a 20-metre asteroid that exploded in the atmosphere
Reuters
“About every 2000 years a body the size of a football field hits.”
1 million or something very unlikely.” NASA’s Jet Propulsion Laboratory says car-sized asteroids hit Earth’s atmosphere about once a year, generally burning up before reaching the surface. About every 2000 years a body the size of a football field hits and “causes significant damage to the area”, it says. “Only once every few-million years an object large enough to threaten Earth’s civilisation comes along. Impact craters on Earth, the moon and other planetary bodies
are evidence of these occurrences.” Dr O’Toole says astronomers’ calculations show “the chances of any one person being killed by an asteroid impact are one in 700,000, which is pretty low. And that calculation is skewed: if you had a very large asteroid, about 10km across, which is one every 100 million years… that would kill everyone [on Earth]. “The chances are so low that we don’t really need to worry.” Indeed, given the huge odds and vast insuranceNEWS
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timescales attached to the larger threats, it’s easy to view major asteroid impacts as little more than fodder for science-fiction writers. But they are, of course, a matter of historical fact. The planet is littered with craters caused by ancient strikes. In May this year, scientists from the Australian National University announced they had uncovered evidence of a 20-30km asteroid strike dating back more than 3.4 billion years. More recently, and more famously, “we 43
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know 65 million years ago there was a very large asteroid – somewhere between 1-10km – that effectively wiped out the dinosaurs”, Dr O’Toole says. So while there is no need to panic, it is worth keeping an eye on the skies – “be alert but not alarmed”, as Dr O’Toole puts it. NASA scans for potential threats through its Near-Earth Object Wide-Field Infrared Survey Explorer (NEOWISE) space telescope program, among other projects. The space agency describes near-Earth objects as “asteroids that have been nudged by the gravitational attraction of the giant planets in our solar system into orbits that allow them to enter Earth’s neighbourhood”. In April NASA released NEOWISE’s second year of survey data. It says the telescope “has now characterised... 439 near-Earth objects since the mission was restarted in December 2013. Of these, 72 were new discoveries.” It says eight objects discovered in the preceding year were classified as potentially hazardous asteroids (PHAs), “based on their size and how closely their orbits approach Earth”. In total NASA and its partners have now identified more than 1720 PHAs, which must be at least 100-150m in diameter to obtain the classification. “We know about the vast majority that are more than about 100m in size,” Dr O’Toole tells Insurance News. However, that still leaves a potential blind spot around Chelyabinsk-sized asteroids – too small to wipe out a city or whip up a huge tsunami, but big enough to pose a threat to property, people and insurers’ claims reserves. “The small ones like the Chelyabinsk one – they’re a lot harder to see because they’re so small,” Dr O’Toole says. “A lot of those smaller ones are very dark. We only detect them when they reflect light, in the same way we can see the sunlight reflecting off the moon. 44
“The bigger they are and the more complex their surfaces, the more likely it is that, even if they’re dark, we’ll still see reflected light in some way.” Small meteors, fragments and dust enter the Earth’s atmosphere on a daily basis, mostly burning up before anything can reach the surface. “Whenever you see a shooting star you’re seeing a bit of space dust or rock burning up in the atmosphere,” Dr O’Toole says. “The vast majority of those don’t reach the surface of the Earth, and even the ones that do still burn up. By the time they reach the surface they’re very small.” But Ray Pickard, operator of the Bathurst Observatory in New South Wales, says impacts are more common than we might think. “[With Earth] being mainly water, most fall into oceans,” he tells Insurance News. “However, they have and do hit buildings. I know of a window being broken by one on the Central Coast.” And he says Chelyabinsk-sized impacts happen “more frequently than is comfortable. In fact there was a larger such incident to the east of the US just a few months ago.” This year Mr Pickard joined a global team of volunteers tasked with identifying 10m-plus near-Earth asteroids, reporting to the US-based Minor Planet Centre. “In the past we thought it was only the 100m-plus class that could do harm, but Chelyabinsk showed the 10m class is also a threat,” he says. “There are a lot more of these than the bigger ones.” Mr Pickard uses a method he calls “random search”, in which the Bathurst telescope is used as normal for other research and imaging of other objects. “In each image I also look for random objects. So although I have a list of objects I image, there is a chance an asteroid may or may not be present in the image as well... so far, nothing, but some really nice images of other objects for the public.” He began the project after securing a Tomorrow Fund grant from life insurer insuranceNEWS
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“Chelyabinsk showed the 10m class is also a threat. There are a lot more of these than the bigger ones.”
AMP, but financing also comes from his own pocket. Dr O’Toole says much monitoring work is “crowdsourced” in this way, and observers’ time and funding limits mean the coverage is “precarious”. “A significant number of the observations... are made by amateur astronomers, so it’s just down to when they can do that. “NASA does have a program. There are several [other] programs, but they’re quite * hard to co-ordinate.”
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THE LEGAL VIEW
Brain injury in sport: the new ‘asbestos’? A growing area of risk for underwriters is in the area of delayed onset brain injury related to contact sports. Richar Richard d Johnson, Partner at Wotton + Kearney, explores this highly topical issue and the implications for the insurance industry
What is delayed onset brain injury? Mike Webster played centre for the Pittsburgh Steelers of the American National Football League (NFL) for 15 seasons. His professional career was illustrious, winning four Super Bowls with the Steelers. Individually, he is widely regarded as the greatest NFL centre of all time. In total, Webster played 21 seasons of college and professional football, along with high school varsity football, and many more junior games. Webster died in 2002, aged 50, after suffering a heart attack. Post mortem, Webster was diagnosed with chronic traumatic encephalopathy (CTE), a neurodegenerative disease, the first CTE diagnosis in a professional sportsperson. Doctors subsequently estimated that over Webster’s football career he experienced collisions equivalent to being involved in 25,000 motor vehicle collisions. Prior to his death Webster suffered from forms of amnesia, dementia and depression. This led to problems in his personal life including drug and alcohol abuse. Several other high profile NFL players who took their own lives were shown after autopsy to also have had CTE, including Hall of Fame linebacker Junior Seau, who died in 2012 at age 43, and former Chicago Bears safety Dave Duerson, who shot himself in the chest at age 50 in 2011, leaving text messages requesting his brain be examined. Such symptoms have also been regularly associated with other forms of brain injury associated with collision and contact sports. The latest research indicates that CTE is caused by repeated blows to the head, regardless of whether or not they cause concussion. Therefore, while repeated concussions are a significant risk factor of a later CTE diagnoses, sub-concussive head trauma also plays a major part. Sub-concussive trauma occurs when the brain is traumatised without concussion, where the head undergoes a sudden movement bringing the brain into contact with rough internal surface of the skull. While the medical evidence to support a causal link between brain injury and
contact sports is presently not conclusive, there is an apparent epidemiological link: players of collision and contact sports suffer brain injuries at a higher incidence than the general community.
Legal position – United States The similarity to the epidemiological links between tobacco use and lung cancer, or asbestos exposure and dust-related diseases, should not be overlooked in understanding the steps being taken by professional sporting bodies in the United States to resolve claims brought against them. Class actions have recently been brought by participants in the NFL and other sports including ice hockey (NHL), college sports (NCAA) and “professional” wrestling (WWE) to recover damages arising from brain injuries allegedly caused while playing. Claims against the NHL and WWE are ongoing while claims against the NFL and NCAA have been settled by the governing bodies. The $US1 billion settlement with the NFL will cover more than 20,000 former players for up to 65 years of their lives and provide funding for medical research and education. The class action claimed the NFL hid known concussion risks. Claims for coverage against their insurers are continuing. A claim by the parents of a number of junior soccer players against the United States Soccer Federation (USSF), resulted in a settlement whereby the USSF agreed to change its safety protocols to ban players aged 10 and under from heading the ball and restricts players aged 11 to 13 from doing so in training. US sporting bodies are now taking a proactive approach to resolve these disputes to protect their respective brands. However, they may be doing so in the absence of substantiated medical evidence to support causation. This is likely to lead to significant coverage fights between those sporting bodies and their insurers.
Richard Johnson, Partner Wotton + Kearney
handle the claims. At common law, a participant in a sporting activity cannot sue for damages for personal injury unless the injury was caused by a factor outside the risks accepted by the participant. The accepted risks depend upon the particular sport. Dangerous recreational activity legislation in various jurisdictions arguably extends the defence available to sporting bodies. Further, sporting bodies do not have a positive duty to change their rules to prevent a risk of injury, particularly in circumstances where the body has little control over the way matches are played or officiated. However, a number have changed their rules to reduce or eliminate head contact (for example the banning of the shoulder charge in the NRL), and most contact sports, including the AFL, have brought in concussion protocols to restrict players returning to play once diagnosed with concussion. At an elite level this is much easier to enforce. At a grassroots level, particularly with junior players, it is more difficult. There is a lack of information available to coaches and officials regarding concussion at that level, so lower level sporting bodies (clubs, local associations) are more likely to be exposed to the risks in the future. Like the US, it is likely that schools and sporting clubs at all levels will need to provide concussion education for coaches, athletes, and parents and enforce the medical guidelines for returning to play or face potential consequences. It will also be necessary for governing sporting bodies (and in the case of schools, the Government) to ensure that these programs are undertaken to avoid exposing themselves to the risk of litigation. Underwriters should be aware of these potential future risks when providing cover to sporting bodies. Further, underwriters should be asking governing sporting bodies how they propose to educate about new rules and protocols relating to brain injuries at a grass roots level.
Lessons for Australia Claims for delayed onset brain injury arising from sports are likely to be made in Australia in the not too distant future. It is not presently clear how the courts will
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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Smart investment He was untried and untested, but Warren Buffett’s belief in Ajit Jain has paid off for Berkshire Hathaway By Kate Smith
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WARREN BUFFETT REMEMBERS THE day he met Ajit Jain. It was a Saturday in late 1985 when the unknown from India first walked into the Omaha office of Berkshire Hathaway. They spent hours talking. By the end of the conversation, Buffett had learned two things: Ajit Jain knew nothing about insurance, and he was exactly the man Mr Buffett wanted to build Berkshire Hathaway's reinsurance division. “After talking to him for a couple of hours, I knew that we’d struck gold, and that he would be a great guy to run our reinsurance business,” says Mr Buffett, the Chairman and Chief Executive of Berkshire Hathaway. Mr Jain turned out to be one of the Nebraska billionaire’s best investments. Over the past three decades, he has created a reinsurance business that has generated billions of dollars in float, as well as an underwriting profit, for Berkshire Hathaway. His smart risk-taking and disciplined decision-making have made him invaluable to Mr Buffett’s operations. “He has made Berkshire Hathaway tens of billions of dollars,” Mr Buffett says. “My partner at Berkshire, [ViceChairman] Charlie Munger, and I have told the shareholders if we are in a boat that’s sinking and they can swim and save only one of us, save Ajit. “He’s hugely important to Berkshire. It’s impossible to overstate that.” Mr Jain, who is widely considered one of the front-runners to succeed Mr Buffett, has earned a reputation for taking on liabilities that others can’t or won’t. With an enormous balance sheet and a willingness to accept risk for the right price, he has orchestrated some of the most notable deals – such as assuming legacy liabilities of Equitas and Brandywine – in the history of the insurance industry. For years, he was the man insurers turned to when they needed deep pockets to get out of deep problems. “Whenever the industry has some challenges, Ajit gets involved,” says Rolf Tolle, Lloyd’s first franchise performance director and a member of the board of QBE.
Though he may not he a household name like his boss, within the reinsurance industry Ajit Jain is a legend. “He’s one of the most intelligent leaders in the industry and he commands a sizable wallet,” AM Best Vice-President Robert DeRose says. “He has a huge balance sheet. He has the ability to do transactions in the industry that no one else can do or can even come close to doing. “For the large portfolio, legacy liabilities, he really is the go-to person.” Mr Jain never set out to be an insurance executive. He is an engineer by trade. Born in Odisha on the eastern coast of India, he earned a degree in mechanical
Goldberg was “elevated to Saint Mike” for his role in discovering Mr Jain. “He understands how to keep you out of major trouble, but also is quite willing to do things that look very venturesome to most people.” Mr Jain’s approach to the asbestos crisis is one such example. When others in the industry struggled under the weight of long-tail liabilities related to asbestos and environmental pollution, he found opportunity in the crisis. In 1999, Mr Jain orchestrated a deal with Ace to offer stop-loss protection in the event that Brandywine, a run-off company Ace acquired through Cigna, did not have enough reserves to cover its asbestos claims. That contract brought in $US1.25
“He’s remarkable. There’s really nobody like him... There’s no job in business that he wouldn’t be excellent at.” – Warren Buffett, Berkshire Hathaway
engineering from the Indian Institute of Technology before joining IBM as a salesman in his home country. When IBM discontinued operations in lndia, he moved to the United States to study business, earning his MBA from Harvard. He began working for McKinsey & Company. His boss at McKinsey, Michael Goldberg, left to join Berkshire's insurance division in 1982. A few years later, he recruited Mr Jain and introduced him to Mr Buffett. Mr Buffett could sense straight away that Mr Jain was a disciplined risk-taker. It’s the reason he wanted him, despite his lack of insurance background. “I knew he was a very, very unusual fellow in terms of being smart, being willing to take risks without taking foolish risks, and having a mind that’s very rare,” says Mr Buffett, who quips that Mr insuranceNEWS
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billion in premiums. In 2007 he engineered a deal with Equitas, wherein the Lloyd’s run-off agent transferred its liabilities to Berkshire Hathaway’s National Indemnity Company for a single premium of $US7.1 billion. And in 2010 he put together a deal in which CNA would transfer the asbestos and environmental pollution liabilities of one of its subsidiaries, Continental Casualty, to National Indemnity for $US2 billion. “He provided exit strategies for entities that were feeling tremendous pain from those losses,” Mr DeRose says. Although Mr Jain has the funds to do such large deals, he is prudent in his approach to them. “The sheer power of his balance sheet allows him to do things others can’t,” Mr Tolle says. “At the same time, he won’t just do them. When the price is right, he 47
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writes big lines. When the price isn’t right, he will walk away.” Mr Jain, who declined to be interviewed for this story, has proven that point in the past few years. With the reinsurance market softening, interest rates dropping and alternative capital flooding the market, the big deals stopped being as lucrative. “Fifteen years ago when somebody needed capital, they went to Berkshire for capital support through a reinsurance arrangement,” says John Andre, a group vice-president at AM Best. “Now there arc all these other sources of capital. Ajit has competition now. He won’t give reinsurance away for too low a price, but he still wants float.” And he is finding new ways to get it. Mr Buffett can count the people he talks to daily. His wife. His assistant. Maybe a few of the two dozen people he keeps on staff at Berkshire’s Nebraska headquarters. And Ajit Jain. “We’ve got 70 or 80 companies, but he’s the only manager I talk to every day,” Mr Buffett says. “Some of them I don’t even talk to once a year. There’s no one I talk to more than once a week. Except Ajit. “I talk to him every day virtually. It isn’t because I’m supervising him or anything like that. I’m just interested in what he’s doing.” Mr Jain’s business is constantly evolving. “A great many people just sort of get locked into doing the same thing today that they did yesterday,” Mr Buffett says. “Ajit is just the opposite. He starts every day thinking about what makes sense on that day and for the future.” In recent years, that has meant focusing more on the insurance side of the business. Four years ago he brought to Mr Buffett the idea of acquiring Guard, a US workers’ compensation and commercial property/casualty company. He also orchestrated the launch of Berkshire Hathaway Specialty Insurance, which in three years has grown from a staff of four to more than 600. Peter Eastwood, the president of Berkshire Hathaway Specialty and former head of Lexington, approached Mr Jain with the idea of starting a Berkshire-backed excess and surplus carrier. 48
Mr Buffett says Mr Jain encouraged Berkshire to support the venture. “That’s Peter Eastwood’s baby,” Mr Buffett said. “But Ajit is the guy that brought the people together and worked out the whole business plan. He’s remarkable. There’s really nobody like him.” With Berkshire Hathaway Specialty, Mr Jain again found another source of float for Mr Buffett. The young unit had an annual premium volume of $US1 billion in 2015. “He moved billions over to that balance sheet and hired a strong seasoned team, and they’ve put on quite a bit of business in the last few years,” Mr Andre says. “Now he still gets float.
tions are just going through the motions every day, but that’s just exactly the opposite of what he’s built.” Looking back, even Mr Buffett is surprised by the operation Mr Jain has built. “I knew he would do a terrific job, but I had no notion that we would ever get to where we are,” he says. “Starting from scratch, he has built a reinsurance company that in terms of the way we would measure it, I think is the best the world has seen. “Sure, we’d get arguments from some of our competitors, but I wouldn’t trade his operation for anybody else’s. I wouldn’t trade him for anybody else.” Mr Jain’s responsibilities at Berkshire
“A great many people just sort of get locked into doing the same thing today that they did yesterday. Ajit is just the opposite.” “He has to do it differently – this business is much more transactional – but he has still provided float.” Mr Buffett refers to Jain, 64, as an “idea factory”. “His mind likes to stay active. He would not be good at playing shuffleboard in Florida.” When Mr Jain isn’t dreaming up his own new ideas, he is vetting others’. ”It’s known throughout the world that if you go to him with an idea – a big idea – you’ll get an answer,” Mr Buffett says. “lt may not be the answer you want, but you’ll get it. You’ll get it fast. Nothing is too big for us to do. “A certain type of person really likes to work for him, too. It’s a little like being on Vince Lombardi’s Green Bay Packers or something like that. “The kind of person who likes a bureaucratic organisation won’t last five minutes with him, but if you like to get a lot of responsibility and to be able to do things [you’ll do well]. So many organisainsuranceNEWS
October/November 2016
are continuing to expand. When Tad Montross announced he would be retiring from his position as chief executive of Gen Re, Berkshire determined that his replacement would report to Mr Jain rather than Mr Buffett. The decision reignited speculation about Mr Jain as a potential successor to Mr Buffett. Berkshire has kept its succession plan under wraps, but Mr Jain is thought to be on a short list of candidates along with Greg Abel, who heads Berkshire’s energy subsidiary. At 85, Mr Buffett says he feels great and has no plans to retire. When asked about handing the reins over to Mr Jain, he doesn’t quite tip his hand. “I’ll put it this way,” he says. “There’s no job in business that he wouldn’t be * excellent at.” Kate Best is Senior Associate Editor at AM Best. This article has been reproduced with the permission of AM Best
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Standard-bearer ACORD chief Bill Pieroni says stronger communication can help the insurance industry survive and thrive By John Deex
THE US-BASED ASSOCIATION for Co-operative Operations Research and Development – better known as ACORD – might not have the most catchy title. But the work it does is crucial, and increasingly so. Its website states it “facilitates fast, accurate data exchange and more efficient workflows through the development of electronic standards, standardised forms and tools to support their use”. In other words, it allows insurance industry players to communicate efficiently and effectively. The non-profit organisation has been doing this since its formation in the 1970s, but the work is far from finished. President and Chief Executive Bill Pieroni talked to Insurance News 150 days into his tenure, during a visit to Australia and New Zealand. He says it is vital for ACORD to continue evolving. “In the 1970s insurers were some of the earliest adopters of new technology,” he says. “They were really focused on automating repetitive tasks, so ACORD’s first foray was the development of paper standards, paper forms. Then as the industry matured ACORD went from paper forms to electronic data interchange. “That then evolved to XML (extensible markup language), as the internet began to take hold in the late 1990s early 2000s.” Mr Pieroni says the journey continues. He now wants ACORD to focus more on capabilities than transactions. “By that I mean the settling of a claim, the underwriting of a policy, the managing of a customer relationship. Our standards, our services, our assets 52
need to evolve along with the digitisation of insurance and the consumerisation of the product. “Millennials are not going to buy in ways their parents did. You are seeing some carriers embracing that, and some kicking and screaming as they are dragged into the future.” This is a future in which ACORD standards have a bigger role than before, Mr Pieroni says. Insurer margins are under huge pressure, which isn’t going to change any time soon. As a result, efficiency improvements are high on the list of priorities. “The ability to leverage new and emerging technology, thirdparty solutions, achieve greater degrees of strategic flexibility and operating adaptability – standards really play a role in helping to do that. I think it helps people to come together. “Historically, it was a source of competitive advantage in having bespoke, custom interfaces. “But increasingly, given the economics, many stakeholders are looking to ACORD to facilitate the use of new technology, the establishment of new channels, new products, new relationships.” Standards can reduce the cost, timeframe and risk of setting up new partnerships, Mr Pieroni says. The scarcest resource for insurers isn’t money, but time and expertise. “Do you really want to take the scarcest resource you have got and allocate it to building custom interfaces? You don’t. “You want new products, innovation, new pricing approaches, marketing, customer relationship management, not the interface, not the way you talk to all of your partners. insuranceNEWS
“That is why ACORD is important, and that is why I was so excited to come to the organisation. I think it has a real opportunity to make a difference for all of our stakeholder members and for consumers as well.” Mr Pieroni believes Big Data will have a huge impact on the industry. And once again, ACORD’s standards have a big role to play. After all, it doesn’t matter how much data is collected, it’s of no use if it isn’t consistently organised. “I believe in Big Data – but you need a standard. You can’t
see others that are still holding on to the past, and trying to do it from a bespoke standpoint. “It sounds self-serving, but I think they’re doing themselves a huge disadvantage. What you do with the data is the source of advantage, not how it is collected and how it is organised.” Using ACORD standards can also help manage cyber security, and they enable internal systems to be opened up to customers. This self-service trend gives ACORD standards a new urgency. “It is one thing to expect an
“Many stakeholders are looking to ACORD to facilitate the use of new technology, the establishment of new channels, new products, new relationships.” just throw it in a pile and expect you will be able to analyse it and develop insights and actions based on it. “Imagine just dumping all your tools and bolts and screws in a big pile and expecting that you are going to build something meaningful out of it. “Without those standards [data] becomes incredibly onerous. Even with the standards there is a lot of work to be done to make sense of it. “Some organisations are using the ACORD data dictionaries and data models to develop their systems and you October/November 2016
insurance agent, broker or underwriter to accommodate the foibles and issues and challenges of using an internal system, but if you enable a customer to receive a price or to make a change around their address, they are less forgiving. “We have standards that enable that seamless interaction internally. We need to help the carriers use what we have more effectively. Increasingly those internal technologies are going to be exposed externally. Consumers are just going to get frustrated and stop using it. “Members want to use the
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The journey continues: ACORD’s new President and Chief Executive Bill Pieroni
insuranceNEWS
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Striking ACORD BILL PIERONI’S FAMILY migrated to the US from Italy when he was a boy. Some people reckon he’s related to the founders of Peroni beer – but they’d be wrong. “I wish I was,” he says. As is often the case, he did not plan a career in insurance – he studied medicine. “When I started consulting there was no proper healthcare consulting work, but there was health insurance. “So I started doing health insurance work and the health insurer owned a life insurance company, and that led on to general insurance.” He has held senior roles at IBM, State Farm Insurance and Marsh. “Everyone who finds themselves in insurance, except for actuaries, did it by sheer accident. Nobody plans for a career in insurance. “I can candidly tell you that I meant none of this. You wake up 25 years later not knowing how you got here. It was one accident after another, but nonetheless, here I am.” He was appointed ACORD President and Chief Executive in March, succeeding Gregory Maciag, and sees it as a chance to give back to an industry that has been good to him. Mr Pieroni has been in position for 150 days, but feels like he’s been there much longer, having spent a decade on the board. “I’ve had some very large roles in publicly traded companies,” he says. “I don’t want to say this is a volunteer role, but to some extent it is an opportunity to give back.”
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ACORD standards to save money and be more efficient, but they also want to be more agile – how can we introduce new products more readily, expand to a new geography, launch a new channel, go after a new customer segment?” ACORD has been operating in Australia for a decade, and Mr Pieroni says his visit will be the first of many. He has lived and worked here before, and knows Sydney and Melbourne well. While serving as global chief operating officer at Marsh from 2011, he had “significant involvement in the Australian market with responsibility for several transformation efforts”. He also served several of Australia's leading financial services firms when he had responsibility for IBM's insurance industry segment between 2001 and 2006. “We have virtually 100% penetration of every major carrier,” he says. “Many of our global members wanted us to be here to help them. “Australia has always been a true innovator in the insurance industry and has had well-run, well-disciplined insurers, so we have an easier time here with our value proposition. “We had a great deal of demand from Australia. I’m committed to being here four times a year to ensure we are doing everything we can to help our members. “We’re very happy with all the support we get. We’ve got a highly engaged group of members in Australia and New Zealand.” Mr Pieroni says Australia continues to attract the attention of US and European carriers, due to the presence of “smart competition”. “Nobody wins when you insuranceNEWS
solely compete on price. Some other markets around the world have really commoditised the insurance industry and that hasn’t really happened here. “So the opportunity to make a reasonable profit in Australia is very attractive. “Despite the fact many Australians may feel the economy is in the doldrums now, I assure you, globally, this is an incredible, resilient economy that’s doing extremely well, even though you may have been spoiled by the past several decades. “You’ve had non-stop growth. It may not continue the way it was
graphic spread. Candidly, would I like to be in some of the emerging markets and have a presence there? “Yes I would, but I think there is a lot of value for me to add in markets such as Australia, New Zealand, the US, the UK and continental Europe. “I see [emerging markets] as an aspiration, but I am always a bit concerned about spreading myself too thin. After my members in Australia have said, ‘Bill, we’re good, we don’t need any more,’ then I’ll look to Fiji, Papua New Guinea, Laos and Cambodia.
“Australians may feel the economy is in the doldrums now, [but] I assure you, globally, this is an incredible, resilient economy that’s doing extremely well.” historically, but by global standards this is an incredibly attractive market where you have sophisticated customers who understand the value of insurance, and who aren’t solely shopping on price.” And is ACORD looking to broaden its horizons further – to incorporate emerging markets in Asia, for example? Maybe some day, but not yet. “We’re based in New York with colleagues in various major metropolitan areas across the US, and in London, Johannesburg and Sydney. “We’ve got a very rich geoOctober/November 2016
“I don’t know that I have the right to do that just yet.” So what is his main priority for the future? Mr Pieroni wants to transform ACORD from a member revenue-centric model – where members pay to join and use its standards – to a value-based model “where members pay based on the value that has been added to their enterprise”. “If I can do that for the organisation, I think it is far more sustainable and it makes sense to a carrier,” he says. “If I can look back on that I’ll be * happy.”
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Group mentality New Zealand’s broking market is undergoing rapid change as independents cluster within larger organisations By Wendy Pugh
AUSTRALIA’S TWO LARGEST BROKER groups AUB and Steadfast have staked their claims in New Zealand and small brokers are finding a safe haven within them as the market faces a range of new challenges. AUB Group says its large broking footprint in the country provides a launching pad for expansion. “It’s a market that needed shaking up from an insurance distribution point of view – and I say that in the politest possible way – and we’ve already started doing that,” AUB Group Managing Director Mark Searles says. After strategic purchases in the past two years AUB says its NZbrokers business is now the largest cluster group in the country, and the company’s New Zealand operations rank third in the market by gross written premium (GWP). “From our point of view, we have gone in 56
there and created what we call a third force, and I am sure it has ruffled a few feathers along the way, but I think it is down to a strategy well executed.” Mr Searles tells Insurance News. The New Zealand broking market is consolidating as smaller businesses find it increasingly tough to remain as independents, while veteran brokers in an ageing sector are looking to retirement and exit pathways. Sydney-based Steadfast cast its eyes across the Tasman in 2013 as it prepared for an Australian stock market debut, and has since brought more brokers into the fold. Rothbury was the first brokerage from New Zealand to become a Steadfast member. The four principals at that time had an average age of 56 years, typifying a demographic looking at change. insuranceNEWS
October/November 2016
Later, it purchased the Allied Insurance Group broker network. The most recent Steadfast annual report says it has 36 brokers in New Zealand and annual GWP of almost $300 million, giving it a 10% share of the general insurance intermediary market. AUB says it is offering collaborative power and an owner-driver model, where equity is sold in the brokerage but the principal can continue to manage day-to-day operations. The two largest New Zealand broking players have well-established positions and are part of global groups. UK-headquartered Aon, which has more than 76 offices globally providing a range of services, has reported “solid” or “strong” New Zealand growth in most quarterly earnings updates in recent years. Rival Crombie Lockwood dates back to
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More regulation is also a factor in the wider economy, and extra support in this changing environment is among consolidation drivers for small businesses.
1978, when Colin Crombie started the business in the North Island city of Napier. Steve Lockwood joined in 1983. The company became part of Wesfarmers in 2006 and was acquired by US-based Arthur J Gallagher in 2014. Insurance Brokers Association of New Zealand (IBANZ) Chief Executive Gary Young says the number of individual brokers has probably not changed significantly, but the number of companies has probably dropped by about 25% in recent years. “It is hard to be precise because new structures such as Insurance Advisernet and PSC have grown, and it depends on whether these are counted as single companies or several.” Insurance Advisernet has an authorised representative network that is 50% owned by AUB, while PSC Connect is a member of the Steadfast network. IBANZ has more than 2100 individual members, representing more than 90% of total numbers operating in the country. Challenges facing brokers include the pace of change across the broader insurance industry, plus increased regulation following the global financial crisis. The Financial Advisers Act, which takes a fairly light-handed approach towards general insurance, was passed in 2008, but didn’t take full effect until mid 2011. The Government is now reviewing the Act, and the industry expects more red tape
over time, rather than less. “There will be an increase in the cost and amount of compliance, although still probably not as much as you see in Australia or the UK,” Mr Young tells Insurance News. More regulation is also a factor in the wider economy, and extra support in this changing environment is among consolidation drivers for small businesses. AUB staked out its New Zealand claim in late 2014 with the purchase of the 40member BrokerWeb Management (BWM) cluster group. It also took a 50% stake in BrokerWeb Risk Services, a BWM member with six branches. The deal made AUB – formerly Austbrokers – New Zealand’s largest cluster group, with $350 million in gross written premium (GWP), 70 brokerages and authorised representatives, and more than 120,000 clients. The company bought Runacres & Associates from IAG at the end of last year, among other acquisitions, and recently purchased a stake in Rotorua-based Dawsons. But Crombie Lockwood is unfazed by AUB’s expansion. Mr Lockwood, who is Managing Director Australia and New Zealand for Arthur J Gallagher, says AUB’s entry has not represented a heightened level of competition in the market, because the company took over existing operations. “I don’t really see it as a problem for us,” insuranceNEWS
October/November 2016
he tells Insurance News. “Those groups had been operating anyway, and nothing really has changed.” On the acquisition front, Mr Lockwood remains on the lookout for suitable opportunities on both sides of the Tasman. “We haven’t just had a chequebook open,” Mr Lockwood says. “We have a pretty strategic view of what we are after and where the synergies lie. “Ultimately, we tend to take a view that it has to be good for the vendor company to be joining us – for their staff and clients. Otherwise we don’t want to do it, and that is a view we have adopted now in Australia as well.” Crombie Lockwood favours outright acquisitions rather than partnership arrangements, which it believes can leave a business frozen or create a recipe for confusion. It expects to complete more deals that satisfy both sides. “We still see opportunities for growth and we have a good reputation for being an acquirer of choice in New Zealand,” Mr Lockwood says. Incentives to sell, from an independent broker’s perspective, can include current high valuation multiples and changes in the classic insurer-broker relationships. The evolving landscape includes more direct competition, brokers developing in57
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“It is going to get harder for a smaller broker to operate competitively. There is an element of scale required to provide the best form of cover and price to consumers.” – Steve Lockwood, Arthur J Gallagher
house agencies and greater product diversity despite consolidation among insurers. Disruptive digital technologies add another layer of uncertainty. “It is going to get harder for a smaller broker to operate competitively,” Mr Lockwood says. “There is an element of scale required to provide the best form of cover and price to consumers – more so now than there ever has been.” Arthur J Gallagher’s US-based Chairman and Global Chief Executive Patrick Gallagher says the group is on the lookout for small purchases in several international markets after integrating key acquisitions in recent years, including the Wesfarmers business. “The platforms are performing exactly as we had hoped, so the pipeline has built nicely in Australia, New Zealand, Canada and the UK for tuck-in acquisitions,” he told a second-quarter earnings briefing. Mr Lockwood steered the brokerage towards joining Gallagher – rather than a stock exchange listing – at the time of the Wesfarmers exit, and says the global group has “almost private company values” while offering the advantages of international strength. “We can be locally focused, nationally represented and also internationally supported, so that has really added to the story and gives us a lot of potential in terms of our client base,” he says. 58
Premium levels in New Zealand – which are similar to Australia’s – have been in the doldrums, adding to pressures. “The soft market, which seems to be going on for a while, is another challenge for members,” IBANZ’s Mr Young says. “After the Christchurch earthquakes we saw a big increase in premiums. Now all that increase has been reduced to where it was, or even below where it was.” New Zealand general insurance premiums declined 1.2% last year against a weak economic backdrop, after edging up 0.2% in 2014, according to a recent Swiss Re report. Property premiums contracted due to fierce price competition, motor was steady and liability lines were mixed. Nevertheless, insurer earnings reports suggest the situation may be steadying in the region, and major listed companies IAG, Suncorp and QBE are under pressure to improve underwriting performances to satisfy investors. Steadfast – which is looking beyond Australia and New Zealand to Asian expansion – expects the insurance market to harden from June next year after it flattened in the past year. “Our focus for our Kiwi brokers includes strengthening their position with the domestic insurers, improving their backoffice systems, including rolling out [broking platform] Insight to the majority of insuranceNEWS
October/November 2016
their businesses and supporting them with bolt-on acquisition opportunities,” the company says. AUB’s diversification plans include expanding broking across the Tasman, and building on that base to broaden its operations. “That’s by looking at how do we bring in some of the risk services and some of the underwriting capabilities that we have in the group as well for the benefit of our New Zealand broking partners,” Mr Searles says. The performance of its New Zealand business is ahead of expectations, according to AUB. New Zealand brokers’ contribution to the group grew 883% last financial year to $2.9 million, and the business represented more than $NZ520 million in GWP. Mr Searles said recently that four years ago, Australian broking generated 88% of the group’s business. That has now fallen to 70%, with underwriting accounting for 15%, risk services 11% and New Zealand broking 4%. AUB’s challenge is to build on its position in a marketplace that will remain highly competitive, and where it faces strong rivals. Now Mr Searles says that with the distribution footprint established, stage one of AUB’s New Zealand strategy has been accomplished. “On the back of that we can * execute more of the group’s strategy.”
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Going global Multinational insurance programs are taking off, says AIG’s Tony McHarg By John Deex
Making it easier for our multinationals: an Australian company’s building takes shape in London
BEFORE GETTING INTO insurance, Tony McHarg was a qualified commercial pilot. But it wasn’t for him, and having pressed the eject button decades ago he’s now flying high leading AIG’s multinational business in the Asia-Pacific region. There’s nowhere he’d rather be, he says. The sector is experiencing rapid growth and is packed with opportunity, investment and innovation. There are four key components to the multinational sector: program design, implementation and management; service delivery; global fronting (where policy issuance and service is provided on behalf of third parties); and captive management. “It’s around meeting multinational clients’ risk governance and contract certainty needs, and in a seamless, globally consistent manner,” Mr McHarg tells Insurance News. “That’s really the element that multinational brings on top of an indigenous business that has the same desires. What sits behind that in terms of whether it’s insured, risk transfer, or whether it’s reinsured to a third party with global fronting, comes down to the maturity and 60
circumstances of the client.” It can be an incredibly complex area, he says, with no one right way to design a program. Multinational businesses have many alternatives, including fragmented purchase of local policies, global policies or a combination of the two under a controlled master program. “First and foremost it’s about working through that consultative process with broker and client,” Mr McHarg says. “Second is recognising that multinational tax and regulation is fluid.” Even within the Asia-Pacific region, regulations can evolve rapidly during the life of an insurance program, meaning multinational programs are never “set and forget”. “The biggest lesson that I get every week is about communication and collaboration,” Mr McHarg says. “You are talking about aligning our insured’s head office with their overseas locations, a broker with their overseas locations, and AIG with our offices, and ensuring all of those parties are in sync.” A multinational program has several key advantages over fragmented local purchases, which Mr McHarg sums up as insuranceNEWS
“the seven Cs”. 1. Control. “You have visibility of the insurance that is in place, control over the insurance that is taken out.” 2. Compliance. “There are challenges around regulatory and tax compliance. With a multinational program with a multinational insurer you are able to get those insights and have a greater degree of confidence that you’ve done what you can as a corporate entity to adhere to those rules.” 3. Co-ordination. “It makes it easier for an insurance and risk manager to respond to questions around coverage in force when they have access to the AIG multinational portal and can see all of those policies and invoices and due dates as and when they require.” 4. Cost. “We have to make sure we don’t compare a multinational program with just the aggregate of local policies. Quite often the coverage is different, the limits at the master policy level are different. We need to look at cost in terms of total cost of risk and the efficiency in terms of administration.” 5 & 6. Consistency and certainty. “Consistency in terms of coverage brings a greater October/November 2016
degree of certainty that the overall corporation is protected to a level set out in the master policy.” 7. Claims. “A fragmented approach to buying insurance gives relationships with different local insurers that may have varying levels of competency and capacity to respond to insurance loss, particularly in the event of a major catastrophe. One of the things we take pride in is that we are able to shift claims resources around to ensure that when local markets may be overwhelmed, we are able to support our multinational clients.” And the message appears to be getting through. AIG’s multinational sector has achieved strong growth on an ongoing basis over the past five years. Mr McHarg expects AsiaPacific to continue achieving growth of 8-10%, both in terms of the number of programs implemented and the number of local policies serviced. “We are seeing strong growth in multinational – globally across our portfolio it remains a core competency and a core growth strategy for AIG, and we are investing accord-
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“It’s about a search for efficiency in terms of lower-cost suppliers, it’s to follow clients or customers who are moving overseas.” – Tony McHarg
ingly,” he says. “It’s underpinned by growth in every region and our forecasts are to continue to see growth in both produced programs, the number of policies we service as well as the clients we serve on a fronting basis and any captive management consultancy.” Increasing globalisation is among the trends driving this growth. “It’s not only about being in search of new market, it’s about a search for efficiency in terms of lower-cost suppliers, it’s to follow clients or customers who are moving overseas. “Australia’s location and trade with Asia means, more commonly than not, it’s expansion into Asia. European businesses are looking to Asia as well in terms of balancing their business.” It is no surprise, then, that AIG is keen to invest further. A major project to automate program design and execution “to a level not seen before” is under way. “AIG is continuing to invest in process, people and technology that will support more multinational clients in the future,” Mr McHarg says. “We have a very clear multi-
year, multimillion-dollar investment that has seen us roll out what we think will be a market-reshaping end-to-end process globally, so every one of our multinational programs adheres to the same consistent process. “We believe that will set us apart. We want to grow our portfolio, we want to extend the service capabilities we provide across more lines of business and services. “Ten years ago multinational programs were predominantly the remit of large multinational companies in 10, 20, 30 or more countries. They are still very important clients for us. “But the vast majority of multinational businesses in Australia and worldwide fall below that threshold and operate in two, three or five countries. “Making it easier for those businesses to transition from fragmented local purchases to a more considered program is one of the objectives we have.” Mr McHarg does not believe the complexity of the multinational segment makes it immune from disruption – far from it. “Market conditions are very insuranceNEWS
challenging and you can no longer rely on the same ratios and returns as historically throughout my career we have been able to,” he says. “So we have to do things differently. “We have to make hard choices in terms of how we set up, we have to make big investments in terms of the future, and companies such as AIG are doing that. We are working to create opportunities to innovate, and we see partnering as important to that. “We feel in no way insulated from the potential to be disrupted or immune from the need to be innovative. Evolving is way too passive a word. We have a clear mantra at AIG – execution at pace. “We want to be in control of our ability to deliver value and to outpace the general market.” Mr McHarg has no regrets about bailing on his career as a pilot – but he still harks back to some of his training. One key lesson that has stayed with him is the importance of going through checklists. “You may do it every day, but you can’t take anything for granted. “Multinationals are very October/November 2016
much like that. It works well when you do everything in sequence – when the insurer, the broker and the client all understand what needs to happen when.” Another important lesson is not getting so bogged down in technical details that you lose sight of where you are. “In the cockpit, there are instruments above you, instruments to the side of you, instruments behind you,” he says. “There’s an enormous amount to look at. “But they also put a window there so you can look outside. The instruments tell you what’s happened, but it’s very important to keep an external scan, to understand the terrain you are flying through. “With insurance, I am constantly reminded to engage with our clients, and our brokers.” Ultimately, he’s happy with his career choice. “Insurance is far more exciting. A pilot sits in the same chair every day and looks at the same instruments. “Insurance has been a terrific opportunity to be involved in all sorts of businesses, and the multinational space is never short of challenge or interest.” * 61
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Portfolios in a storm Amid tight regulations and economic uncertainty, there is no easy solution to insurers’ investment malaise By John Wilkinson
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of Australia’s biggest general insurers shows that at June 30 bond holdings accounted for about 80%, compared with equities in single digits. S&P Global Ratings regional financial services director Michael Vine says insurers’ investment strategies are not profit-led. “The strategies are to protect the capital base and have adequate reserves, rather than being a profit-driven centre in their operations,” he tells Insurance News. “Asset allocation is being driven by regulatory and rating agencies. The Australian Prudential Regulation Authority regulations have increased the amount of capital required for different investment strategies in a portfolio.” The portfolios’ conservative nature is reflected in the grade of bonds held, although not all insurers reveal these in detail. Suncorp’s investment portfolio is 35% AAA assets, 28% AA and 28% A. Mr Birch says insurers have started considering more investment risk to offset low yields from bonds. “We are seeing insurers increasing their exposure to equities and property, but the return on capital to move into these asset
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classes is the issue,” he says. “It is a trade-off some insurers are making.” Mr Vine says the dilemma for insurers is the cost of chasing yield. “Insurers have to consider their risk tolerance and weigh up usage of capital,” he says. “Bonds also allow close matching of liability duration for insurers. But we are seeing some interest in growth assets such as hybrid securities and index-linked investments.” In a snapshot report on Australian general insurers last year, Fitch reported net investment returns fell 47% in the year to $2.2 billion, due to the high allocation of fixed-interest securities. “We believe insurers may further increase allocation to risky assets to support returns, though the capital/return trade-off limits a large-scale weakening of portfolio compositions,” the report says. This shift may also be driven by uncertainty about when the run of low bond yields will end. Boston-based global asset manager Eaton Vance says it is hard to predict; it depends when politicians choose to step in after monetary authorities run out of ideas.
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“They can’t increase portfolio risk, so they increase premiums, which ultimately hurts customers and leads to shrinking businesses.”
Rating the risk of the assets: S&P Global Ratings’ Michael Vine
“It will be a function of policymakers finding a solution to the lack of growth and inflation,” Eaton Vance Co-Director of Diversified Fixed Income Kathleen Gaffney tells Insurance News. “If low yields continue in perpetuity, there will be further unrest and inequality, which will lead to more volatility. This type of environment is not sustainable.” Insurers have been turning to corporate bonds to improve investment returns. The leading Australian groups have held more of these assets than government-issued investments, although examining the strategies of the big three (see tables), their exposure has been varied. Ms Gaffney says chasing yield through corporate bonds is not without risks. “The fundamentals are ‘okay enough’, but corporate bonds expose insurers to credit risk on top of interest rate risk, neither of which insurers are compensated well for,” she says. “We believe owning more inflationsensitive securities that are trading cheaply is a good approach, while bearing in mind volatility and time horizon.” Investment portfolios are examined when ratings agencies assess insurers, and increased risk is factored into the final rating of A, B or C. Mr Birch says Fitch considers the entire portfolio, including investment strategy relating to various asset classes. “Globally, we look at sector credit factors and how conservative the insurer is to the risks,” he says. “In addition, we are looking at operating environments and investments to combine, to give that overall rating for the insurer.” Mr Vine says S&P examines the investment portfolio in two ways. “One is looking at the level of capital allocated to the portfolio against various assets. We also look at the investment position and rate the risk of the assets, such as equities. We are also looking for a significant allocation to a sector – it could be 64
geographical or an institution.” Although insurers are major players in bond markets, Ms Gaffney says their market power is restricted by lack of flexibility. “They are ‘price-takers’ in the markets, which means they are doing the only thing they can – they are raising [their] prices,” she says. “They can’t increase portfolio risk, so they increase premiums, which ultimately hurts customers and leads to shrinking businesses.” Insurers are also constrained by the quality of investments; trading off AAA bonds for a lower grade is not delivering yield, either. “There is very little incremental yield to
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be found switching from the highest-quality bonds to those with higher yields and risks,” Ms Gaffney says. “All bonds are becoming more rate-sensitive as spreads and rates decline. “This is why we believe it is a great time to own a little bit of everything, including cash.” No crystal ball suggests insurers will obtain better returns in the next couple of years. Uncertainty in the global economy will keep interest rates low as governments try to stimulate economies. For insurers, this means investment returns below 5% will continue to be regarded as “high” for a few years yet. The good news is, returns are at least positive. *
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Chop and change
AKD Softwoods’ plant in Victoria: the first fire took six months to recover from, the second took 72 hours
Vero’s risk advice pays off for a timber firm HAVING SURVIVED TWO ON-SITE FIRES, timber company AKD Softwoods knows better than most not to gamble when it comes to investing in a property risk management plan. A fire management and business continuity plan designed with Vero’s risk experts saved the Victorian company from a potentially damaging stoppage after its kiln went up in flames in October 2014. It was the second fire at the kiln in six years, but this time the company’s manage66
ment knew exactly what to do. It calmly activated its contingency program to restore operations as quickly as possible. Unlike the first fire in 2008, when production took six months to return to normal, the factory resumed full operating capacity within 72 hours. And it was not lost on the company that no insurance claim was required – unlike after the 2008 fire, when a claim of more than $1 million was submitted to AKD’s then-insurer. “Reputation is one of the hardest things to get back,” AKD Chief Risk Officer David McGinness tells Insurance News. “You never know the exact way an incident is going to play out. It is certainly insuranceNEWS
October/November 2016
important to have [a risk management plan]. It helped to direct our operations and recovery efforts.” The program, which was implemented after the first fire, involves providing emergency drills and extra training for employees. Regular meetings are also held to assess risks and craft suitable action plans to deal with them. AKD Softwoods has invested a “significant amount” to equip staff with the skills to handle any crisis. “We have got an overarching risk management framework for the entire business now,” Mr McGinness says. “A key part of it is our business conti-
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MOTOR PRODUCT
GENERAL LIABILITY
ACCIDENT & SICKNESS
Vehicles we insure:
Liabilities we insure:
Accident & Sickness we insure:
• Vintage • Classic • Prestige • American Imports
• Budget Accommodation • Scaffolders • Shopping Centres • Cleaners • Supermarkets • Events & Markets • Transport & Logistics • General • Vacant Land • Property Owners • Welders & Boilermakers • Restaurants
• Group Personal Accident & Sickness • Individual Personal Accident & Sickness • Sports Group Personal Accident • Voluntary Workers Personal Accident
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“Vero was proactive in providing practical advice and adding more value in terms of advice.”
Planning pays off: from left, AKD Softwoods Chief Risk Officer David McGinness, Marsh broker Peter Rothstadt and AKD’s Reliability and Engineering Manager Paul Muscat with the Vero RM Advancer award
nuity plan if something affects our operations.” He says the advice from Vero’s risk experts was particularly helpful. “They provided practical advice compared with some other insurers that were fixated on technical issues. Vero was proactive in providing practical advice and adding more value in terms of advice.” The timber company’s efforts were recognised at the Vero RM Advancer Awards last year, winning the property risk category. There is no one-size-fits-all approach to devising a risk management plan. Each Vero client devises a plan built around specific business needs and risks. 68
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“Vero works with brokers to identify and assess the risk exposures present in a customer’s operations,” a Vero spokesman told Insurance News. “Vero’s risk engineers will examine the business’ facilities, processes and policies and develop a tailored plan to suggest improvements, safeguards and alternate processes. “There are many different ways risk engineers can work with brokers and customers. However, the success of any plan requires the full ‘buy-in’ of the customer. “Brokers have a key role to play in helping customers understand the impor* tance of risk management.”
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companyNEWS
Cloud-based Evolution: Ebix Australia debuts its new broking system THE EBIX EVOLUTION CLOUD-BASED BROKING SYSTEM HAS BEEN launched in Australia ahead of a planned expansion into New Zealand and Asia. The system has an emphasis on workflow and making brokers’ day-to-day task management a simpler process, Ebix Australia Managing Director Leon d’Apice tells Insurance News. “It is a next generation product in both the technology it is using and also the way that we have approached it,” he said. “It is the result of about three years worth of development, so it is something we have been working on for some time.” The system adds to the existing CBS, WinBEAT and eGlobal broking systems already offered by the company in the local market. Evolution is well suited to brokers and underwriting agencies with more complex business models, but has also attracted interest from smaller operations as well. “Certainly we have had lot of interest from both large and small brokers,” Mr d’Apice says. “That has included specialist brokers who operate in a niche market or have a particular facility.” Aware that a British systems supplier has recently faced massive problems after an outage cut the data owned by UK and New Zealand brokers, Ebix Australia has highlighted the fact that its cloud-based offerings have additional safeguards. These include operating via data centres that meet the highest standards and have full recovery back-up. Evolution is designed for a browser environment, provides support for deployment on multiple devices and is able to handle a variety of different formats. The technology allows for integration with a range of third-party applications and a modular architecture allows brokers to select functions that apply to their particular business. “Significant effort has been made to ensure that the screen layout and workflow is intuitive and supports a logical workflow,” the company says. “Mandatory fields are clearly highlighted, system messages are clear, data entry fields support predictive text and look-up tables and display grids support column sorting options.” A new approach for designing forms such as invoices and customer statements replaces the old eGlobal form designer. Mr d’Apice says the company intends to continue to support its three existing systems, but in time Evolution could take over from the CBS and eGlobal systems. A New Zealand rollout is expected before the end of the year, with other interna* tional markets to follow.
Zurich shows DigitalResolve: 24/7 hotline for cyber hacks
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ZURICH HAS LAUNCHED ITS DIGITALRESOLVE PRODUCT IN AUSTRALIA and New Zealand the third and forth markets in the Asia-Pacific region to have access to the round-the-clock hotline for cyber attack victims. Already operational in Singapore and Hong Kong, DigitalResolve has been warmly received by Australian clients since its launch, Zurich Commercial Manager Financial Lines Callum McMillan says. “We’re very pleased with the positive feedback,” he tells Insurance News. The hotline provides clients with “the added peace of mind in knowing that in the event of a cyber attack the business is prepared. It’s part of its wider risk management strategy and overall resilience plan.” Mr McMillan says organisational preparedness “is fundamental to mitigating and recovering from cyber attacks”. DigitalResolve is available to customers through Zurich’s security and privacy protection policy and management liability policies which have the optional cyber security and privacy cover. In the event of an unfortunate cyber breach, the hotline provides experts to mitigate the risk of operational shutdown, supply chain disruption, customer and revenue losses, reputational damage and the likes. The range of cyber experts includes IT forensic consultants Mandiant/FireEye, data protection legal experts Norton Rose Fulbright, risk consultants Control Risks, public relations firm Fleishman Hillard and loss adjusters Crawford & Company. They will aid a dedicated incident manager to support the client. “Zurich DigitalResolve experts deal with incidents within the locations in which they occur,” Mr McMillan says. “Our local approach ensures a business doesn’t suffer further incidents as a result of having to move data and information across geo* graphical boundaries.”
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companyNEWS
Local upgrade: Chubb boosts mobile P&E offering CHUBB HAS RELEASED ENHANCEMENTS to its mobile plant and equipment cover in Australia as part of a commitment to provide an improved range of products in the local market. The company says it has added general liability within the package, adding to other features clients are likely to require including property damage, increased costs of working, loss of income and registered machine liability. “In addition to adding general liability, we also took the opportunity to broaden the coverage and benefits,” Chubb Country President for Australia and New Zealand John French said. “It makes it easy for brokers to deliver a total mobile plant and equipment solution to clients.” Chubb, which operates in 54 countries, says that on a global basis it has a longstanding history of providing insurance solutions for mobile plant and equipment, and has covered some of the world’s major manufacturers and distributors. In Australia, Chubb says it has provided
mobile plant and equipment cover since 2007. The general liability cover in the enhanced package has a limit up to $30 million. Property in the insured’s physical possession or legal control has a standard $250,000 sub-limit with higher levels considered on request. Vibration and removal/weakening of support has a $500,000 sub-limit and hook liability a $250,000 sub-limit. For damage to machines, replacement value is provided on equipment less than 24 months old and market value thereafter, subject to sum insured. Additional covers include damage to lifted goods, extended warranties, fire brigade and emergency services charges, funeral expenses, machines that are hired in or out, repatriation of employees and windscreens. Chubb’s industry focus encompasses earthmoving, mining, plumbing, plant hire companies, the agricultural sector, grape and other fruit harvesting, access equipment, drilling operators (not oil or gas), as well as * boom operators and quarry operators.
New capacity, new name: Fleetsure scales new heights
CHU goes digital: New arm plants flag in insurtech sphere
SPECIALIST MOTOR UNDERWRITING AGENCY Fleetsure has not looked back since negotiating additional capacity from Lloyd’s and undergoing a corporate rebranding campaign. “It’s been a fantastic result. Fleetsure is tried and tested for 15 years, so they don’t view us an unknown,” Director Sean Rafferty tells Insurance News. “Quite a few commercial and heavy motor account brokers are scrambling to find a trusted alternative. “So we are finding that because we can be nimble and responsive, the brokers are very happy to be talking with us about insuring their commercial fleets.” Fleetsure announced in August it will be a multi-binder agency, offering Lloyd’s capacity as an approved coverholder in addition to its ongoing agreement with QBE. Having that extra capacity allows brokers to provide clients with alternatives in an ever-changing market. “There are some significant changes happening in the market. The push and scramble to retain, write and grow business over the last few years saw pricing move lower and this is now being reflected in underwriting results,” Mr Rafferty says. “As a consequence, a few of the major insurers have been correcting their prices to more normalised levels now. There has been some market consolidation and the subsequent exit of some new entrants.” He says rebranding to Fleetsure from Commercial and Trucksure has strengthened the agency’s profile as a specialist fleet and heavy motor underwriter. Put simply, it’s a name that resonates more with brokers. “What the rebranding has done is help brokers identify better with what we do, and what we do best,” Mr Rafferty said. “That’s not just trucks.” “Most motor fleets other than your typical white-collar sedan fleet are generally a mix of commercial and heavy vehicles, and the rebranding to Fleetsure has highlighted our position in the brokers’ minds as to what we can offer them. “Not just trucks, but a specialist motor underwriter for all * mixed fleets.”
THE BURGEONING INSURTECH FIELD IS ABOUT TO become a little more crowded as strata specialist Corporate Home Underwriting (CHU) prepares to debut CHUiSaver, its digital arm. The new organisation aims to be a “nimble” insurtech start-up that offers quality strata products for commercial and residential clients. “The impact that digital disruption has had on a number of industries such as taxis, banking, hotels and so on has been well documented,” CHU Chief Executive Bobby Lehane tells Insurance News. “I’m keen to ensure the opportunities that digital can unlock are delivered to strata insurance, which includes everything from ease of engaging and doing business with intermediaries and customers to reduction of costs associated with traditional insurance workflow. “Through CHUiSaver we will be able to introduce this new way of doing business. We can refine it and ultimately we can choose to adopt what works well for our premium brand.” Setting up the digital arm underlines CHU’s determination to stay closely attuned to consumer expectations, Mr Lehane says. “To stay relevant, we need to understand, to meet, to exceed and indeed sometimes to pre-empt the emerging needs of our customers. “While I believe CHU is among the best at doing so in the strata market, we need to continue to push ourselves, to lead. CHUiSaver will provide us with a vehicle for this.” The digital arm will transact business online through its inhouse Stratatech platform, a self-service policy and claims management system. CHUiSaver has chosen as its first product to be a residential strata cover underwritten by QBE, and is all ready to launch it once the agency receives its financial services licence. “Residential strata is the single biggest product in the strata insurance market, and one we feel would benefit greatly both from the digital toolset as well as the value proposition of this business,” Mr Lehane says. CHU is part of the Steadfast group, which acquired the strata * specialist from QBE in February last year.
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peopleNEWS
Easing the transition to retirement Mature-age workers are too valuable to just ‘let go’. Strategies that benefit them and the company are increasingly important By Sarah Wood, Senior Consultant at Career People Australia
WE ARE LIVING IN THE AGE OF longevity – an era of increasing life expectancy and, therefore, an ageing workforce. So it goes without saying there are huge implications for both workplaces and mature-age workers. It appears that in many parts of the insurance industry very little is actively being done to meet the challenges associated with mature-age workers. Less than a quarter of the insurance industry chief executives interviewed for PWC’s 19th Annual Global CEO Survey earlier this year acknowledged the issue. Few are changing the way they manage talent to ensure they have the skills and adaptability they will need in the future, given the ageing profile of their workforce. Taking on this challenge as a well-considered and appropriately resourced workforce strategy will be critical to businesses in the future. The cost of doing nothing – especially for those organisations with a skewed age profile – can be an extremely high one. If this issue isn’t dealt with properly, customer relationships, succession planning and in turn the impact on the bottom line are all put at risk. More often than not, mature-age employees have extensive and invaluable knowledge and experience – all attributes the organisation needs to perform at its optimum efficiency. Therefore, a question managers need to ask their mature-age workers is an important one: “Would you work longer if you could work differently?” So why aren’t more organisations working closely with their mature-age cohort to devise ways to benefit both the 72
future performance of the organisation and the retiring individual? This is a particularly alarming question given that many organisations actually already have policies like flexibility clauses in place. But for various reasons they are not actively in use to an extent that would positively benefit the business’ bottom line. For many, it all just seems to be too hard. But it doesn’t need to be. Let’s consider this issue from the perspective of the mature-age individual. Are they happy to go from being a full-time worker on Friday to a full-time retiree on
the economic benefits for the organisation. This year’s PWC Golden Age Index Survey, which attempts to measure how OECD countries are harnessing the power of their older workers, says Australia Post has been very successful. With 50% of its workforce aged over 45, the organisation has spent the past six years accommodating flexible working arrangements for employees aged 53 and over for the purpose of transitioning to retirement. This allows their older workers to reduce their hours of employment, enabling them to combine work and family responsibilities
A question managers need to ask their mature-age workers is an important one: “Would you work longer if you could work differently? the Monday, or would they prefer a staged transition over an extended period of time? We have all heard those stories of individuals falling off “the retirement cliff” when their identity, purpose and routine – together with their office keys and company vehicle – are suddenly taken away from them. It doesn’t have to be like that. We now have the tools and frameworks to support their transition to a new work-life balance by removing their fears and supporting their continued contribution, while maximising insuranceNEWS
October/November 2016
and phase in more “home life” time. Hobsons Bay City Council in the western suburbs of Melbourne is another organisation that has introduced phased retirement programs where hours of work are reduced and another staff member shares the role. This has been successful not only in phasing into retirement but also in ensuring the transfer of valuable knowledge. The council has also transitioned older care workers who can no longer carry out physical work into mentor roles.
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A role to play: Robert De Niro (second from right) with actors in the 2015 movie The Intern, in which a 70-year-old widower joins an intern program at an e-commerce company and proves invaluable
This identification of alternative duties should be an important component of any business’ approach to mature-age talent mobility. The benefits to the organisation include some clear economic arguments. If you don’t adopt a mutually beneficial approach with your mature-age workers, there is a strong possibility that for the last five, 10 or even 15 years of their working career they will “stay in the corner”, continuing to be a cost to the business and not maximising their effectiveness. So given the likely extension of this late career phase in the future as people choose to work longer and longer past the traditional retirement age, it’s important to look at the cost-benefit advantages of giving meaningful roles to this group. Why not use these employees with a lifetime of experience the chance to mentor early and mid-career staff members, or to undertake specific projects? Such a reallocation of work will be of greater business value than merely allowing them to carry out the day-to-day tasks they may have been doing for 30 or more years. There are also the costs savings from paying a part-time salary and having some of the tasks performed in a different way by someone else in the organisation who may well come up with a quicker and cheaper way of operating. There is enormous value to be gained by transferring that hard-gained experience to all other parts of the organisation – from entry level through mid-career to late career. It contributes to the organisation’s overall talent retention strategy and enhances its employee value proposition. There are also reputational impacts to 74
be gained by organisations adopting a positive approach to their older employees. Ex-employees who have positive stories to tell about their personally rewarding transition to retirement can strengthen your consumer and employer brands. Having a clear picture about how you would like your ex-employees to feel and talk about the business helps create a valid context to design this transitional phase and complements your recruitment strategies. So, with these benefits in mind, has your organisation considered strategies for
retain and engage your mature-age staff, but using them to also inject their wisdom back into the organisation in a sustainable way, will be vital in the future. We know there are many facets of our lives that are supported by work – our identity, the purpose it provides, our social network, our routine. Transferring all these aspects into a more sustainable context beyond the workplace unlocks the potential for a full and happy retirement. And, as we have seen, there are tangible commercial benefits for businesses to
There is enormous value to be gained by transferring that hard-gained experience to all other parts of the organisation – from entry level through mid-career to late career. those valuable employees who are in their late career stage? Here’s a couple of questions for employers: • Do your leaders, who may after all be under 40 years old, know how to initiate conversations regarding retirement plans with team members a generation older than them? • Are you offering transitioning support for your mature-age workers? Creating flexible strategies to not just insuranceNEWS
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engage in formal “wisdom transfer” programs. The mid-career people you’re employing right now – the people who are gaining experience and skills that are important to the company’s future success – have the potential to be with you for many years more than was once considered “normal”. So there’s really only one room that elephant in the room needs to be in: that’s in the boardroom, where strategies that ensure a win/win for employees and their * employers can be discussed.
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Wotton + Kearney goes an extra mile for African charity Wotton + Kearney raised more than $40,000 at a charity dinner in Sydney’s Doltone House for So They Can, an education charity that helps the needy, including children, in Kenya and Tanzania. The dinner ended on a high with the insurance law firm securing 33 new child sponsors to support the charity. More than $100,000 has been raised in total since the firm began partnering the African charity in October last year when it first sponsored a 7-year-old girl’s education in Kenya. The charity’s co-founder and Chief Executive Cassandra Treadwell was the guest speaker at the August event, which was attended by more than 220 guests from the insurance and legal industries. Chubb Casualty Claims Manager Aaron Turner was the lucky winner of the evening’s raffle draw for a getaway package at Peppers Craigieburn, a luxurious heritage retreat in the New South Wales Southern Highlands countryside.
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McLardy McShane gathers deep in the country Gumboots, thermals and hand warmers were the dress code for brokers and underwriters when McLardy McShane opened its inaugural conference in late July with a country-themed welcome dinner by the banks of the Murray River in Gooramadda. About 100 guests including staff and insurers enjoyed the chilly outdoor Victorian wilderness setting in the olive and grape-growing region – the nearest town is Howlong – before gearing up for a packed conference agenda the next day at the Huon Hill Hotel in the border city of Wodonga. Chief Executive Don McLardy opened the conference, tracing the rise of the Melbourne-based brokerage and outlining plans to take the business forward into the future. Dual Bathurst 1000 racing driver Todd Kelly, marketing guru Paul McCarthy and Reach Foundation Chief Executive Chris Naish were among the speakers. The conference closed with a finale dinner and awards night at the Huon Hill Hotel Sports Bar – where else? Namita Sisodia took out McLardy McShane’s employee of the year award, Hunt Insurance Director Bernie Hunt is authorised representative of the year and Bernie Dunn was the first person to be inducted into the McLardy McShane Hall of Fame.
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Rising stars, bigwigs share spotlight at AILA event Bigwigs and rising stars of the industry had a great night out at the Australian Insurance Law Association’s (AILA) annual luminaries dinner in August. AILA NSW President Angus Kench and the association’s Young Professionals NSW Chair Renae Hamilton led the night’s proceedings, sharing with guests the association’s goals and initiatives. Some 120 guests attended the three-course dinner held at the Shangri-La Hotel’s chic Altitude Restaurant in Sydney. Guests included brokers, chief executives, managing partners and executives from the industry.
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Wonderful winter, the way they do it in Germany Following its successful summer luau, HDI Global held a winterfest on the terrace of its Bridge Street offices in Sydney in August. About 100 staff and broker guests soaked up the ambiance of the outdoor German-market theme, kept warm by custommade green HDI Global scarves and tankards of beer and gluhwein (mulled wine). The night was crisp and clear and guests found it easy to believe they were in a scene from a Hans Christian Andersen fairytale as they walked through “snow� to reach giant pretzels and bratwurst.
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APIG conference draws a crowd The Australian Professional Indemnity Group (APIG) celebrated its 10th annual national conference with a jam-packed program covering a range of major issues. The event, held at The Westin in Sydney, brought together underwriters, claims managers, brokers, lawyers, insureds, adjusters and other service providers. Class actions, cyber risks and the future of professional liability were among topics on the program, with the conference also including speakers from outside the financial lines insurance market. Participants also had the opportunity to attend workshop sessions aimed at new and experienced participants in the crime and fidelity insurance market as well as in directors’ and officers’ liability. The event concluded with a gala dinner at the Sydney Town Hall.
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Adelaide expo takes centre stage The Adelaide Underwriting Expo tried a new central city location in August, and the results were extremely positive, according to the organisers. The Underwriting Agencies Council (UAC) expo, held in conjunction with the National Insurance Brokers Association (NIBA), moved from last year’s venue at the Adelaide Oval to the Hilton Hotel in Victoria Square. About 50 exhibitors and 300 brokers attended the expo. NIBA Chief Executive Dallas Booth says the event was well attended by brokers, and exhibitors were very happy. “Moving the event to the CBD was very successful. It was strongly supported.” The expo was sponsored by UAC strategic underwriting partner Hollard Insurance Group. Travel prizes worth $1000 were presented to two lucky brokers.
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peopleNEWS Trivia but not trivial: YIPs show brainpower QBE hosted the inaugural Young Insurance Professionals (YIPs) NSW “Battle of the Brains” Trivia Night in late August at Sydney bar Mr Tipply’s. The non-profit organisation was certainly living up to its charter by helping young insurance professionals with their career with a thoroughly fun networking event. Almost 100 guests divided into 16 teams and had their general knowledge put to the test while simultaneously enjoying share plates, beer and wine during the four-hour event. Global law firm Clyde & Co took out the insurance round and overall winning table, and its members were crowned the inaugural “Battle of the Brains” champions. The prize of FitBits and golf umbrellas for each member was provided by QBE.
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PSC Connect celebrates in Auckland PSC Connect held its annual conference in New Zealand for the first time, with highlights of the Auckland event including a traditional Maori welcome for around 150 delegates. Jason Forrest of Integral Insurance Services was named PSC Connect’s Australian authorised representative of the year, while the New Zealand broker of the year award was taken out by Stephen Doecke of Asset Insurance Brokers. Frank Androutsos from HighPoint Insurance Advisers was named up-and-coming authorised representative of the year. The Maritime Museum on the waterfront at Auckland’s Viaduct Harbour provided a special setting for the gala dinner, providing a chance to socialise amid a busy program. The three-day event also offered the opportunity to enjoy some of the attractions in the region. More daring participants tried New Zealand’s famed adrenalinepumping activities, including the SkyWalk, a narrow platform which circles the city’s iconic Sky Tower 192 metres above the ground.
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Big hearts on show at Quill Club’s annual charity luncheon Melbourne’s Quill Club held yet another successful charity luncheon as members opened their wallets generously to raise funds for the Spinal Muscular Atrophy Association of Australia. All in, $50,000 was raised at the annual affair last month at Central Pier in Docklands. The lunch was attended by around 500 industry professionals, who donated $30,000. The Steadfast Foundation and QBE Foundation each chipped in $10,000 to help this year’s charity of choice. The funds will go towards buying life-saving machines for children who suffer from the disease, a genetic condition that affects the nerves responsible for muscle movement. The annual Quill Club lunch is becoming more popular year by year, with the Melbourne insurance community making it a “must attend” event on the city’s social calendar.
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Work and play mix as Queensland brokers gather Record numbers of members turned out for the 24th annual Council of Queensland Insurance Brokers (CQIB) convention at Sanctuary Cove on the Gold Coast. More than 170 brokers attended the August event, which is known as much for its first-class entertainment as well as its top quality professional development. The convention got into full swing with the Allianz Golf Tournament, before guests rocked the night away with Dragon at CGU’s dinner beach party. On Friday, a solid day of training around the convention theme of risk management was followed by Vero’s Fire and Ice Dinner. Speakers on Saturday included AUB Group Managing Director and Chief Executive Mark Searles, and National Manager Commercial Intermediaries at Suncorp Commercial Insurance, Anthony Pagano. Then followed another celebration – the QBE-sponsored Big City Beat. “The entire convention is testament to the hard work and dedication of the team to continually develop first-class events, which is why we are attracting record numbers of brokers in attendance,” CQIB President Sean Bemrose says. Fundraising during the event raised $21,000 for registered healthcare charity the Mater Foundation. Images by Ray Lawler Studio
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Heading to the Bledisloe Cup in style AIG took brokers, clients and employees on an evening cruise from Sydney’s Darling Harbour aboard the luxury vessel Pontoon to watch the All Blacks take on Australia in the first Bledisloe Cup match at ANZ Stadium in August. Hosted by Chief Executive Noel Condon, whose company is the global sponsor of the all-conquering New Zealand team, the cruise started with a surprise visit from three All Blacks: Matt Todd, George Moala and Ofa Tuungafasi. Guests enjoyed a whiskey table, photo booth and the virtual reality Haka 360° Experience on the cruise. There was also a “How do you measure up?” banner where guests could compare themselves to life-size images of All Blacks players. Then it was a short coach ride to the stadium, where Australia’s Wallabies were crushed 42-8. Loss aside, the evening was thoroughly enjoyed by the Australian guests, three of whom also won signed rugby jerseys, including one signed by the entire All Blacks 2015 Rugby Championship squad – which, by way of consolation, was won by the Wallabies.
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Resilium revs up at resort The 2016 Resilium Adviser Conference at the Intercontinental Sanctuary Cove Resort on the Gold Coast brought together a record number of delegates and scored top marks for a packed program. The five-day event started on August 28, with attendance at an all-time high with 264 delegates, 180 of whom were authorised representatives of the Suncorp-owned company. The theme – Go for growth – reflected the conference’s focus on the future and how to tackle change in a fiercely competitive market. Resilium Managing Director Adrian Kitchin shared ways in which Resilium can assist them to achieve growth through creating connected customers via leads generated by Suncorp business bankers, customer contact centres, sponsorship and tactical marketing. The gala dinner was held at Dreamworld, and delegates lived out their rock star fantasies by fronting a karaoke band that had been flown in from Sydney for the event. There was also a Hawaiian-themed beach dinner at the resort, go-karting and a trip to the Skypoint Observation Deck on the 77th level of the Q1 building.
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Cocktails close remarkable Dive In festival
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AIB 10484
A cocktail party completed Lloyd’s hugely successful diversity and inclusion festival, better known as Dive In, late last month in Sydney. And there was much to celebrate. The three-day festival featured a series of events that raised important issues that normally don’t get much scrutiny in any industry. The inaugural Dive In event was held in London last year, but this year it was expanded across 10 countries, including Australia. Sessions were held on gender diversity, lesbian, gay, bisexual, trans, and/or intersex (LGBTI) inclusion, multiculturalism and mental wellbeing. The final event focused on breaking down barriers around physical disability in the workplace. Lloyd’s General Representative in Australia Chris Mackinnon says the festival was a sensational success that brought the industry together. “We’re incredibly pleased with how it’s gone and it’ll be back again next year,” he said.
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maglog »
terry McMullan Publisher
LOSS ADJUSTERS ARE AMONG THE UNSUNG HEROES OF insurance. They’re the people who sort out the misery and the trauma felt by anyone who has lost their home or their business in a catastrophe or through accident. Insurance is going to put their lives back together, and it’s the adjuster who will do it. Not surprisingly, it takes a special kind of person to do the job. Apart from the technical skills required to investigate the cause of a loss, the adjuster also requires sufficient empathy to win the claimant’s co-operation, and the skills to organise the repairs or replacement of what has been lost – all while keeping the insurer who is paying the bills happy. As the Adjusters Journal of July 1984 put it: “The successful loss adjuster must be courteous, diplomatic, shrewd, persuasive, slow to anger, a Sherlock Holmes, up to date, good-looking and the embodiment of virtue but with a good working knowledge of sin. “He must understand insurance, electricity, chemistry, mechanics, physics, bookkeeping, banking, merchandising, shipping, contracting law, medicine, real estate, horse-trading and human nature. “He must be a mind reader, hypnotist, an athlete, be acquainted with machinery of all types, materials of all kinds and must know the current price of everything from shoe strings to skyscrapers. “He must know all, see all and be everywhere at the same time.” The history and exploits of these multi-skilled personalities – only a few of whom could be described as good looking – are portrayed in a fascinating new book by Brisbane-based writer Elizabeth Marx, who describes herself as a “closet historian”. Commissioned by the Australasian Institute of Chartered Loss Adjusters (AICLA) to research the beginnings of the profession in the region, Ms Marx has produced What Killed The Tiger – The Extraordinary History of Australasian Loss Adjusters, a book pleasantly free of the neutral deference that marks so many corporate histories. This is a rollicking read, full of great stories about many things and the larger-than-life characters who travelled the length and breadth of Australia, New Zealand, Papua New Guinea, the Pacific Islands and Asia putting things back together after losses of all kinds. 98
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Ms Marx has compiled a chronicle that traces loss adjusting back to the mid-19th century and forward to the multitude of organisations that represented adjusters in Australia before they were all brought together under the AICLA banner. Some of those early associations were so low-profile that one, based in Perth, was unknown to its eastern states counterparts for many years. There were fire adjusters and chartered adjusters and specialists in marine, motor or business interruption losses, among others – and it appears that the differences were sometimes on the level of a sectarian divide. The struggle to form such disparate groups into what would become AICLA took many years, and Ms Marx has done a remarkable job in making what could have been a bit of a complicated history entertaining as well as informative. She’s helped enormously by adjusters of all ages who have provided her with some wonderful tales. They are, as she puts it, “a collegiate bunch [who] rarely have a bad thing to say about each other”. Her interviews with many contemporary and long-retired adjusters bring forth amazing stories in handling catastrophes on the scale of Cyclone Tracy, the Wahine sinking and Ash Wednesday, as well as hilarious household matters involving things like exploding septic tanks. There are reminiscences of the tough times travelling rough in the days before airlines, and the book makes no attempt to hide the differences and conflicts that periodically shook the profession’s various groups. Ms Marx also examines with considerable clarity the gradual demise of the old way of doing loss adjusting and the emergence of a more competitive and “corporate” model. It’s a book that every insurance professional should read, if only to understand the wonderfully rich past and the evolution of this remarkable band of specialists. * So what did kill the tiger? The answer is in the book. What Killed the Tiger costs $39.95 plus postage. It will be launched at a function in Adelaide on October 19, with “soft” launches in other cities to follow. An order form for the book can be obtained by emailing adminoffice@aicla.org. October/November 2016
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