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D&O: THE CLIMATE CHANGE CHALLENGE
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Issued by Zurich Australian Insurance Limited ABN 13 000 296 640 AFSL 232507. Any advice has been pr prepared epared without taking account of your objectives, financial situation or needs. Ther Therefore, efore, before before acting on the advice you should consider its appr appropriateness opriateness having rregard egard to your objectives, ectives, financial situation and needs. You Yo ou should obtain and consider the relevant relevant Product Product Disclosure Disclosure Statement for the financial pr product, oduct, available at www.zurich.com.au, www.zurich.com.au, before before making any decision about whether to acquire, acquire, or continue to hold, that product. product. ZU23373 02/17 CRUL-012081-2017
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Contents 6 Newsmakers » 10 Are the storm clouds clearing? » The Barometer indicates premiums will rise in 2017 after a tough few years – but there are other challenges looming.
62 A mammoth task » A new IASB accounting standard promises to keep insurers busy this year.
66 D&O and climate change » Directors and officers face new and different challenges as the planet warms, and their insurance cover might not always work the way they expect.
14 … or are the storm clouds still hovering? » Macquarie Research suggests 2017 won’t be the year commercial premiums move up.
16 Seeking the best »
70 Boom to bust:The intriguing history of Hemisphere Insurance » With an array of owners and interesting approaches to finance, this was another New Zealand-based transTasman insurer that didn’t survive for long.
A new award sets out to celebrate the industry’s best claims performers.
18 Tumultuous times » Divided societies, climate change and new technologies are raising the global risk stakes.
22 A novel approach » QBE Deputy Chairman and thriller writer John Green says what he learns in the world’s boardrooms can be much stranger than fiction.
28 Growing profits » Brokers and businesses in regional areas hope favourable weather will result in greater earnings.
34 Life across the Tasman » The Australian executives running New Zealand’s two largest general insurance companies – IAG and Suncorp – talk about life in the Shaky Isles, how they’re reacting to challenges old and new, and the things that make the Kiwi market different.
42 Change agents » Insurance innovation will most likely come from combining innovators’ ideas with established industry knowledge, according to Swiss Re’s Jason Richards.
46 Have skills, will invest » A bunch of industry veterans have pooled their expertise – and their money – to invest in insurance businesses that need help to grow.
50 Pitch battle » A new US government study has reopened the debate over artificial turf and cancer risk.
54 A climate of catastrophe » Earthquakes highlighted the stark gaps in insurance cover around the world.
58 The work force »
74 A model office for Marsh » The thinking behind Marsh & McLennan’s latest premises is attracting attention from colleagues around the world.
79 NTI’s big move The truck insurer takes on a marine insurance challenge.
80 Kickstarting business » Suncorp online platform assists emerging entrepreneurs.
82 Coverage under fire » Top award honours a reinsurance underwriter who became an influential figure in building terrorism protection.
84 86 89 90
Christmas cheer for Reach » Supporters cheer Lion’s roaring success » NTI serves up a treat for car-lovers » Allianz closes out 2016 in style with golf and cricket slugfests » 93 Dragon boat races and history enjoyed by MGA delegates » 94 HDI parties on in true Californian style » 97 Major and complex, but also delightful » 98 maglog »
The trend towards short-term labour hire has offered opportunities to insurers, but the market is not without its pitfalls.
Cover illustration by Krisztina Strzebonski
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338 403 LOCAL
300 REGULATORY & GOVERNMENT
425 FINANCIAL SERVICES
357 THE PROFESSIONAL
24 BREAKING NEWS Almost 24,000 news articles – including 228 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
Teetering tower sold New Zealand insurer Tower is in trouble, and has been for some time. A respected local brand with a long history, the company has been selling off assets for years and is now considered too small to compete effectively against the likes of Australian-owned competitors IAG and Suncorp. As a direct insurer its market was also under attack from new entrants like Youi. It has been rocked by earthquake claims, and plans to create a new company called RunOff Co to manage legacy liabilities from Canterbury. It is also engaged in legal battles over recovery with Peak Re and the Earthquake Commission. Many sources contacted by insuranceNEWS.com.au believe the company is just one catastrophe away from collapse. So last week’s intervention from Canada’s Fairfax Financial Holdings could not have come at a better time. Led by Chairman and Chief Executive Prem Watsa – known as “the Canadian Warren Buffett” – the Torontobased group has agreed to buy Tower for $NZ197 million, and most interested parties are crossing their fingers the deal goes through. Tower is now solely a general insurer, having sold its life insurance business in 2010, its medical insurance arm in 2012 and its managed funds arm in 2013. Michael Naylor, Senior Lecturer in Finance and Insurance at Massey University, told insuranceNEWS.com.au Tower has been in trouble for “a long time”. “Canterbury claims have not yet bankrupted them, but it has been close,” he said. “Another large quake event would bankrupt them. Their share price has been plummeting for the past several years. So they had to do something. “It would be hard to raise enough funds via a rights issue given the current low share price, so a sale is the most obvious way out.” However, Dr Naylor says the residual company is sound, and it should rebound once quake claims are removed.
insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 22,000 subscribers. In 2016 we published 2365 articles online. These were made up as follows:
It did have some bad luck. – Actor Alex Haddad displays his mastery of the deadpan while discussing his plans to set up a brokerage he will call HIH Insurance. The original HIH collapsed in 2001 with losses totalling $5.3 billion.
He believes Fairfax’s intentions are good, and a “deeppocketed” owner bodes well for customers and claimants. While Tower is too small to provide the huge investments required to keep up with looming technological disruption, Fairfax has the capacity to invest and expand the business. Fairfax has certainly been busy. Earlier this year it announced the acquisition of Swiss (re)insurer Allied World for $US4.9 billion. Last year it also acquired AIG’s operations in Latin America and Turkey, and Zurich’s operations in South Africa and Botswana. We can only guess what Fairfax’s intentions are for the teetering Tower, but one thing is certain – anything is better than the alternative. Analysis, Tower was teetering and had to be sold, 13 February
Plea for mitigation The insurance industry has criticised the Government for failing to implement proposals for increased disaster mitigation spending. The Government has published its response to the Productivity Commission’s report on natural disaster funding arrangements, but ignores a key recommendation to increase mitigation spending to $200 million a year. The Australian Business Roundtable for Disaster Resilience & Safer Communities says it is disappointed after repeatedly calling for a new approach. It has published a number of reports showing money invested in mitigation reaps massive savings further down the track. The Insurance Council of Australia says the current measures are not enough to stop disaster recovery costs spiralling. Industry takes on Canberra over mitigation delay, 30 January
Fagen leaves QBE QBE has announced the departure of Group Chief Operating Officer Colin Fagen. In an announcement to the Australian Securities Exchange, the insurer says a replacement has already been identified and will be announced “in the coming weeks”. No reason has been given for his departure.
Mr Fagen had been in his current role for two years. Prior to that he was chief executive of Australian and New Zealand operations. He worked with the insurer for 17 years in total. In November he was appointed President of the Insurance Council of Australia. Top executive leaves QBE, Breaking News, 10 February
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The World Meteorological Organisation (WMO) says last year’s average global temperature was the highest on record. It was about 1.1 degree higher than the pre-industrial period and 0.07 degrees warmer than the previous record, set in 2015. “[Last year] was an extreme year for the global climate and stands out as the hottest year on record,” WMO SecretaryGeneral Petteri Taalas said. “But temperatures only tell part of the story. Long-term indicators of humancaused climate change reached new heights. Carbon dioxide and methane concentrations surged to new records.” Each of the 16 hottest years on record have been this century, apart from 1998.
Hot, hot, hot: fire advances on a massive front across rural New South Wales. The February bushfires took place in the middle of a record-breaking heatwave and destroyed more than 40,000 hectares of land
Global heat record tumbles again, 30 January
Lloyd’s lists Underwriting discipline will remain a focus at Lloyd’s after profitability deteriorated last year, according to an annual note from Chairman John Nelson and Chief Executive Inga Beale (above). “Barring any major catastrophe claims in the next two weeks, the market will have shown a strong performance, despite the tough operating environment,” they write in the mid-December message.
“However, the strength of these results masks a deteriorating and worrying trend: that current-year underwriting is not profitable in aggregate at the moment. “This is a matter of great concern to us.” Prudent underwriting discipline was a focus during a mid-year portfolio review, before business plans were signed off. “We anticipate that the need for continuing review of underwriting plans will be necessary throughout 2017,” Mr Nelson and Ms Beale say. Lloyd’s says it is reducing market subscriptions by 10% this year. “Throughout all the challenges in 2016, the strength of Lloyd’s financial position has continued to improve, with ratings at an all-time high,” the note says. Lloyd’s warns on underwriting profitability, 30 January
The hottest year
Reinsurance gets softer Most lines of casualty reinsurance business in Australia continue to soften, and buyers and reinsurers are increasingly prepared to disengage if parties can’t reach mutually beneficial terms, according to a Willis Re report on the crucial January 1 renewal season. In property, rates also continue to soften, with reductions dependent on perceived program price adequacy and level of first-event retentions. Willis Re says some reinsurers in property lines are starting to reduce capacity where rates are perceived to be inadequate, and are showing limited interest in rate reductions on loss-affected layers. Buyers are generally looking to stretch terms and conditions, with many exploring multi-year capacity. The reinsurance broker says there is plenty of capacity from traditional sources and insurance-linked securities. Globally, reinsurance rates are still struggling to stabilise, dashing the industry’s hopes of a turnaround in pricing this year, the report says. Buyers appear to have kept the upper hand in price negotiations, according to the reinsurance broker, it says. “With the January 1 renewal season setting the tone for [this year], reinsurers can only look forward to another demanding year, where luck will play an even larger role in determining their final results,” Willis Re Global Chief Executive John Cavanagh said. “While reinsurers are still able to report profitable results despite the underlying issues they face, the situation for many primary companies is much tougher. “Rising combined ratios in many markets, driven by competition both from existing peers as well as from new style competitors utilising innovative low cost distribution and cost models, is a growing concern.” Rates soften further at January renewals: Willis Re, 30 January
The colours of car theft Professional car thieves have colour preferences when choosing their targets, according to a new study by the National Motor Vehicle Theft Reduction Council. A black 1997-2000 Holden Commodore VT is three times more likely to be stolen for profit than a red one, but black and red Commodores have similar short-term theft rates. By type, green small and medium passenger vehicles are the most likely to be stolen. The 2015/16 theft rate for green cars was 3.58 per 1000 vehicles, followed by black at 2.96.
The next most popular targets by type are large black passenger vehicles, black sports vehicles, green SUVs and black light commercial vehicles. Black cars became increasingly popular to own in 2015/16, up 29% since 2011/12, and even more popular to steal, up 56% since 2011/12. Red 1995-2000 Nissan Pulsars have the highest theft rate by model (29.6 thefts per 1000 registrations) – a 46% higher theft rate than blue ones. Black 2006-13 Holden Commodores have a 57% higher theft rate than silver ones. Green is the new black for car thieves, 13 February
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A Landmark deal
Marsh Advantage Insurance (MAI) says it is looking to further expand its authorised representative (AR) network following the deal with rural and financial services provider Landmark. As reported in a Breaking News bulletin last week, Landmark will become an authorised representative of MAI. Its 80 insurance brokers will offer MAI services to 65,000 clients in more than 250 rural and regional locations across NSW, Victoria, Queensland, Tasmania and SA. MAI Executive Director Travis Kemp told insuranceNEWS.com.au the deal is a win for both sides. “To come across an opportunity of this size, with such a strong brand, and in a segment where we did not see channel conflict within Marsh, was very exciting,” he said. He says such significant opportunities to expand are increasingly rare. “We have been on this journey now for about three years. It’s a highly competitive environment and certainly in terms of the type of AR that Marsh would want to be associated with, it’s a limited market.” Mr Kemp says the Landmark brand will stay, as will its underwriting arrangement with CGU. “It would make sense to maintain the strong Landmark brand as a foundation, but dual branding is our ambition,” he said.
And so 2017 begins, with the big question being whether this is the year that premiums will improve and the sun shines through the clouds that have dogged the industry for several years. Much the same question was being asked last year, and the year before that. In February/March 2015 our cover story was titled “Tough times ahead”. It warned that insurers’ ability to raise premiums to counter falling investment returns was being hampered by unprecedented levels of competition in the market, “coupled with a faltering national economy that has made customers more price-sensitive”. Last year our February/March edition confirmed the accuracy of that previous article with the headline “Under the weather”. It was a tale of woe, detailing premium falls brought on by excess capacity and strong competition, with commercial rates down 6% on average. To top it all off, there was a spate of natural catastrophes. There was no light at the end of the tunnel, particularly for commercial insurers. This year our look at the year ahead is a little more optimistic. But only a little. We are hedging our bets by using the annual JP Morgan Taylor Fry report into the industry as our base, but looking at some alternative opinion from the research team at Macquarie Bank. The JP Morgan Taylor Fry report has been our benchmark for several years. It reflects the views of insurers and brokers, and while there might be a temptation to talk up the market, the long-term evidence suggests that hasn’t happened. But the Macquarie research also deserves serious consideration. Taken together, what we appear to be seeing for 2017 is personal lines premiums recovering quite quickly while commercial market rates struggle to rise above a flat line. The challenges – and challengers – that first became evident a few years ago are still with us, and this recovery shows signs of being a fragile one, particularly in commercial lines. So what’s the best way forward for insurers and brokers? Cautious baby steps or bold leaps into a future where everything is changing so rapidly that the place you’re aiming to land on might not even exist when you arrive? We’re happy not to be the ones who will have to make that call.
Landmark acquisition not the last, Marsh says, 6 February
Youi: they got you Youi has been fined $NZ320,000 in the Auckland District Court for engaging in unscrupulous sales practices between July 2014 and February last year. The South African-owned insurer pleaded guilty to charges filed by the New Zealand Commerce Commission, which investigated the misrepresentations. Customers were billed for unsolicited policies and told they must provide bank or credit card details to obtain insurance quotes. They were also misled into thinking quotes could be obtained online without consulting Youi sales staff, according to the commission. “However, in many cases the online query was used by Youi salespeople to make unsolicited sales calls, which in some instances involved the use of unlawful techniques to get a sale across the line,” Commissioner Anna Rawlings said. Youi says it has fully refunded customers who were wrongly billed and has taken steps to clean up its methods. The Insurance Council of New Zealand fined Youi a maximum $NZ100,000 last October for its misconduct. Parent company Outsurance Holdings says Youi’s Australian business has engaged in similar “sales breaches” and actions have been undertaken to rectify this. The company has been in contact with Australian regulatory authorities over the matter. NZ court fines Youi for sales misconduct, 30 January
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Sparke Helmore and Jarman McKenna, two leading insurance law firms, become 1 on 1 March 2017. For global and national insurers, underwriters, brokers and agents, our merger provides greater depth of expertise in the West. We now have 80 people in Perth, and 300 nationally, who are dedicated to working with the insurance sector. They were recognised as the Insurance Specialist Firm of the Year at the 2016 Australasian Law Awards.
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Are the storm clouds clearing? The Barometer indicates premiums will rise in 2017 after a tough few years – but there are other challenges looming By Wendy Pugh THE TOUGH BUSINESS ENVIRONMENT FOR insurers is expected to ease a little this year after the previous 12 months offered few positives besides a reprieve from major catastrophes. Rates overall are tipped to rise as inflationary pressures take their toll and insurers bite the bullet where levels are unsustainable, amid a varying outlook across personal and commercial product lines. “Profitability for the sector is improving, but it is improving very slowly and there are particular classes that are quite problematic,” JP Morgan analyst Siddharth Parameswaran says. The latest JP Morgan Taylor Fry General Insurance Barometer says claims cost pressures are driving premium rises in compulsory third party (CTP), home and motor, with domestic class rates overall expected to rise 3% this year. Why is CTP, a statutory class of insurance overseen by state governments and in some states controlled by bureaucrats and influenced by politicians, included in the Barometer report as a component of personal lines? JP Morgan tells Insurance News that CTP is “bought by consumers similar to the way they purchase motor comprehensive insurance and householders [insurance} and is thus definitely a personal lines class”. While Suncorp includes CTP as a commercial class, “that is very unusual [and] not at all in line with industry practice”. In commercial insurance, profits in many classes are reaching unsustainably low levels, leading to the likelihood of a turn in rates. 10
Premium rates in commercial lines overall fell 1% last year but are projected to rise 2% this year. Industry profitability, measured by the combined operating ratio, improved slightly to 92% last year from 94% in 2015. For commercial classes the ratio moved to 101% from 106%, while for domestic lines it improved to 90% from 91%. But the headline figure was helped by a light year for catastrophes compared with 2015, when disaster claims were driven by cyclones, hailstorms in New South Wales and South Australian bushfires. Insurers and brokers are looking for a slight leg-up this year as the wider economic environment improves. Interest rates and equity markets have ticked up in recent months from a low base, providing a lift for investment incomes, even as an abundance of capital and global capacity remain concerns.
“Profitability for the sector is improving, but it is improving very slowly and there are particular classes that are quite problematic.” “From a macroeconomic perspective, things have improved a bit and there are potentially some positives for the insurance industry, particularly around interest rates,” Mr Parameswaran says. “But if we look at what is happening at the coalface, there is a lot of competition, and this had led to underlying profitability decreasing [last year].” The Barometer is based on a survey of major underwriters, reinsurers and brokers in the general insurance industry, along with some data from the Australian Prudential Regulation Authority.
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Insurance classes tipped to show an improvement in rates this year include domestic motor and household cover – both expected to achieve premium gains of 4% after rising 3% last year. On the downside, domestic motor claims inflation was 5% last year, with no change in claims frequency, while home claims inflation was 12% against an expected 3%, despite the benign level of catastrophes and a 0.6% easing in frequency. The property construction boom, a backlog of claims and more cash settling were among drivers of the claims inflation rise, while in motor the increased complexity of vehicles using new technology means even small crashes can prove costly. This year commercial motor premiums are forecast to rise 6% after a gain of 3% last year, while fire and industrial special risks (ISR) is expected to rise 2% after declining 3% last year and 10% in 2015. The report says past reductions in fire and ISR were unsustainable, with pricing below technical break-even levels. Now premium increases are expected in an effort to reverse the slide, despite strong competition. Other problem areas include directors’ and officers’ cover, where the combined operating ratio blew out to 121% last year from 97% in 2015. This year it is expected to improve to 113%. CTP stands out as an area in the midst of change, with NSW and Queensland both in the process of reforming their schemes. The CTP combined operating ratio in NSW is tipped to blow out to 107% from 91% last year, reflecting a jump in claims and after previously benefitting from reserve releases. Premiums are forecast to rise 13% after increasing 10% last year. Planned reforms to the state’s scheme follow strong evidence to suggest a rapid increase in fraudulent or exaggerated claims in recent years, the report says. “There has been a large increase in the number of claims from people with minor-severity injuries who are legally represented. “In particular, the increase is most acute in southwestern Sydney. Many of the claims are represented by a
Industry premium rate movements 2014A
Fire & ISR
WC (other) PL PI
Industry combined ratios 2014A
Fire & ISR
Note: For non-APRA classes, reported combined ratios use the survey responses. APRA combined ratio calculated as (Net Claims Expense + Total Underwriting Expense)/Net Earned Premium Source: 2016 JP Morgan Taylor Fry General Insurance Barometer
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“Many are expecting a turn in the cycle, but it’s likely to be a very slow turn with only small increases in premiums.”
small number of recently established firms and there are common treating doctors for many claimants.” Queensland CTP premiums are expected to fall 15% this year, while the combined operating ratio is expected to deteriorate to 76% from 55%, reflecting the state’s introduction of the National Injury Insurance Scheme. The Barometer also provides a window on broker and underwriter thoughts about key issues confronting the industry. “Our findings show that concerns of insurers and brokers are remaining fairly consistent since 2015, with competition, rates and capacity the main concerns,” Taylor Fry Principal and Senior Actuary Kevin Gomes says. The survey also finds 57% of insurers identify regulatory change and compliance as an issue for the industry, followed by 43% citing technology and cyber risk. Among brokers, 83% are worried about staff training, retention and experience, up from 43% in the previous year’s survey. The second major broker concern is excess competition, commoditisation and capacity. One-third of brokers say pricing and profitability is a key issue for the industry, with many citing challenges from direct marketing and the internet as a major area of concern. In the wider economy, global equity markets have rallied following Britain’s decision to leave the European Union and the election of Donald Trump, defying earlier expectations. But Taylor Fry Actuary Dean Marcus says underwriters remain concerned that political issues may create economic instability in Australia. Other areas on which the industry is keeping an eye include blockchain technology, the introduction of semiautonomous vehicles and driverless cars, use of Big Data, merger and acquisition activity and climate change. In the near term, while there are some positive signs for the insurance market, there is unlikely to be a sudden surge from recent lows to fresh heights. “Many are expecting a turn in the cycle,” Mr Marcus says, but it’s likely to be “a very slow turn with only small * increases in premiums”. 12
Domestic motor and household premiums are tipped to rise 4% – but claims inflation is high
Commercial motor premiums will rise 6% after a 3% rise last year
Fire and industrial special risks will rise 2% after falling 3% last year
Directors’ and officers’ combined operating ratio blew out to 121% last year
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… or are the storm clouds still hovering? Macquarie Research suggests 2017 won’t be the year commercial premiums move up WHILE PARTICIPANTS IN THE JP MORGAN TAyLOR FRy survey are optimistic that premiums are about to rise after a protracted period of intense competition and falling rates, Macquarie Research analysts believe the recovery hasn’t arrived yet. Insurance Analyst Andrew Buncombe and Insurance and Diversified Financials Director Tim Lawson gave their alternative view of the market at a luncheon for broker sector leaders organised by Macquarie Business Banking in January. As they see it, rate reductions in commercial lines will continue through this year’s June renewals. “We see a small decrease to flat,” Mr Lawson says. Feedback from the market suggests the December 2016 renewals were only “slightly negative”, indicating the worst of the rate reductions has passed. But Mr Lawson cautions against taking isolated
examples of premium rises as an indication the overall market has stopped flatlining. “It does not represent the market at large,” he tells Insurance News. “you talk to one party and they’ll have got an increase and another hasn’t. But if you look back through their history, there’ll be an explanation for that. “Any improvement that’s seen in individual classes won’t necessarily translate into across-the-board rises.” Macquarie Research says the downward trend has been consistent since late in the 2013 financial year, when commercial rates started a slide that reached overall reductions of up to 12% in the 2015 financial year. Premium reductions moderated in the 2016 financial year, and the cycle is now at the point where premiums are still falling, but more slowly. While the trend line for commercial premiums has followed a relatively classical path through the cycle (see graph), personal lines premiums have fallen consistently year-on-year since early 2013. The good news for insurers is the Macquarie analysis shows the personal lines premium decline has halted. “Despite negative premium rate growth in [financial year 2016], gains achieved in the prior year were not reversed,” the research notes say. “Industry participants
Indicative commercial rate cycle: first derivative
Estimate of point in cycle
Sources: ICA, Macquarie Research, January 2017
~–3% FY16 ~–12% FY15
Note: The chart above is weighted for the mix of home, contents and private motor in the Australian market
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“If you’re looking for a big cycle change you’ve got to have an event that changes the supply and demand situation. Those conditions don’t exist at this time.”
believe premium rate contraction bottomed in December, spurred by claims cost inflation.” The issue of claims inflation has been highlighted by many insurers in the past year, and Mr Lawson says the underlying causes are specific to each class. Looking at motor, for example, the costs of labour and parts have risen sharply. Vehicles are now more complex. On top of that are currency fluctuations. Will the uptick in personal lines premiums continue? Mr Lawson is cautious. “You have to step back and look at what’s driving the cycle longer term,” he says. “If you’re looking for a big cycle change you’ve got to have an event that changes the supply and demand situation. Those conditions don’t exist at this time.” He says the industry’s risk calculations are far more exact than in the past. “Insurers’ ability to analyse and use data should help to break down cycles. Much the same thing is happening – in different ways – in the investment markets. “Fifty years ago if there was a flood in Queensland your home insurance premium went up in Adelaide and everywhere else. These days if you’re on the side of the street that wasn’t flooded, you won’t get a premium increase.”
The Macquarie Research analysis also contends that brokers are a significant factor in the continued decline of commercial premiums. It points to the contrast in personal lines, where premium corrections are inevitably sharper. “The fact that brokers aren’t generally involved makes it possible for [personal lines] insurers to react to changes more quickly,” Mr Lawson says. That comment is also relevant to the analysts’ measurement of brokers’ share of the overall commercial market. Intermediaries’ market share has fallen from a high of 44.5% in 2012 to 42.6.% last year. And then there’s the influence of reinsurance to consider in the overall equation. Global funds are continuing to see reinsurance as a positive investment, but Mr Lawson says the guidance from analysts offshore is that the rate of growth in alternative capital is moderating as yields improve in other investment markets. It’s still significant, however: alternative capital in 2010 was 5.1% of available reinsurer capital. Today it’s 13%. Mr Lawson says many funds have reached their allocation limits and capacity growth should slow from this point. “The alternative market won’t disappear, but it’s certainly more mature than it was five years ago.”
Premium rate cycle: personal lines 16% 14% 12% 10% 8% 6% 4% 2% 0% –2% Mar 03
Sources: ICA, Macquarie Research, January 2017
Note: The chart above is weighted for the mix of home, contents and private motor in the Australian market
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Seeking the best A new award sets out to celebrate the industry’s best claims performers THE VITAL ROLE OF CLAIMS professionals in the insurance industry is being highlighted in a new national award recognising excellence in claims. The award, using data on insurance companies’ claims performance, is being organised by claims specialist LMI Group in partnership with Insurance News. The Mansfield Awards for Claims Excellence will be presented annually. They are named in honour of the British Lord Chief Justice who introduced the industry to the principle of uberrima fides (utmost good faith) some 250 years ago. An article on Lord Mansfield and the judgement was published in Insurance News in December. The awards will be decided using data from several authoritative sources, including LMI Group’s Claims Comparison statistics and the Financial Ombudsman Service and will include surveys of brokers. Individual awards will be made in personal lines, SME property and casualty, corporate property and casualty, and specialty. The overall Mansfield Award for Claims Excellence will be presented to the insurance company that has scored the most points under a measurement process being developed by LMI. Finalists’ performance will be “weighted” to ensure companies are accurately and fairly assessed. It will measure such factors as speed of service, proactivity, accuracy and fairness. LMI Group Managing Director Allan Manning says the emphasis is “purely on claims excellence and nothing else”. “It is intended to promote the prominence of the claims process in everyday business. “When you come right down to it, the claim is everything in insurance,” he says. “The industry handles many thousands of claims every year, but the very low incidence 16
Figurehead for claims excellence award: Lord Mansfield, who introduced insurance to the principle of utmost good faith
of poor claims performance is what always makes the headlines. “We want to help change the perception that claims is a complex and unfriendly process. Claims excellence needs to be recognised.” Professor Manning says the new awards will reward companies that see claims service as an essential part of their business. “While insurers spend tens of millions of dollars promoting their products and their brand, claims performance doesn’t often get a look-in, at least in the public eye – yet it’s what insurance is all about.” Insurance News Publisher Terry McMullan says the Mansfield Awards mark the first time the publication has become involved in such an initiative. “There are plenty of insurance industry awards each year for most professional and business achievements, some of them worthy and deserving of support. There are also a few that use opaque judging processes which are, at best, dodgy. “The Mansfield Awards have to be able to meet the highest standards of fairness and accuracy. insuranceNEWS
“They also fill a troubling gap, because there’s no national industry award that we’re aware of which addresses claims excellence. “No one is going to have to apply for these awards – if your company pays claims you’re automatically included.” Mr McMullan says the collaboration between LMI Group and Insurance News to develop the awards is an ideal way to reinforce the vital importance of the claims process in insurance. “We intend to make these awards valuable to their recipients, in the sense of giving them a competitive advantage in the market. Excellence will be rewarded with a marketing advantage. That’s why the data collection and judging processes are going to have to be thorough.” A shortlist of finalists for the Mansfield Awards will be announced in June, with the winners named at a ceremony in Sydney in July. A website detailing the awards and other developments is being designed, and Insurance News will also keep the wider industry informed as the data collection * and awards processes are conducted.
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Tumultuous times Divided societies, climate change and new technologies are raising the global risk stakes By Wendy Pugh JUST WHEN THE WORLD NEEDS collaboration more than ever, it’s becoming harder to achieve. Income disparity is widening, trade deals are on the nose, voters are disillusioned, technology risks are rising and climate change is a force multiplier for various threats. That’s the list of woes compiled by the World Economic Forum in its Global Risks Report for 2017. Britain’s vote to exit the European Union and Donald Trump’s ascension as US President are high-profile reflections of deep schisms and global challenges facing business and societies. “Even though we have seen a period of growing prosperity, there has been a number of social and economic pressures building up that have resulted and crystallised into these dramatic political changes that we have seen in the past year,” Zurich Chief Risk Officer Cecilia Reyes told a press conference 18
following the release of the forum’s report at Davos, Switzerland in January. “We ask the question, has the West reached a tipping point towards de-globalisation?” Zurich and Marsh & McLennan Companies are the strategic partners for the report, which surveyed nearly 750 experts. The questions covered the likelihood of specific events happening in the next 10 years, as well as views on trends and interconnections shaping the outlook. For the first time, the annual Global Risks Perception Survey included an entire section on emerging technologies. The top five global risks ranked by likelihood are extreme weather events, large-scale involuntary migration, major natural disasters, large-scale terrorist attacks and a massive incident of data fraud or theft. Measured in terms of impact, the top risks are weapons of mass destruction, extreme weather events, water crises, major insuranceNEWS
natural disasters and the failure of climate change mitigation and adaption. When it came to wider trends most likely to determine global developments over the next decade, the list was headed by rising income and wealth disparity, followed by changing climate, increasing polarisation of societies, rising cyber-dependency and an ageing population. The report says blame for job losses and income disparity is often placed at the feet of globalisation, leading to an inward-looking mindset. Yet an inclusive approach is what’s needed to tackle the risks. “They cannot be addressed in silos, so you need collaboration among countries [and] collaboration among different stakeholders, because the problems are so complex,” Ms Reyes says. “There are no easy solutions.” The environment dominates the 2017 global risk landscape rankings for both impact and likelihood, while a feature of this year’s report is the rise of inequality and polarisation as a key trend. Economic risks, which took a high profile in terms of likelihood and impact in the wake of the 2008 global financial crisis, are less explicit, but the repercussions of the
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Disaster strikes: extreme weather events, such as this wind storm in the South American city of Montevideo last year, are a major risk
period have led to policy settings and sown seeds of discontent that are leading to the new stresses. National strategies to drive growth in ailing economies have had minimal success in some cases, with the top end of society reaping much of the gains on offer while most others are left deeply dissatisfied. Figures in the US suggest the incomes of the top 1% grew by more than 31% compared with less than 0.5% for the remaining 99% of the population between 2009 and 2012. The report says climate risks, social and political polarisation and challenges from technological change – now referred to by the forum as the Fourth Industrial Revolution – are all interlinked. Climate change causes population shifts, leading to wider social and political issues, technological advances are triggering job losses while amplifying risks in an increasingly connected world, and problems facing governments have eroded social protection systems. “More and more the burden for the costs and the risks for financial protection is now lying on the shoulders of individuals, and this burden is becoming heavy. There is a need to relieve that burden,” Ms Reyes says.
“The confluence around water scarcity, climate change, extreme weather events and involuntary migration remains a potent cocktail and a risk multiplier.” The implications of technological change have flown under the radar when it comes to popular discontent, with trade deals and other globalisation-linked issues capturing the spotlight. Yet it’s technology that is providing the solutions even while it’s creating fresh challenges and problems. The report notes that 86% of manufacturing job losses in the US between 1997 and 2007 – a major focus of the presidential campaign of Donald Trump – can actually be attributed to technology-related factors, compared to less than 14% of jobs lost because of trade developments. Expert respondents to the Global Risks Perception Survey cited artificial intelligence and robotics as the emerging technology with the greatest potential for negative social
consequences over the coming decade. Marsh Global Risk and Specialties President John Drzik says artificial intelligence and the Internet of Things are creating a “broader attack surface” for potential cyber threats, such as stealing data, disrupting business and affecting industrial controls. Concerns have also increased around the globe after cyber crime first gained traction in the US as a major issue. “Cyber was the number one risk last year in the executive survey in North America,” Mr Drzik says. “This year it was the number one risk in many countries – the US, Germany, Japan, Switzerland, Australia, Singapore, Malaysia, the UAE.” New technologies also raise questions for insurers about liability. Driverless cars are
Top 5 global risks in terms of impact 1. 2. 3. 4. 5.
Major systemic financial failure Water supply crises Chronic fiscal imbalances Diffusion of weapons of mass destruction Failure of climate change mitigation and adaptation
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Don’t blame trade for lost jobs: US president contender (now president) Donald Trump tours a factory
86% of manufacturing job losses in the US between 1997 and 2007 can actually be attributed to technology-related factors. expected to reduce the number of accidents, while throwing up issues over who is responsible when crashes do happen. They also pose the prospect of plummeting premium revenue from traditional motor accident cover. Mr Drzik says there are clearly many benefits to be gained from the application of technological advances, and industries are grappling with the risk/reward trade-offs. Regulation, however, may not provide the answers industries are seeking. Governance of emerging technologies is patchy, with some being regulated heavily and others hardly at all, simply because they don’t fit under the remit of any existing regulatory body. At the same time technology is reshaping physical infrastructure, increasing the scope for systemic failures that could cascade across network and have unanticipated effects. “The pace of change in technology has been very rapid and much of the focus in investment has been on this innovation to drive benefits,” Mr Drzik says. “But what we see is that risk management with respect to technology has been slower to develop. “There needs to be a parallel investment in risk management in order to ensure we 20
are getting the right risk/reward balance from technology at an overall societal level as well as within individual companies.” For environmental issues, despite global fractures, there have been positive steps when it comes to co-operation. The Paris Agreement on climate change which entered into force on November 4 last year is now ratified by more than 110 countries. In another less highlighted move, the International Civil Aviation Organisation has agreed to a “market-based measure” to ensure no net growth in aviation emissions after 2020. The financial sector is also developing recommendations related to climate change. Still, even if countries meet their Paris commitments, the world is set to warm by more than target levels. Legal cases are
emerging over climate issues, and as warming increases the impacts will grow. “The confluence around water scarcity, climate change, extreme weather events and involuntary migration remains a potent cocktail and a risk multiplier, especially in the world economy’s more fragile environmental and political contexts,” the report says. Swiss Re’s Ms Reyes says the latest Global Risks Report comes at a critical time, as unprecedented forces reshape society, economics and politics. “These tumultuous times can present us with ground-breaking opportunities for changing how we see the world and how we operate within it,” she says. “Such change, however, brings with it significant globally interconnected risks – risks which must be factored into modern life.” *
Top 5 global risks in terms of likelihood 1. 2. 3. 4. 5.
Extreme weather events Large-scale involuntary migration Major natural disasters Large-scale terrorist attacks Massive incident of data fraud/theft
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A novel approach
What if?: John Green believes writers and business directors should imagine unlikely scenarios
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QBE Deputy Chairman and thriller writer John Green says what he learns in the world’s boardrooms can be much stranger than fiction By Kate Hanley
IT WAS MID-2001 AND AUSTRALIAN investment banker John M Green was sitting in a boardroom in New York’s Twin Towers with three bankers, one of whom was the bank’s president. Mr Green, who is now the Deputy Chairman of QBE, remembers the meeting well, if only for the interest shown in his latest project – he was writing a thriller. “My colleague said to the bankers, ‘John’s writing a book in which he destroys the Twin Towers’. “The President of the bank turned to me and said, ‘Oh, that’s fantastic. This is a terrible building. Tell me all about it. Do you have any scenes inside the towers?’” When Mr Green told him the manuscript included a scene where a (fictional) bank president goes to his bathroom to freshen up before meeting with some clients – “and that’s when it all happens”. The (real) bank president was enthusiastic. “Come to my private bathroom, put my bathroom in your book.” So Mr Green was taken on a tour of the bank president’s bathroom and took notes of the gold taps and the bird’s eye view of New York City, and as he was flying back to Australia added them to his book. A few months later, on September 11, the Twin Towers were destroyed by terrorists using hijacked airliners. The bank president who provided a tour of his bathroom died in the attacks, along with another banker from the meeting and half the firm. Mr Green decided that publication of that first novel should wait, so he started work on another. This time it involved a global financial crash. “I started writing a book because I was worried about the markets,” he says. “I thought, what if they go crazy? “I thought, I’ll forget about buildings falling down and write about a global financial crisis.”
It was yet another prescient moment. But when Mr Green quit his job with Macquarie Bank in 2006 and tried to get his new manuscript published, it was deemed “too unbelievable”. The next year the global financial crisis hit. “And, of course, the crisis that happened was way worse than the one I’d envisaged,” he tells Insurance News. “If they’d thought mine was unbelievable, what would they have said about the one that really happened? “So it kind of told me that anything is believable these days. If someone can imagine it, then you should think about it carefully, because it could happen.” The 63-year-old director/novelist is the
Mr Green says the job of an insurance company director is similar – to be testing ideas and imagining what could happen. “For me, there is a terrific symbiosis between being in the business world and being a novelist, because it is the same kind of thought process,” he tells Insurance News. It was this “what if?” thinking in the QBE boardroom that led Mr Green to his fourth and most recent novel The Tao Deception. He was chairing QBE’s risk committee, which was discussing global emerging risks, one of which was solar flares and nuclear electromagnetic pulses (EMPs). Solar flares are explosions in the sun that can send gamma rays to Earth that will fry anything electronic or electric in their
“I think the important job of a thriller writer is to ask those ‘what if?’ questions about the world: what if this happened in not quite the way you think it’s going to happen?” author of four thrillers – Nowhere Man (2010), Born to Run (2011), The Trusted (2012) and The Tao Deception (2016) – and is co-founder with his daughter Alison of publishing company Pantera Press. “I think the important job of a thriller writer is to ask those ‘what if?’ questions about the world: what if this happened in not quite the way you think it’s going to happen? What could go wrong? And what can you do about it? And that kind of fused my thinking in writing my novels.” insuranceNEWS
path, Mr Green says. On March 13 1989 a solar flare caused a blackout across the province of Quebec in Canada. But it’s the threat of nuclear EMPs, manmade solar flares caused by nuclear blasts high in the sky, that is the really big worry. “It is potentially far more troubling because they seem, with the miniaturisation of weaponry, more and more possible from rogue nations, and the impact of them is potentially huge,” Mr Green says. 23
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His appetite whetted, he began researching. He discovered the first serious nuclear EMP occurred in 1962 when the US detonated a small nuclear bomb named Starfish Prime 400km above the Pacific, turning out the lights 1500km away in Hawaii. “The Russians were doing similar things and people said, ‘Hang on a minute, this is pretty scary stuff.’ And remember, back then the world wasn’t connected electrically or electronically as it is today, or as reliant on any of these things, so the impact of something like this that is targeted can be very severe.” The US Congress held a commission of inquiry to assess the threat of EMP attacks in the first decade of this century, and concluded the nation’s electricity grid needed strengthening. Mr Green says it was estimated this would cost about $US2 billion, but today it would probably be “15 or 20 times that”. Given the potential damage, the cost may be worth it. Congress estimated the death toll from societal collapse, disease and starvation could run into many hundreds of millions of dollars. So Mr Green had the premise for The Tao Deception: an impending nuclear EMP attack on the US. But he needed a perpetrator. He researched North Korea and its involvement with Iran’s nuclear program and ties to uranium, its approach to the West and its weapons tests and satellite programs. “I thought, if I wanted a plausible villain, they’d be it.” Mr Green has long had a fascination with technology and science, describing himself as a “frustrated techno”. In developing his first book he was inspired by the writing of Stephen Hawking on time travel and quantum computers in the late 1990s – “sparks” in people’s minds. 24
His books are packed with new technologies, or imagined future technologies such as the FrensLens in The Tao Deception – glasses that allow users to listen to distant conversations, translate any language and identify faces in a crowd. Mr Green likes his novels to serve a purpose beyond entertainment, modelling his style on his favourite thriller writer Michael Crichton, a physician and best-selling author who used technology as a centrepiece in many of his 16 books, which included Jurassic Park and The Andromeda Strain. “What I liked about his thrillers was they said something about the world, and picked an issue he thought was important,” Mr Green says. “So if you think about Jurassic Park, it’s
“With my book Born To Run, I was trying to imagine a female president of the US – why couldn’t we have one, and why couldn’t she be Hispanic? Trying to create some norms, trying to make it normal.” His 2012 book The Trusted – an ecocyber thriller again inspired by boardroom talk – aimed to get people thinking about cyber risk. “Cyber risk wasn’t really widely talked about. I was worried about the lack of knowledge business people and the general community had about cyber security.” Mr Green began imagining scenarios possible under extremely skilled hackers. “Not your standard hackers, more like radical revolutionaries, and I wrote it up as a cyber thriller, so people would say, ‘Gosh,
“Cyber risk wasn’t really widely talked about. I was worried about the lack of knowledge business people and the general community had about cyber security.” a great thriller about a dinosaur park, but it is also, really fundamentally, about the ethics of science and how far science can go and what we need to do about it. “So that’s what I try to do in my books.” He says fiction is vital because it can change peoples’ thinking and behaviour. “1984 had a huge impact on how people thought about communism. You could read it today and think about political correctness. To Kill A Mockingbird had a big impact on views about racism. insuranceNEWS
could that happen in my own business, in my own house?’ “And the next question you hope they ask is, ‘Well, what can I do about it?’ ” Interestingly, in all four of Mr Green’s thrillers, the protagonist is female. “It was a very conscious choice. I decided when I started writing that there weren’t enough female lead characters, so I decided I would make it my business to do my bit to create some. “In one story [involving a female char-
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Family business The Green family is passionate about literacy. While at Macquarie Bank Mr Green created the Big Buddy program, in which investment bankers spend an hour each week listening to children from low socioeconomic backgrounds read. In 2008 he and his daughter Alison Green founded publisher Pantera Press, which is described as “socially responsible”. His son Marty is Sales and Marketing Director, and the business has been shortlisted twice for the small publisher of the year award. Alison was named one of last year’s Westpac/AFR women of influence because of Pantera Press’ focus on promoting literacy. Last Christmas the company donated 11,000 books to charities and has sponsored seven centres for the Smith’s Family’s literacy program for under-fives in isolated parts of Australia. Mr Green and his wife, sculptor Jenny Green, created a $500,000 scholarship fund for disadvantaged students to study at the University of NSW. They also support the John Monash Foundation scholarships and the Museum of Contemporary Art Australia, Sculpture by the Sea and the National Art School.
acter named Tori Swyft] I wanted to have a kind of James Bond who operated part in the business and part in the spy world. But I wanted a James Bond that was a woman and was a lot smarter than Bond was.” Mr Green’s books are filled with sexy scenes, but does he ever find the insurance world sexy? “You look at some of the developments we’ve seen the past couple of years, particularly technology that impacts the way we live and work, such as Airbnb and driverless cars – that’s pretty sexy. “But equally it has a huge number of complications that have to be carefully thought through, and that does have a big impact on the insurance world.” He says he has always had a passion for
“When you sit outside it, you look at some things you read about in the newspaper and you raise your eyebrows and think: really, someone did that?” the business world, and this is a thread through all his books. “I just find it absolutely fascinating. I like to describe the business world as ‘fiction in suits’, because when you sit outside it, you look at some things you read about in the newspaper and you raise your eyebrows and think: really, someone did that?” Asked to name the biggest gamechangers ahead, Mr Green says artificial intelligence, robotics and quantum com-
puting are yet to prove their potential. They are a focus of his next Tori Swyft novel. Is enough being done to avert the possibility of an attack using nuclear EMPs? Mr Green responds with an emphatic no. “When North Korea sent up a rocket with a successful launch of a satellite earlier last year, a lot of people were frantic about whether or not it had a weapon on it or whether it was a prelude of what we are talking about in the book.” That satellite circles the Earth every 90 minutes and passes over America and Australia three times a day. Mr Green is now writing his fifth novel, no doubt imagining another scenario drawn from ideas raised from the business world.
He says that amid extraordinary technological leaps, it has never been more important for insurers to use their imaginations. “Imagination is essential for running any business. Because you have to imagine where you are going, you have to imagine what everyone else in your world is doing, because it is going to impact on you. What are the strategies and what are the trends?” Perhaps most importantly, you must * imagine those “what ifs”.
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Growing profits Brokers and businesses in regional areas hope favourable weather will result in greater earnings By Wendy Pugh THE LAND OF DROUGHTS AND FLOODING RAINS IS TAKING a middle path to deliver better times to farmers, and that’s no bad thing for rural insurance brokers. Unusually, every state likely harvested a larger winter crop last season than in the one before, the Government estimates. And wheat production probably grew at least one-third to an Australian record after abundant rainfall. Rain swelled water supplies for crops and pasture in irrigated areas, and in other regions wool and livestock producers are enjoying buoyant prices. Broking is less volatile than the ups and downs of agriculture, but it’s a bonus for all regional businesses, including insurers and brokers, when money flows into farm coffers and spending rises. “The Australian rural sector is going to go through a profitable period, and certainly I think there are going to be opportunities in that,” Nathan Hadlow, Managing Director of South Coast Insurance 28
Brokers in Albany, Western Australia, tells Insurance News. The net value of farm production is forecast to rise 11% this financial year to $19.8 billion, according to the Australian Bureau of Agricultural and Resource Economics and Sciences, partly on the back of the bumper harvest. Not all areas and industries are enjoying good times, with dairy farmers among those enduring tough circumstances. Weak global grain prices have also taken some gloss off the picture. Insurance premiums remain subdued and there is increased competition. But there’s optimism among regional brokers, who offer advice to farmers, a diverse range of other businesses in their territories and sometimes clients in the major cities. Shannon Osborne, an authorised representative of Insurance Advisernet in Dubbo, says wet weather last year inundated agricultural areas near rivers and damaged New South Wales roads, but will bolster future water supply for crops such as cotton. “It was tough for harvest and the immediate impacts of the rain, but the longer-term benefit is that we have got full irrigation through the next 12 months, so we will have a strong profile in terms of agriculture and associated businesses,” he tells Insurance News. The brokerage is adding to its insurance programs for farmers, including covering new equipment purchases, and it has enjoyed solid growth over the past couple of years. February/March 2017
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“It is across a variety of lines, but our sweet spot is irrigated crops such as cotton and farm accounts,” he says. Challenges exist on the claims side, where there is a shortage of loss adjusters when an event occurs. “We have limited numbers in terms of assessing firms we can utilise, and they are covering vast territories,” Mr Osborne says. “It is obviously a very tough job to do, but it is certainly very necessary in terms of getting claims paid.” The upturn in the farming economy makes a change from the more typical commentary around tough times in rural areas, particularly during prolonged drought or when a town is hit by the closure of a major employer. A report by SGS Economics & Planning says regional economies in south-eastern Australia have languished in recent years compared with the booming performance of Sydney and Melbourne. The group estimates 67% of national GDP was generated by the two major capitals last financial year, while the growth rate in regional NSW was just 0.4% and regional Victoria went backwards. Struggles in the regions reflect a decline in manufacturing, SGS says, with high-profile closures including Alcoa’s Point Henry smelter near Geelong. Ben Goodall, director at Shepparton-based Griffiths Goodall Insurance Brokers, says appearances can be deceptive in country towns, with empty shopfronts reflecting a shift to online retailing, insuranceNEWS
“It looks a lot worse visually in regional towns than it really is because the whole retail space is suffering. That is happening everywhere.” while many Goulburn Valley residents have long chosen to shop in Melbourne. “It looks a lot worse visually in regional towns than it really is because the whole retail space is suffering,” he says. “That is happening everywhere, but most of our economy is not in the CBD.” Recent positives in the area include the purchase of a former Ardmona fruit canning factory in Mooroopna by major packer Geoffrey Thompson Holdings. Fruit growers are seeing strong overseas demand, and the agricultural sector in general has benefitted from rains. February/March 2017
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– Nathan Hadlow, South Coast Insurance Brokers
“The businesses that have always done well in our town are doing better than ever,” Mr Goodall says. A diversity of businesses also provides balance. Some sectors can run contrary to seasonal cycles, providing something of a counterweight, with transportation, for example, often in demand during times of drought. Last year’s May-September was Australia’s wettest on record, but insurance catastrophe levels were relatively benign compared with the cyclone and flood devastation of 2010/11, helping curb premiums. In wider markets in Australia, downward trending commercial insurance rates appeared to stabilise last year, with brokers seeking earnings gains through increased business volumes. “Some clients have significant growth in their business, so we are seeing increases because of that, but there is no increase in the rates as such,” Mr Goodall said. “I think that will start to happen this year and next year.” Incumbent insurers are also seeking to improve their underwriting performances and overall profitability ratios amid the tough environment, leading to other challenges for brokers. “There is certainly some pushback on claims from underwriters,” Mr Hadlow says. “Obviously investment returns are down, and there have not been a lot of premium increases.” Regional markets have also seen increased competition from direct suppliers in some areas. 30
“We have got full irrigation through the next 12 months, so we will have a strong profile in terms of agriculture and associated businesses.” – Shannon Osborne, Insurance Advisernet
Dutch insurer Achmea, which distributes through partner and major shareholder Rabobank, began operations in Australia at the end of 2013, targeting the rural market and eschewing the broker channel. More traditional shopfront providers of rural cover have included Elders Insurance, now underwritten by QBE which also has its own-branded farm pack. The former Wesfarmers insurance business is now part of IAG. Insurance brokerage MGA, which started in Adelaide in 1975, has expanded to 40 offices amid the various challenges, and now has locations in regional towns across South Australia, Victoria, NSW and southern Queensland. It purchased a business in the Victorian town of Horsham late last year and is on the lookout for opportunities in new areas. The company has its own underwriting facility, Millennium General Insurance, backed by CGU, which has farm insurance as a key product in its stable. MGA Managing Director Paul George says farmers have had a good year, buoying local communities, but the rural sector provides solid business for brokers even in tougher periods. “Historically, farmers have good times and bad times, but in the bad times, at the very least, they still need to insure their assets,” he says. Whether discount rivals become more of a factor in the rural February/March 2017
“There is certainly some pushback on claims. Investment returns are down, and there have not been a lot of premium increases.”
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“Some clients have significant growth in their business, so we are seeing increases because of that, but there is no increase in the rates as such.” – Ben Goodall, Griffiths Goodall Insurance Brokers
market remains to be seen, particularly considering the level of customer support businesses can require. “There is more to this than just selling a policy or getting a client to buy a policy,” Mr George tells Insurance News. “It comes back to the old adage that if you keep close to your clients and provide the service they expect, everything is going to be fine. “At the same time, we need to bring to them all the things that are in the market, and we need to keep our products at the front of the curve.” Changes in the market include more options for producers in finding the right cover, which in farming includes the challenge of covering crops amid any number of risks. “There is probably a little more creativity out there in terms of breadth of products available to primary producers to protect their crops, which is great,” Mr George says. “Farmers, by their nature, are generally very good risk managers but when it comes to weather there are not too many people who can influence that.” Newer products generating debate include multi-peril covers that protect from risks beyond traditional fire and hail, and which could include drought, pests and wind damage. Suppliers offering multi-peril cover include Allianz’s Primacy and Victoria-based SureSeason, which is underwritten by Lloyd’s underwriters. 32
“Farmers, by their nature, are generally very good risk managers but when it comes to weather there are not too many people who can influence that.” – Paul George, MGA Insurance Brokerss
The NSW Independent Pricing and Regulatory Tribunal last year examined whether a subsidy for multi-peril cover should be included as part of a government drought strategy. A draft report found it unlikely the cover would displace state assistance, while there is scepticism about the likely extent of uptake, in the absence of government support, given policy costs. “In America it is subsidised by the Government to a huge amount,” Mr Goodall says. Other areas of interest for businesses include technology-related risks and liability cover for SMEs, leading into enquiries related to fraud and cyber protection. Whatever the looming perils, brokers will hope an extended spell of favourable weather will help underpin regional business outlooks. Australia has swung from the ravages of the 1996-2010 Millennium Drought to subsequent devastation from cyclones and floods in the country’s east. Gauges of ocean impacts on climate are currently at benign levels, waving no red flags for a drought-causing El Nino pattern or flood-stirring La Nina. History suggests the weather reprieve may be brief, but regional brokers are starting this year in a positive frame of mind amid optimism for the longer term. “The outlook for the rural sector is good and that is why we are targeting that area,” Mr Hadlow says. “I see that as a growth area.” * February/March 2017
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We create insurance solutions for
“and we fly 200km an hour, three feet off the ground.” Andrew Mason bought his first aircraft to start Ramair Flying Services almost 30 years ago. This family business initially specialised in aerial agriculture, but when drought dried up business in Mildura, they diversified to include joy flights, fire spotting and student training. At QBE Insurance we recognise each business is unique. That’s why our aviation experts take time to understand what, where, when, and how each company operates, so we can develop policies and premiums tailored to meet their particular needs. Companies like Ramair Flying Services, who we’ve insured since it first took flight in 1988. Find out more about Ramair’s story: www.qbe.com.au/stories
QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239 545. Always consider the PDS to determine If a product Is right for you.
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Life across the Tasman The Australian executives running New Zealand’s two largest general insurance companies – IAG and Suncorp – talk about life in the Shaky Isles, how they’re reacting to challenges old and new, and the things that make the Kiwi market different
Embrace the change In a world of volatility and disruption, customer needs remain the focus for Suncorp’s Paul Smeaton By Wendy Pugh
INNOVATION AND DISRUPTION ARE such buzzwords that the people intended to benefit can be lost from sight in the technological rush to the future. Insurers can’t afford to relax as they face new rivals and ways of doing business, but amid the shifts there is one lodestone for Suncorp New Zealand Chief Executive Paul Smeaton. “The thing I always come back to is: what are the customer needs?” Mr Smeaton tells Insurance News in Auckland. “Is there a need we are not satisfying? If so, how do we design a product, a solution, how do we make it easier for them to engage and purchase that? To me, the customer drives what experience we give them and what products and services satisfy those needs.” Mr Smeaton arrived in New Zealand from Brisbane in 2015 to replace Gary Dransfield, who is now Suncorp’s Chief Executive Customer Platforms. Midway through a three-year plan to make the business the insurer of choice in New Zealand, Mr Smeaton believes the answer lies in keeping a focus on the people buying policies, while harnessing technology and new ways of meeting demand. Suncorp is the second-largest insurer in the market after major trans-Tasman rival IAG. Competition from traditional insurers has insuranceNEWS
increased in recent years, with the Reserve Bank of New Zealand (RBNZ) granting licences to entrants including Berkshire Hathaway Specialty Insurance, South Africanowned Youi and Chubb Insurance. The industry also has an eye on technology companies that are unencumbered by legacy systems, have vast amounts of digital experience and data, and that are looking to expand their reach into potential new areas like insurance. “They could be a force to be reckoned with down the track, and they are more unpredictable,” Mr Smeaton says. Suncorp Group has no intention of being swept aside by upstarts and start-ups, and is experimenting with non-traditional ways of doing business. The company last year teamed with US technology developer Trov to introduce an app to Australia that allows users to “swipe” on and off single-item, short-term insurance. The app, aimed at the Millennial generation, has started covering electronic goods such as phones, laptops, televisions and tablets. Musical instruments, sports equipment and other categories are expected to be added. Mr Smeaton says new products will evolve, and those that win customer support will find an expanding place in the market.
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“It is around having a whole series of options and ideas, and then what you do is test and learn from those in a small way. When you see something that works, it is having the capability to scale it up quickly.” Mr Smeaton moved to New Zealand with three decades’ experience in financial services. He joined Suncorp in Australia in 1994 and has held a variety of roles, including executive general manager for statutory claims, commercial insurance. He also sat on the board of the RACT Insurance joint venture in Tasmania. Overall, his roles have involved managing short and long-tail claims in the personal lines and commercial insurance businesses. When Suncorp appointed Mr Smeaton to helm Vero New Zealand in mid-2015 he also became a director at the AA Insurance joint venture with the New Zealand Automobile Association. The Auckland-based job expanded in scope after new Suncorp Chief Executive Michael Cameron, who took the reins in 2015, unveiled a company reorganisation last February. Mr Smeaton took responsibility for the Insurance New Zealand division, including the life arm. The business sits in the new structure alongside the Banking and Wealth and Insurance Australia units.
The New Zealand operations, across general and life, delivered an after-tax contribution of $NZ198 million for the year to June 30. The insurance trading result for the general business, comprising Vero and AA Insurance, grew 11.9% on the previous year to $NZ178 million. Gross written premium gained 3.2% due to growth in personal lines through both the direct and intermediated channels. Mr Smeaton says in New Zealand more insurance is provided through intermediaries than in Australia. Other differences include less onerous regulation, although an impending major review is likely to lead to changes. While some would welcome improved scrutiny, there are also dangers in moving too far in the opposite direction. “There is a lighter touch here in New Zealand,” Mr Smeaton says. “I think actually that puts New Zealand in a good spot, in the sense that as it wants to improve its effectiveness it can look to other jurisdictions and pick the eyes out of best practice.” Issues surrounding earthquake insurance and the long process of finalising claims after the Christchurch events are also a key focus. The industry still has claims outstanding insuranceNEWS
from the 2010/11 Christchurch quakes and Suncorp is part of an industry push for private insurers to take the lead on residential claims from the start, to help speed settlements. For Canterbury, the state-owned Earthquake Commission (EQC) handled initial assessments, with cases above a $NZ100,000 cap then passing to the private sector. Most of the private industry’s remaining claims are complex or involved in legal action, but the lengthy delays continue to draw criticism in the seismically active country. “We are still getting claims that are coming through from the EQC that are going over cap,” Mr Smeaton says. “This is an event that has been going for five to six years, and is still going.” In a pilot program, Suncorp managed claims for the EQC last year after a Valentine’s Day quake in Christchurch. “That proved quite successful,” Mr Smeaton said, speaking before the more recent Kaikoura earthquake, which caused major landslides and was felt strongly in Wellington. In the wake of Kaikoura an agreement was signed for private insurers to handle claims from their residential customers in 35
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Demand for broker support is likely to remain high: Suncorp New Zealand Chief Executive Paul Smeaton
the first instance as the industry and the EQC work toward streamlining the process. This may pave the way for insurers to continue taking an earlier role in future catastrophes. Since the 2010/11 quakes New Zealand has moved towards insuring homes for a specific sum, rather than having openended replacement amounts. Consumer groups worry the change will see people miscalculate their potential exposure, leaving them underinsured. Mr Smeaton says Suncorp has mitigated the risk by adding an extra percentage to estimated amounts, and claims experience shows sum-insured levels provide the cover needed in cases where there’s a complete rebuild. Other recent changes in New Zealand include consolidation among brokers, but Mr Smeaton says demand for intermediated support is likely to remain high as advice is sought for more complex risks, even as direct insurance grows with the expanding digital economy. “If there is huge demand for more direct online commercial insurance capability then we would look to do something there, but at the moment our focus is on the intermediaries – they are our bread and butter.” 36
At the same time, the company is diversifying its distribution channels with corporate partners. Vero last financial year teamed up with The Warehouse, New Zealand’s largest nonfood retailer, to provide online personal car, home and contents insurance for the company’s Warehouse Money brand. Suncorp has also established relationships in the financial sector. “We are heavily reliant on brokers, but we’ve also got partners in ANZ, AMP and Warehouse, and we are looking to roll out further corporate partners,” Mr Smeaton says. All this comes amid a relatively tough market for commercial lines, with increased capacity and pressure on premiums, while personal lines have shown some strength. New Zealand’s economic growth is relatively buoyant compared with other developed countries, with GDP rising 3.6% in the second quarter. At the same time, immigration figures show a record net gain of 70,000 people in the year to September, according to Statistics New Zealand. Mr Smeaton says personal lines such as motor and home have experienced inflationary pressures, driven by demand from population growth, particularly in Auckland, and rising costs for repairs. insuranceNEWS
In response Suncorp has expanded its Capital SMART motor repair venture from Australia to New Zealand, aiming to cut costs and reduce repair times. The acronym stands for Small Medium Accident Repair Technology. The system aims to quickly turn around vehicles that have a relatively low amount of collision damage. The venture currently has two sites in Auckland and one in Christchurch. Adapting to changes in motor insurance may be among the disruptive challenges to come, with the Insurance Council of New Zealand conference in November highlighting the potential impact over the next decade as driverless cars take to the roads. The industry more generally is said to be facing a world of volatility, uncertainty, complexity and ambiguity – or VUCA, in terminology borrowed from US military education after the Cold War and since embraced by consultants and forecasters. Mr Smeaton says it is hard to predict 510 years ahead, but insurers have the ability to ensure they are sustainable and resilient in the face of uncertainty. “You can be scared by that in terms of what the future looks like, or you can embrace it. As long as you stay focused on the customer, I think that is the key thing.” *
“At the moment our focus is on the intermediaries – they are our bread and butter.”
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Quakes, growth and lots of lessons IAG is the big fish in a smallish pond, but Craig Olsen is relishing the challenges By Wendy Pugh
THE FIRST YEAR IN THE TOP JOB HAS thrown up some challenges for IAG New Zealand Chief Executive Craig Olsen, including responding to the worst earthquake to hit the nation since the devastating events in Christchurch six years ago. IAG, which is by far the largest insurer in New Zealand, has a lot on its hands, with rising competitive pressures, continued fallout from the Canterbury quakes and the claims flowing from the 7.8-magnitude quake in November that shook the South Island and caused buildings in Wellington to sway. Mr Olsen says everyone in the country was touched either directly or indirectly by the Canterbury quakes in 2010/11, and recent events have again brought home the importance of insurance and its key role in the community. Canterbury led to reputational challenges for the industry as insurers faced criticism over allegedly slow handling of claims, leading to a range of efforts to improve responses. “New Zealand had never seen a scale of event like Christchurch, and the magnitude and impact of rebuilding a city,” Mr Olsen tells Insurance News. “Everyone has learned so much, be it governments, disaster recovery, civil defence, the insurers… insuranceNEWS
“It’s really encouraging to see how the learnings have been applied quickly.” Following the Kaikoura quake in November, private insurers have become involved earlier in the process, during the critical time when customers first need assistance and may be wondering where to turn. “We strongly believe that is the right model moving forward, and we have advocated that very passionately with the respective stakeholders,” Mr Olsen says. “We have teams already mobilised on the ground and we have five hubs in local communities supporting our customers who are affected by the earthquake. “I spent time last week in Kaikoura and the broader regions with my teams and also with community stakeholders.” The Insurance Council of New Zealand signed a memorandum of understanding with the government-owned Earthquake Commission (EQC) for a new way to handle the Kaikoura claims process. That may prove to be a blueprint for future events. Having insurers take an early lead is intended to speed and simplify the process. In Canterbury, claims were first processed by the EQC then handled by private insurers if the sums involved topped a set financial cap. Claims from the Kaikoura quake flowed
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in during January and February, while issues are still being resolved from the complex Canterbury series. IAG and fellow major New Zealand general insurer Tower are taking High Court action against the EQC over claims assessments in Canterbury for increased liquefaction vulnerability. The commission has responsibility for land damage, but insurers settled some claims themselves on the understanding they would be compensated by it. The thinking behind this was to allow home repairs to start more quickly. The insurers say they later found EQC methodology for the claims was delivering sums that could fall below the cost of “repairing” damaged land to allow for building. “We disagree with how these land payments have been calculated and due to this we have issued legal proceedings against the EQC,” Mr Olsen says. “A legal ruling will confirm the EQC’s liabilities and private insurers’ recoverable costs in this situation, and help all parties avoid such confusion in future.” The timeframe for a decision is unclear, but one is expected some time this year. IAG’s bid to improve the earthquake claims process comes amid broader efforts
to better meet consumers’ needs and strengthen the business following its acquisition-driven expansion. Mr Olsen became head of IAG New Zealand on January 1 last year, taking over from Jacki Johnson. Previous roles in the local market and in Australia provided a springboard for promotion. In 2012 Mr Olsen moved across the Tasman from Melbourne, and as executive general manager of the New Zealand direct insurance business was responsible for integrating AMI into the stable. AMI was acquired in 2012 after the Christchurch-based insurer collapsed under the weight of claims generated by the city’s earthquakes. IAG is not responsible for the company’s existing and future Canterbury quake liabilities. The group’s other direct brands include State and high-performance and modified vehicle specialist NAC. IAG acquired the former Wesfarmersowned Lumley business in 2014, adding it to its major NZI intermediated brand. The string of acquisitions has made IAG the country’s largest insurance company by a considerable margin – its gross written premium (GWP) last financial year was $NZ2.37 billion compared to Suncorp’s GWP of $1.2 billion – but Mr Olsen is insuranceNEWS
unworried about being the dominant player in a relatively small market. He says IAG has maintained a clear focus on customers even while it tries to maximise the benefits of scale the acquisitions have created. “There has been a real emphasis around how we deliver a world-class experience, but doing that in the context of operating as one team with a strong enterprise focus and really ensuring we drive that through scalability, agility and mitigating complexity in the business,” he tells Insurance News. Last year organisational changes saw the company establish a consumer division, which includes the direct brands, and a business division with a focus on commercial customers and broker relationships. IAG has pursued its expansion in highly competitive markets with plentiful capacity, new entrants and changing ways of doing business – all of which pose challenges for insurers in New Zealand and on the global stage. Increased industry capacity led to pressure on commercial premiums, with GWP dropping 2.6% on the previous year, which IAG attributes to volume loss as the business division focused on pricing and underwriting discipline. The slide eased in the second half, with new business volumes in key commercial 39
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Comfortable with progress: IAG New Zealand Chief Executive Craig Olsen
“We know, from a competitive point of view, customers are benchmarking us not just against other pure insurers… but other service providers.” lines, while volume and premium growth was maintained in private motor cover. But despite the efforts to shore up the New Zealand division’s insurance profit last year, it fell to $135 million from $216 million, partly reflecting a $NZ150 million strengthening of the risk margin for the Canterbury event, to help remove uncertainty about the ultimate cost of claims. At the group level New Zealand contributed 19% to the Sydney-based IAG Group’s overall GWP. Mr Olsen, speaking cautiously before the release of this financial year’s first-half result, points to improvements in the business over the past year. “We are pleased with the performance of the portfolio across IAG, and that represents the work and effort we have put into connecting more strongly with our partner and customers,” he said. “We are comfortable with how things are moving.” Premiums have shown some growth in Wellington commercial property following the recent quake, but broadly the influx of capital has kept pressure on rates. “From a premium point of view, we will continue to see a very competitive market, but our focus is on disciplined underwriting,” Mr Olsen says. IAG has also highlighted the need to 40
embrace disruption and drive innovation, particularly as the digital economy changes customer expectations. “We have wonderful platforms to do that with the different brands we have in the market and the way they service different segments of New Zealand,” Mr Olsen says. “We know, from a competitive point of view, customers are benchmarking us not just against other pure insurers… but other service providers.” He says offerings must be developed through the customers’ point of view. They must be relevant, sustainable and not based on static ideas mired in the ways of the past. AMI, for example, has taken that approach to heart by making it easier for migrant communities to gain the insurance they need. An early focus has been the Chinese community. The company uses WeChat, a popular communications app developed in China, to keep in touch, while ensuring documentation and support staff can meet customer needs in Mandarin. “That has been a real success for us and a lot of that success has come through not what we thought was relevant to that community, but actually engaging with the community about what propositions they would like to see from insurers and the New insuranceNEWS
Zealand market,” Mr Olsen says. IAG has entered 2017 with New Zealand enjoying a relatively buoyant economic outlook, despite various global uncertainties, and facing a national election in September. A Westpac McDermott Miller survey says economic confidence increased sharply in most parts of the country in the final quarter of last year. The exceptions were the Wellington and Canterbury regions, with data collected after the jolt of the recent quakes. Consumer confidence improved across the country amid strong construction activity, an improvement in the labour market and record numbers of international tourists. Mr Olsen says his first year at the helm in New Zealand has flown by, and has been highly rewarding. Looking forward, he sees the company building on its strategy. That includes driving innovative solutions that meet a wide range of market needs, highlighting the key role of private insurers in helping communities respond to catastrophes and assisting customers affected by the recent quakes. “The importance of insurance in New Zealand has certainly been very evident,” * he says.
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Change agents Insurance innovation will most likely come from combining innovators’ ideas with established industry knowledge, according to Swiss Re’s Jason Richards By John Deex
CHANGE IS HAPPENING ACROSS INSURANCE, WHETHER anyone likes it or not. And it will change everything, including the way we approach risk. That’s the prediction of Swiss Re’s Head of Property and Casualty Business Management, Jason Richards, who is leading the giant reinsurer’s charge in innovation. He believes a joint approach including both innovators and established players is most likely to yield positive results. Fresh from running Swiss Re’s first Insurance Accelerator program in India, he has strong views on potential disruption of the insurance industry as we know it. He points out that insurance is one of the world’s largest industries, and is attracting serious attention as a result. And we should prepare for technology to have a pervasive influence over the next decade, fundamentally altering “all aspects” of the industry. “It will impact our understanding of risk,” Mr Richards tells Insurance News while visiting his team in Sydney. “Some risks will reduce because we have more data on them, we understand them. “Some [such as cyber] will increase because society is more interconnected. There are other risk pools that are not insured today, because insurance is too expensive or even too complicated. “So there are many risks in both developed and developing countries that will I think be insured more in the future as products get better and cheaper and more efficient.” Mr Richards says technology will affect distribution, underwriting and pricing, claims and operations. It also has the potential to disrupt established industry players. “You see many, many start-ups looking at the industry, because of its size. Probably 95% of them will fail. But some of them will absolutely be successful. “Some will be acquired by the existing companies and some will become successful in their own right. They will, over a period of time, likely challenge the existing players in certain markets and jurisdictions. 42
“New business models will come out. I wouldn’t say we see any of that now. “We see lots of experimentation and examples of things like userbased insurance, peer-to-peer insurance. We see lots of different models being tested and they get some traction. “They don’t yet get the traction where they represent a massive threat to the existing, more established companies, but it’s early days. “Whatever happens, it will take some time, but the more people look at it, the more likelihood that some of these new business models will succeed.” There are other factors that will affect the speed at which innovation takes hold, according to Mr Richards, including regulation and consumer response. Generally, regulators have been supportive of technology, but consumers are hard to predict. “As our data gets used – and abused – more widely, you could envisage a situation where consumers start to think a bit more and say, ‘Hang on, am I really comfortable with my data being out there in the public domain?’ “That can impact some of the developments, especially around the Internet of Things, where we have sensors in our homes, in our cars and on our bodies.
Lead innovator British citizen Jason Richards was appointed Swiss Re’s Head of Property & Casualty Business Management in July 2013. He’s responsible for managing the reinsurer’s portfolio of property and casualty reinsurance business, and is also heavily involved in Swiss Re’s fintech and insurtech activities. Previously he led the Zurich-based group’s reinsurance asset and liability management department for six years. He had held a number of leadership positions at GE Insurance Solutions before it was it was acquired by Swiss Re in 2006.
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“The insurers do need some outside inspiration to challenge them, and we learn a lot every time we talk to the start-ups.”
“If people are not comfortable with how that data is shared or that it is secure, that will impact on how those things expand in the future.” As data allows greater degrees of risk-based pricing, not everyone will benefit. It’s good news for those considered good risks, but bad risks will suffer. “That is going to be a big challenge to deal with in society. Risks are typically pooled today and similar risks are pooled together, but you will be able to segment down to an individual. “How we deal with that and how the regulators play a role in that will be very interesting. It’s a very key point about where this all goes.” Mr Richards believes the established insurers have weaknesses start-ups can exploit. A legacy of complex systems, procedures and processes leaves them exposed, he says. A start-up can come in with a blank slate, with a different take on an industry or a process. “Clearly that’s one of their biggest advantages,” Mr Richards says. “They are also not stuck with the challenge that many insurance companies have with tied agents and existing products that are quite hard to change. “A start-up can come in with a very simple product, it can be distributed either directly or through an alternative distribution channel such as a bank or a telecoms company or an online retailer. “They can build up a very cheap back office at a fraction of the cost that some of the larger insurance companies have because they have all this infrastructure.” However, start-ups are far more likely to succeed if they work with the traditional industry, Mr Richards tells Insurance News. He believes joint ventures are the way forward – combining the vision of innovators with the experience, knowledge and resources of established companies. “The insurers do need some outside inspiration to challenge them, and we learn a lot every time we talk to the start-ups. “We were in Israel recently talking to companies looking at cyber risk. It is really hard to price, to assess. All the established insurers insuranceNEWS
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“You don’t know if something’s a great idea until you try it. If it fails, it fails. Fine. Just make sure it fails quickly and cheaply.”
struggle with that. Then you have companies just looking at it from a different perspective. “I absolutely think we can learn from them. Will they be the solution on their own? Probably not, but taking their knowledge with the industry’s knowledge, we can deliver a better product. “I think we do need some of the inspiration and ideas from outside. And we need to have a culture to try some things. “You don’t know if something’s a great idea until you try it. If it fails, it fails. Fine. Just make sure it fails quickly and cheaply. “If it fails, we learn from it. If it doesn’t fail we take it forward.” Mr Richards cites Suncorp’s partnership with Trov, which enables instant insurance of individual items, as an example. “It is a good experiment on user-based insurance,” he says. “We will see how these models take off. If they can engage the consumer and make the consumer experience better, then I think that’s a really good thing. “The end product may not be a Trov, but some of the learnings may be built into learnings from other things.” Insurers are more exposed to disruption than reinsurers, Mr Richards says. That’s not to say reinsurance will escape entirely, but in his view the threat is more of an opportunity anyway. “It depends how you like to look at it,” he says. “There are defi-
India accelerator • Six start-ups were selected and granted $US15,000 each for a 16-week program • A leader and business mentor was appointed to each start-up • Swiss Re provided expertise and insurance industry insights • Once completed the start-ups pitched ideas and go-to-market plans with venture capital firms
Certain change is coming: Swiss Re’s Jason Richards
nitely things that will impact reinsurance, but it’s very early to say more. “One of the things we’re looking at is blockchain, and how it could not only enable simpler products on the insurance side but also simplify some of the processes on the reinsurance side. We do have a lot of cost in the process today, just because we operate on different systems – our ledgers are not reconciled together. “Blockchain could simplify a lot of that immediately. It could enable the emergence of more marketplaces to make it easier to trade risk. “If risk is transparent, structured in a very simple way, it could be traded, and the transaction cost could be very low. It could enable some of those things. We don’t see that happening now, more for the medium/longer term. It’s an exciting area to watch.” Mr Richards believes Australia may be slower to advance than other markets, purely because of its relatively isolated location. “In Silicon Valley, in London, in Tel Aviv you just have a lot of investors – very mature investors and a lot of start-ups. “You have some here, but it’s just less because of the size of the market and the location. But it will pick up. You see groups starting to bring start-ups together, to build the ecosystem. “I think that’s all good and it will expand globally over time. Companies will start to do things as Suncorp did with Trov, and invest more resources in this journey to become more efficient and deliver better service to their clients. “Because they all talk about doing exactly the same thing and they all see that tech will play a really important role.” Many questions remain regarding how the industry will look in 10 years, but Mr Richards is sure of one thing – change is coming. “I am absolutely convinced it will happen. It will probably take longer than we think, but it will happen. “We have seen things drag on for decades before, with not much progress. But there is now so much expertise, the cost of technology is so much cheaper, and so many people are looking at our industry. “All those factors are coming together in a way that has never * been the case before. This time is different.” February/March 2017
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CERTAINTY At United Insurance Group, we believe authorised reps should know who theyâ&#x20AC;&#x2122;re dealing with. We want them to be part of a true partnership. UIG is committed to maintaining that partnership and ensuring a clear future for your business. Call Trevor on 03 8676 0344 or 0431 705 660 or you can email firstname.lastname@example.org to discuss why weâ&#x20AC;&#x2122;re growing so quickly.
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Have skills, will invest A bunch of industry veterans have pooled their expertise – and their money – to invest in insurance businesses that need help to grow By Terry McMullan YOU MIGHT NOT HAVE HEARD OF Hunter Equity Group, but chances are you will. It’s a private investment partnership comprising a bunch of industry veterans with 250 years of combined insurance experience and some spare cash to invest in promising businesses. The mastermind is Bob Lee, the owner of specialist underwriting agency Macquarie Underwriting and Chairman of MB Insurance Group. He was also the chief executive of Stardex Insurance Group and chairman of the Underwriting Agencies Council. His co-investors are well known underwriting and broking executives who are, for the most part, now retired, semi-retired, working as company directors or just looking for a good prospect in which to invest. Hunter Equity is based in central Sydney, but the group had its origins, Mr Lee says with a wry smile, “over a bottle of red and a good lunch”. The lunch group included former broking movers and shakers David Farrell and Steve Lardner, both long-standing Aon executives. “We were talking about the state of the 46
insurance market,” Mr Lee says. “All of us have been around the traps for a long time, seen lots of different sides and cycles and changes in the market. “And we were all remarking on how none of us could remember when the market was as dynamic as it is now. You’ve got the big listed insurers doing lots of new and quite revolutionary stuff, and other businesses closing their doors in Australia. “The agency sector is booming and then there’s all the things happening in distribution through companies such as Steadfast and Austbrokers. Every five minutes they seem to be doing new stuff.” Mr Lee says the discussion turned to “all the experience we’ve mustered over such a long period of time and the contacts we have and the knowledge we’ve acquired. “And we said, ‘We could add some value as part of all this’.” But how? Mr Lee says that apart from experience and business nous, his lunch companions concluded they had one thing that made their approach to investing in companies different: independence. “Think of how this market is constructed at present,” Mr Lee says. “There’s the big four or five insurers dominating everything, particularly with all their little sub-brands and different distribution arrangements and so on. “Then you have the big four brokers, the ‘alphabet brokers’ and the big cluster groups. Everybody is connected in some way. “The lines are blurring. Everybody is broadening their distribution base. If you are predominantly a broking group, you want to get into the agency sector. If you are predominantly an insurance company group, you try to go direct to the customer insuranceNEWS
and bypass the intermediary in many respects. “Or they can partner with other forms of distributors – for example, the underwriting agencies, if they can do it better.” As the investors see it, they are independent operators, pooling their expertise and their money without being tied to any large operator. By combining that independent mindset and a mass of varied experience, a relatively small investment company such as Hunter Equity Group could do some big things if it picked up some strategic assets. And so, no doubt to a clinking of glasses, Hunter Equity Group was born. Its focus is primarily on the agency sector rather than broking, because “there’s not much left in broking and we would struggle to really add a lot of value”, Mr Lee says. “But a lot of us do know the agency sector backwards, and we still have lots of connections with the insurers here and overseas, as well as Lloyd’s markets and so on.” The partners are also interested in startups. “They are more difficult, simply because of the nature of the beast. But having said that, in the past year we’ve looked at nine or 10 prospects. “We dove very deep on several, but for whatever reason we really couldn’t get over the line. It doesn’t mean to say they were bad businesses. But as with any form of private equity arrangement, it’s not unusual to look at 20 opportunities and maybe do two or three.” He says Hunter Equity’s members’ differentiator is that their interest in investing money is combined with an ability to make a big difference inside the operation.
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Experience matters: Hunter Equity Group directors, from left, Don Smith, Stephen Bennett and Bob Lee
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They can contribute the skills and knowledge – and the international contacts – they have developed over long and successful careers. Mr Farrell and Mr Lardner, for example, were very heavily involved in building large broking operations inside Aon, using strategies based around such aspects as volume, retail and affinity distribution strategies. Then there’s Peter Nickerson, a former chief executive of Berkley Re Australia, who can count in his 42-year career senior roles at Swiss Re and Employers Re, and a stint as a reinsurance broker. Other investors who can be named at this stage are former Global Transport (now GT Insurance) industry veteran Stephen Bennett, former broker Don Smith, who now works as a consultant and professional director. Several other people affiliated with the group hold directorial and advisory roles, and while the companies with which they are involved are aware of their role in Hunter Equity, Insurance News has agreed not to identify them at this stage. Mr Lee says the different skill sets available within the group mean there is always “a committee-type approach to assessing things – whether it be in the form of due diligence, looking at commercial arrangements the company may have, distribution opportunities or different market opportunities”. “The whole idea is to try to identify a company that can do a lot better than it currently is via acquisition, growth, product expansion and distribution expansion,” he says. “And we can either fund that or add skill sets that we can bring to bear and contacts to assist that growth.” Describing his colleagues as “being proactive non-executives”, he says Hunter Equity would expect to have seats on the 48
board commensurate with its equity interest in a company. Nevertheless, mixed in with the desire to capitalise on investments, there’s also an element of “giving something back” in Mr Lee’s explanation of the group’s strategy. “We want to help people in the industry realise their ambitions, sometimes by expanding their current business through recruiting teams of people or even buying other companies. “We’d be an ideal fit with someone who
“Agencies exist really only for a couple of reasons. They need to stand for something in the market and they need to be able to do it better than the big mainstream competitors. “At all times, it needs to be backed by unrelenting quality service that’s better than what is generally available. “Insurers are always trying to improve their service proposition, but everything takes so long in big insurer land. A new product or new idea has to go through
“We want to help people in the industry realise their ambitions, sometimes by expanding their current business through recruiting teams of people or even buying other companies.” would value the independent financial and knowledge support and skill sets we would bring.” Mr Lee says he is confident Hunter Equity will succeed “because we are independent and because we know what we are doing. We carry no baggage. “There are businesses out there that we can help get to the next stage of their growth. In some cases no one else can do what we can do.” Having bought, operated and sold an array of underwriting agencies over the years, he is an enthusiastic spruiker of the sector’s future. insuranceNEWS
committee on committee, have systems and processes built in. “None of that’s wrong, but it just takes forever to get things happening. An entrepreneurial underwriting agency can make it happen much quicker and, generally, at the end of the day, do a better job. “They are solely focused on a particular area, as opposed to being just another element inside a big conglomerate.” Hunter Equity hasn’t, at the time of going to press, made its move in the insurance industry, but Mr Lee is relaxed. “It’s not something we need to rush at,” he says. * “It’s all just a matter of time.”
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T L E I T H U E T B K R E R O S A F O M P R E R E R V U I P CO R H U O B LA SURA LABOUR HIRE IS THE PURPOSE BUILT BUILT SPECIALISTT AGENCY FOR LABOUR HIRE AND SPECIALIS RECRUITMENT INDUS INDUSTRY AUSTRALIA. TRY RISKS IN AUS TRALIA. We We have have a unique unique p perspective. erspective. W We ec combine ombine this this w with ith iindustry ndustr y and responsive responsive sservice er vice to to give give our our b rokers specific specific k know-how now-how and brokers market. an an edge edge in in a competitive competitive market.
KEVIN K E V I N CO CORKERY RK ER Y MANAGING MANA G IN G D DIRECTOR IR E C T O R S SURA UR A LABOUR L A B OU R HIRE HI R E
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TTELEPHONE. E L E P H O N E . 0033 66231 2 3 1 7700 7 700 EEMAIL. MAI L . M MEGAN.SHEEHAN@SURA.COM.AU E G AN . S H E E HAN @ S U R A .C O M . A U
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Pitch battle A new US government study has reopened the debate over artificial turf and cancer risk By Andy Swales
Growing concerns: campaigners believe there is a link between artificial turf and cancer
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SINCE ITS FIRST USE IN THE UNITED States in the 1960s, artificial turf has become an increasingly common sight across communities worldwide, used by councils, sports clubs, schools and even some households. It offers a durable, lower-maintenance alternative to natural grass, especially on playing fields and playgrounds. But there are downsides, and they may go beyond friction burns on bare knees or heat issues in the summer. XL Catlin recently put artificial turf on its “risk radar”, primarily over cancer concerns associated with the recycled “crumb” rubber used as stabilising infill between the blades on some turfs. “Not everyone... is sold on artificial turf,” the global insurance group says in a bulletin. “Some athletes have expressed concerns about its possible link to cancer. “The [US] University of Washington women’s goalkeeper coach Amy Griffin has been very outspoken on the issue after she began keeping a list of soccer players around her who had been stricken with cancer. “Ms Griffin recently reported that her list, which she admits is purely anecdotal, now includes more than 200 people in total, 168 of them soccer players – many goalkeepers.” XL Catlin says recycled crumb rubber granules can comprise parts of tyres, shoe soles and silica sand, and some studies have identified a real rogues’ gallery of toxins: traces of benzene, carbon black, lead, mercury, arsenic, heavy metals and polycyclic aromatic hydrocarbons (PAHs). The question is, if such toxins are present, can they be released at levels that pose a risk to users? Last year the US Environmental Protection Agency (EPA) instigated a multi-agency study of recycled crumb rubber to answer “key environmental and human health questions”, and in December it published its latest status update – although it declined to release preliminary findings. In 2009 the EPA reported that a limited study the previous year “found that the concentrations of materials that made up tyre crumb were below levels considered harmful”. “However, given the limited nature of the study – limited number of constituents monitored, sample sites, and samples taken at each site – and the wide diversity of tyre crumb material, it is not possible, without additional data, to extend the results beyond the four study sites to reach more comprehensive conclusions,” it says. Its latest investigation aims to fill in the gaps, with a report due later this year. “Thus far, limited studies have not shown an elevated health risk from playing on fields with tyre crumb,” the XL Catlin report says. insuranceNEWS
“However, existing studies do not comprehensively evaluate the concerns about health risks from exposure to tyre crumb over time. “Currently, there is no consensus between the studies, and some have found that the levels of toxins are below those found in children’s toys.” XL Catlin notes there are “many different companies offering different artificial turf products”, and this “lack of product uniformity makes systematic studies inherently difficult and will likely contribute to inconsistent findings in the future”. The insurer flags causation lawsuits and liability claims arising from the potential risk. Mariann Lloyd-Smith, Senior Adviser to the National Toxics Network – an independent advocate for Australian community and environmental groups – says there have been no national reviews of synthetic turf safety here. She wants Australian authorities to follow the US lead, and go further still – calling for “all products used in synthetic turf to be fully assessed for both individual toxicity and the mixture toxicity of the players’ real-world exposure; the public release of all commercial information including the identity of all products used in synthetic turf; ceasing of new installations until this happens; [and] establishment of an adverse reaction register, which does not depend on phone calls/emails to the Australian Competition and Consumer Commission, which may take weeks before responding.” Dr Lloyd-Smith tells Insurance News that toxic PAHs, phthalates and volatile organic compounds have been measured in tyre rubber “and some have also been found to contain toxic metals such as arsenic, cadmium, chromium”. She says a report by California’s Office of Environmental Health Hazard Assessment in 2007 “concluded that 49 chemicals could be released from the tyre crumbs”. On the transfer of toxins to humans, she tells Insurance News “toxic components can… be breathed in, accidentally ingested – [which is] of particular concern for children – come in contact with the skin, and/or leach into surface water and groundwater”. She cites a Norwegian study of health risks for soccer players that shows “volatile organic compounds from rubber infill can be aerosolised [carried on the air] into respirable form during sports play”. She also points to a US EPA report giving a “measurement of total extractable lead concentrations in tyre crumb infill from synthetic turf fields [that] ranged from 11-61 micrograms per gram, which is not something I would want a child to play on. There is growing evidence that shows, for children, there is no safe level of exposure to lead.” 51
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“The question then is, with constant use, can those rubbers break down and therefore release those chemicals?” On the current US EPA study, Dr LloydSmith sounds a note of caution – not on the research itself, but on the political environment in which it will land. “The study is comprehensive and I just wish it had been able to be completed before the change of president,” she says. Insurance News approached leading artificial turf producers TigerTurf and Sport Group for comment. Sport Group referred us to Smart Connection – a sports management consultancy that works with local governments across Australia to develop leisure strategies and procure facilities such as artificial turf pitches. Smart Connection Managing Director Martin Sheppard says the use of artificial turf has grown over the past decade as authorities seek to meet rising demand for sports surfaces. He tells Insurance News global sporting bodies have set standards around player safety and pitch performance, and that any buyer of artificial turf should ensure their product meets those standards. There have been two areas of concern around artificial pitches, he says. One is that yarn used to make the “grass” blades could contain “heavy leads”. He says since 2009 the industry’s “quality companies” have agreed not to use lead. On recycled crumb rubber, he says Smart Connection insists all suppliers ensure their infill is tested against a toy-ingestion standard for lead content. Of the carcinogenic content, he says “all the research, which is in excess of 100 pieces”, shows toxic elements are “entrapped” in polymers in the rubber. “The question then is, with constant use, can those rubbers break down and therefore release those chemicals? The research has shown that if they break down and are in contact with skin, or are inhaled or ingested, the amount of chemical... is well within any safety guidelines produced by any health organisation around the globe.” He says a December report from the Dutch National Institute for Public Health and the Environment confirms this. It took rubber from 100 pitches and tested the release of
toxins upon human contact. It states the health risk is “virtually negligible”. Not all artificial turfs feature recycled crumb rubber infill. Some are unfilled and “dressed” with sand, while other infill options include non-recycled “virgin rubber”, nontoxic virgin plastic grains made from thermoplastic elastomer, rounded silica sand, and organic options such as cork. “Up until about two years ago, about 90% of the filled fields in Australia – about 80-100 – used the recycled rubber, what people normally call crumb rubber,” Mr Sheppard says. “In the past few years we’ve seen a number of infills being used, including organic... and also some plastics.” He says Smart Connection advises councils that if they can afford to buy virgin rubber or modern infills, they should consider it, largely to ease the perception of risk around recycled rubber. He says a virgin rubber soccer field could cost about $100,000 more than a recycled rubber one. Universities are another buyer of artificial turf pitches, but Harry Rosenthal, General Manager Risk Management Services for university mutual insurer Unimutual, tells Insurance News that recycled crumb rubber fields are rare in the sector. “Universities stay away from this design.” He says the “issue of cancer exposure is not of great concern” to Unimutual and university pitches generally have a good record. “The first rural university artificial pitch in Australia was installed in 1991 – and is about to be replaced for the third time, after 26 years of risk-free usage.” However, Mr Rosenthal flags a separate, more immediate, concern for underwriters. “Artificial turf has a tendency to float, and washes away in local flooding events,” he says. “Since many playing fields occupy flood zones, which are unsuitable for building, artificial turf is frequently viewed as a cost-effective option to make low-lying areas useful to universities. “The mutual has seen some very expensive claims resulting from predictable flooding of these low-lying areas, resulting in a complete * loss of the artificial playing surfaces.”
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A climate of catastrophe Earthquakes highlighted the stark gaps in insurance cover around the world
LAST YEAR’S GLOBAL CATASTROPHES HIT communities – and insurers – hard. While the major reinsurers and brokers have differing ways of calculating the year’s damage, there is one thing they agree on – losses were the highest for four years. And many believe that, thanks to climate change, this worsening trend is set to continue. There is a vast gulf between economic and insured losses, indicating that many catastrophes took place where insurance penetration was low. And while damage was high, mercifully the death toll was not. Aon Benfield’s Annual Global Climate and Catastrophe Report details 315 separate events, causing seventh-worst recorded annual economic losses of $US210 billion. This compares with the 16-year average of 271 events and losses of $US174 billion. Annual global economic losses have topped $US200 billion only eight times. Last year’s disasters caused insured losses of $US54 billion – the highest sum since 2012. The deadliest event was the April earthquake in Ecuador that killed at least 673 people. Quakes in Japan, also in April, rated as the costliest single loss event of the year, with damage estimated at $US38 billion. This was also the most expensive event for the insurance industry, at $US5.5 billion. Aon Benfield says the top three perils – flooding, earthquake and severe weather – combined for 70% of all economic losses. And while at least 72% of catastrophe losses occurred outside the US, it still accounted for 56% of global insured losses. The report concludes that, over the past four decades, there has been an increase in both annual and individual weather disaster costs. Mean economic losses for individual events have shown an annual growth rate of 1.4% since 1980, with mean insured losses growing annually at 3.8% during the same period. “It can reasonably be assumed that the combination of effects from climate change, more intense weather events, greater coastal exposures and population migration patterns are all equal contributors to the loss trend,” Aon Benfield says. “With all of these 54
parameters in place, and all forecasts continuing to signal greater risk and vulnerability, it is anticipated that weather-related catastrophe losses will additionally increase in the coming years.” Reinsurer Munich Re says natural catastrophe economic losses for last year totalled $US175 billion – up two-thirds on 2015. It says the share of uninsured losses – often referred to as the protection or insurance gap – remained substantial at about 70%. “After three years of relatively low nat cat losses, the figures for 2016 are back in the mid-range, where they are expected to be,” Munich Re board of management member Torsten Jeworrek says. “The high percentage of uninsured losses, especially in emerging markets and developing countries, remains a concern. “Greater insurance density is important, because it helps to alleviate the financial consequences of a catastrophe for more people. “With its risk knowledge, the insurance industry would, in fact, be able to bear a much greater portion of such unpredictable risks.” Munich Re says 8700 lives were lost as a result of last year’s natural catastrophes, far fewer than in 2015 when 25,400 perished. It is the second lowest death toll in 30 years, after 2014, when 8050 fatalities were recorded. The reinsurer also says the high number of flood events, including river flooding and flash floods, was exceptional, accounting for 34% of overall losses compared with an average of 21% over the past ten years. “A look at the weather-related catastrophes [last year] shows the potential effects of unchecked climate change,” Head of Munich Re’s Geo Risks Research Unit Peter Höeppe warns. “Of course, individual events themselves can never be attributed directly to climate change. “But there are now many indications that certain events – such as persistent weather systems or storms bringing torrential rain and hail – are more likely to occur in certain regions as a result of climate change.” Swiss Re estimates economic losses from natural catastrophes and man-made disasters for the year at $US158 billion, with insured losses at about $US49 billion. Its figures are up from $US94 billion and $US37 billion respectively in 2015. A number of quakes occurred last year, revealing insuranceNEWS
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Biggest event of the year: Japanese search and rescue specialists arrive at a house destroyed in an earthquake that struck the country in April
Top 10 global economic loss events Date(s)
Economic Loss (USD)
April 14 & 16
Sept 28-Oct 10
United States, Caribbean
All other events
Insured Loss (USD)
1 Subject to change as loss estimates are further developed 2 Includes losses sustained by private insurers and government-sponsored programs
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stark gaps in insurance coverage across the globe, the reinsurer says. Among the largest was the seven-magnitude quake in Japan on April 16, part of a series of strong shocks and aftershocks. The quakes caused extensive structural damage, fires and collapsed buildings, and claimed 137 lives. Swiss Re says the total economic cost was $US20 billion, of which $US5 billion was insured. Central Italy was struck by an earthquake in August, destroying small towns and killing 299 people. There were other strong quakes in October. Government sources estimate the overall reconstruction cost for the August quake alone at $US5 billion. However, insured losses are only a fraction of this total, estimated at $US70 million. “Society is underinsured against earthquake risk,” Swiss Re Chief Economist Kurt Karl says. “And the protection gap is a global concern. For example, Italy is
the eighth-largest economy in the world, yet only 1% of homes in Italy are insured against earthquake risk. “Most of the reconstruction cost burden of [last year’s] quakes there will fall on households and society at large.” Hurricane Matthew caused devastation across the east Caribbean and southeastern US in October, with Swiss Re estimating economic losses at $US8 billion, and insured losses in excess of $US4 billion. The reinsurer also highlights Canada’s Fort McMurray wildfire, which spread rapidly after taking hold in May. The area impacted by the blaze contains the heart of the country’s oil sands production with a high concentration of insured economic assets. Swiss Re put economic losses at $US3.9 billion, and insured losses at $US2.8 billion. “This is one of the costliest wildfire events in insurance industry history, and it is the biggest loss the Canadian insurance sector has ever experienced.” *
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Devastation: residents search for belongings after an earthquake in Tonsupa, Ecuador
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The work force The trend towards short-term labour hire has offered opportunities to insurers, but the market is not without its pitfalls By Andy Swales
LABOUR HIRE HAS EXPERIENCED significant growth in recent years, as businesses from a range of sectors pursue the flexibility and cost savings on offer. It involves companies in industries ranging from resources and construction to food preparation sourcing workers, often on short-term arrangements, via third-party employment agencies. The proliferation of labour hire agencies has presented opportunities for liability insurers offering products suited to these businesses, but there are also challenges particular to the market. Sura Labour Hire – one of the insurance market’s leaders, with a claim to being the only dedicated labour hire underwriting agency – offers a package called Labour Force Professional Liability. 58
It includes public liability (PL) and professional indemnity (PI) as a minimum, with optional additions including management liability with employment practices liability, legal expenses cover and the option to offer the “host” business – where on-hire staff operate – cover for injuries to workers. Managing Director Kevin Corkery is a veteran in this space, having led Lawsons before it became Sura Labour Hire under the AUB Group. He tells Insurance News labour hire is increasingly common because the economic climate suits it. “In global financial crisis times, companies tended to use labour hire rather than using full-time employees, because the costs are less if redundancy eventually prevails,” he says. insuranceNEWS
“In better times, companies tend to supplement their workplace requirements with labour hire for the same cost reasons.” This growth has inevitably caught the eye of insurers. Jarrod O’Brien, Principal at broker Ausure Macarthur, which includes labour hire cover among its lines, has noted more competition among underwriters and brokers in recent years, which has affected pricing in the market. “It has followed that soft trend, which really has just become the market, I guess,” he tells Insurance News. “With the increase in underwriter competition, rates have really been driven down, even over the past 12-24 months. You can still drive the underwriters down in the rates, to a point where I, and some of the
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Common sight: companies increasingly use agencies to supply labour, leading to complex insurance arrangements
“Most workers are operating on the host’s site and are under the supervision, direction and control of the host. This makes it difficult for labour hire companies to be able to monitor working conditions.”
– Chris Dardaneliotis, Sterling Insurance
underwriters I’m sure, would think the rates are too low for some particular occupations. “I don’t think the rates will drop any further. But with the increase in underwriter competition, it really has continued to drive down rates, probably further than the broader market.” Mr Corkery does not expect much more premium rate movement in the next couple of years. “The labour hire market, although affected, has not had the same level of premium reductions as other sectors,” he says. “Conversely, when the market turns we do not expect rates to increase in line with the general market.” He says Sura Labour Hire has many competitors, but “all of our competitors generalise – we specialise”. This, he says, can throw up coverage gaps, particularly in PI insurance. “All labour hire companies need PI insurance, even pure blue-collar construction ones. Unfortunately, not all underwriters offer PI insurance to labour hire companies. “We only sell a combined PL/PI package. We do not sell PL standalone. We believe there are uninsured risks currently in the workplace where no PI cover is in place.” Chris Dardaneliotis, Chief Executive of underwriting agency Sterling Insurance, says
competition in the market has grown, but new entrants may not stick around for long. “What we’ve found is – and this always happens in a soft market – underwriters will redefine their risk appetite,” he tells Insurance News. “What was traditionally a decline will become a referral, what was a referral will become a quotable-type risk... their risk appetite broadens to write anything. That’s certainly what we’ve seen over the past six or seven years.” Sterling has been providing general liability cover to labour hire businesses for about 12 years. “You’ve got the players that have been in the market for many years – we’re one of them – and then you also find [underwriters] that will come into play and get out of it after a couple of years,” Mr Dardaneliotis says. “There is a bit more competition than there has been in the past, but we don’t expect that competition will be in its current form in three to five years, and that’s because of underwriting results. They will get the underwriting results come through and realise what they’re writing, and get out.” What they’re writing is liability cover for one side of a triangular arrangement: employer, host employer and employee. It’s a complex set-up. insuranceNEWS
Mr Corkery says there can be complications with workers’ compensation and occupational health and safety because “most workers are operating on the host’s site and are under the supervision, direction and control of the host. This makes it difficult for labour hire companies to be able to monitor working conditions. “They can carry out site visits etc, but ultimately they are in the hands of the host as regards work conditions and safety.” In terms of liability, he says Sura Labour Hire’s “normal experience with personal injury claims is that 10-25% of the liability is attributed to the labour hire company and the balance to the host. Property damage losses are different, where the labour hire company proportion is normally higher than the personal injury split.” Mr Dardaneliotis says claim time always results in an “arm wrestle”. “The question is: how long will that go on for? On the one hand, the paperwork will say who is responsible for what, and that’s assuming there is paperwork. That will paint one picture. The reality in terms of what actually happens on the site could be very, very different.” He says it is hard to know where liability starts and finishes until “you have a very clear picture of both the theoretical side and the practical side, and that could take a 59
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“The labour hire market, although affected, has not had the same level of premium reductions as other sectors.” – Kevin Corkery, Sura Labour Hire
long time. Up until that point, you could be up for 100% of the claim, or you could be up for only 10% of the claim.” He says notification of claims is often late, and the transient nature of many labour hire employees “makes it very difficult come claim time”. Often, workers have moved on to other parts of the country or overseas, making it difficult to track them down for witness statements. Mr Dardaneliotis says claims complexity is one area in which new, lower-priced competitors can trip up. He says Sterling has resisted the pressure to cut rates. “We’ve got the track record from a claims perspective to see where things lie, yet these [competitors] are coming in, in some instances, 30, 40, 50% less than us. “Some of those... are literally new in that space. They don’t understand the longterm issues and they certainly don’t understand the issues the industry faces. The classic is phoenixing.” He says “phoenixing” involves businesses that flout some or all of the income tax, payroll tax, GST and superannuation laws. “When the authorities catch up with them, the company enters into a repayment program that it will inevitably default on. They shut up shop, then they start up another company and the business moves 60
into that other company. The company could have a director who is the wife of the original owner, it could be the uncle, the father, the grandmother, anyone. The phoenix rises from the ashes.” Mr Dardaneliotis says phoenixing happens “quite a lot” in the labour hire industry and is on the radar of authorities. “From an insurance perspective, it presents a number of issues. You talk about a growing industry: it seems like it’s growing because of all these companies coming in, but what you don’t see at the back end is all the ones hitting the wall. “The industry is growing, but not as much as the high-level figures show. “It makes it extremely difficult for an underwriter to understand how the industry is tracking. They think it’s doing really well, they think it’s growing.” If claims are made against such rogue companies, it may be too late, Mr Dardaneliotis says. “That company has already gone into liquidation, already been wound up, so who pays the $25,000, $50,000 or $100,000 excess that may apply to that claim? No one.” Ausure’s Mr O’Brien says the labour hire industry has faced increased scrutiny from authorities in recent years, and this may affect its future growth. Last October the Victorian Government insuranceNEWS
published the final report from an inquiry into labour hire providers and insecure work. It recommended a state licensing scheme to regulate operators, and called on the state to advocate for a national licensing regime. “There have been a lot of government inquiries of late, state and federal inquiries into the labour hire industry, and I know the federal Labor Party is proposing some changes to the legislation, and the states might be as well, so I think those sorts of changes might consolidate the industry,” Mr O’Brien tells Insurance News. “I don’t know if it will continue to grow like it has in the past few years. Unfortunately, and it happens in a lot of industries, there are cowboys out there paying cash perhaps to employees, or they’re not paying super or entitlements. That’s generally what the inquiries have been about. “The change in legislation might be good, because it might get rid of those cowboys.” But Mr Dardaneliotis says the Australian Securities and Investments Commission has been “pretty ordinary” at rooting out bad apples in other industries, including insurance, and “until such time as the phoenixing issue is addressed [by the commission and tax authorities]... I don’t see * the industry cleaning up”.
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A mammoth task A new IASB accounting standard promises to keep insurers busy this year By John Wilkinson
THE PHRASE “ELEPHANT IN THE ROOM” is frequently uttered in the world of financial services, but the event in question often does not warrant it. However, one development well fits the idiom: the introduction this year of a new global accounting standard for insurance contracts, which the International Accounting Standards Board (IASB) has been working on since 2005. By the middle of this year the final standard – IFRS 2017 Insurance Contracts – should be released, with an implementation date of January 1 2021. Will this be an updated version of old requirements? The simple answer is no. The IASB has revised every detail of its insurance contract accounting requirements, almost line by line. At its last meeting in November the IASB board discussed how to handle errors in a contract, the impact of covenants on the application of materiality, and the stewardship of management to meet the requirements of IFRS 2017. Decisions on the various changes have not always been unanimous, with some topics discussed at a number of meetings until majority agreement was achieved. And further meetings will occur to discuss aspects that are yet to be settled, such as materiality. But the IASB will put the draft standard to external review, to see if fatal flaws exist in the document. So why change the standard that has been in place since 2004? Driving the changes are the different accounting requirements in various countries, and the ways these are applied to various insurance contracts. They have led to
significant diversity in the ways insurance contracts are treated for accounting purposes. Additionally, some practices do not give a complete picture of the effect an insurance contract has on an insurer’s underlying financial position. The current accounting standard for insurance contracts – IFRS 4 – does not require insurers to make sure accounting policies are reliable or relevant to the economic decision-making needs of users of their financial statements, such as investors
sources of profit or loss through underwriting activity and investing premiums, plus the extent and nature of risks arising from insurance contracts. The IASB has been testing the new standard to gauge insurance industry responses – and they haven’t all been enthusiastic. A questionnaire sent to insurers worldwide raised three main areas of concern: the aggregation of contracts, the transition period, and guidance on the use of variable fees. The aggregation of contracts caused greatest concern. Insurers believe the number of groups of contracts they would have to establish is very high, and they question the usefulness of information to be provided, in light of the high establishment costs. Most respondents raised concerns about transitioning to the new standard. There are concerns about the standard’s complexity, and some call for a five-year implementation period rather than the proposed three years. The questionnaire results show less than 10% of participants will apply the new standard to their existing contracts, due to the unavailability of data. But about 80% expect to apply it to contracts issued more recently that already have some of the data required. Mercer Consulting’s Insurance Segment Leader Pacific Richard Land says most Australian insurers are well aware of the implications arising from IFRS 2017. “Two Australian insurers participated in the IASB’s field testing and some are allocating people because this is a significant project for them,” he tells Insurance News. But Mr Land says while senior manage-
Driving the changes are the different accounting requirements in various countries, and the ways these are applied to various insurance contracts. and analysts. As a result, it is hard to compare and understand insurance contracts in a set of accounts, leading to ambiguity in reporting. The new standard will remove this confusion and enable better understanding of an insurer’s exposure to its insurance contracts. IFRS 2017 will provide estimates at each reporting date on the obligation created by the insurance contracts and information on cashflows. It will also provide information on insuranceNEWS
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ment know about of the upcoming standard, not all boards appreciate the potential changes required to internal accounting practices. “As far as I know, insurers are not running models incorporating the new accounting standard yet, although most senior executive teams are aware of IFRS 2017. “Senior management and boards will need to keep more than a watching brief on implementation of the standard. It is going to be a challenge.” The standard’s impact on insurers will be significant. Mr Land says it marks a change from the practice of reporting insurance policy liabilities and profits in their financial statements based on local accounting standards. “The operational impact for insurers’ finance teams is far-reaching. They will need to re-model liability calculations and re-state opening balance sheets. There is the potential for increased complexity, depending on the methodology adopted by the insurer.” There will also be an impact on profit-reporting, due to the way insurers handle new and existing sales. “There is the potential for a delay in reporting profits for new sales, because many acquisition costs must be accounted for immediately, leading to a higher strain on selling new business. “The impact will depend on the type of product, with longduration life insurance products likely to be more greatly impacted than annually repriced general insurance business.” An insurer’s implementation team must include accounting and actuarial professions working together to meet the goals. Audit teams will also have an input, and no doubt many consultants will be hired to undertake various roles, including external testing. Mr Land concedes the timeframe is tight, especially because some issues are still being discussed by the IASB. “It is tight, given the need to establish both opening and closing positions for the
legacy computing systems manage to introduce the new accounting standard? Some say it is a good opportunity to tackle the issue of legacy systems, while others say insurers cannot do the two things at once. Some insurers have removed legacy systems in the past few years, but their number can be counted on one hand. Mr Land says tackling legacy systems involves more than just hardware. “I’m not sure if this will be the catalyst for wholesale overhauls of legacy systems. There are regulatory difficulties in rationalising products. Rationalising systems at the same time as implementing IFRS 2017 would be placing a number of balls in the air.” Both industry watchdogs will take an active role during the implementation. The Australian Prudential Regulation Authority tells Insurance News it has been involved in international discussions about the standard. “However, no firm decisions on the prudential implications arising from IFRS 2017 have been made – this is because the IASB has not finalised the standard as yet,” the regulator says. The Australian Securities and Investments Commission (ASIC) made its position clear in a statement issued just before Christmas. Commenting on other new IASB standards that will take – Richard Land, Mercer Consulting effect in the next couple of years, Commissioner John Price says the regulator expects companies to comply. first year’s income statement,” he says. “Also, He says public disclosure of implementathere are a number of areas of detail not tion plans is expected, including system fully addressed by the exposure drafts, and changes, impact on business and compliance guidance and interpretation is expected to issues. ASIC also warns auditing teams emerge during implementation.” should not be involved in the implementaSome questionnaire respondents suggest tion of any new accounting standards, the IASB should form an industry group to including acting as consultants. help insurers through the implementation When the final standard is released, the stage. insurance industry has a big task ahead But the IASB seems to be sticking to the meeting its requirements, on top of local three-year transition, citing the introduction issues such as catastrophes, poor investment of other accounting standards, some with an returns and threats from disruptors. introduction period of just one year. It seems a very large elephant will make One question raised is: will insurers with * its presence felt this year.
“The operational impact for insurers’ finance teams is far-reaching. They will need to re-model liability calculations and re-state opening balance sheets.”
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D&O and climate change Directors and officers face new and different challenges as the planet warms, and their insurance cover might not always work the way they expect WHILE POLITICIANS DITHER over what to do about climate change and Australian scientists warn of a “large-scale demise of the planetary ecosystems that threatens to leave large parts of Earth uninhabitable”, in corporate governance terms plenty of pressure is already being brought to bear. The increasing focus on climate change exposures presents new and different challenges for directors and their companies, according to a recent research paper from Marsh. It says the threats of class action lawsuits, significant remediation costs and irreversible damage to the corporate and personal brand are growing ever more likely. Directors and officers whose companies breach a growing number of regulations related to climate change already risk penalties ranging from fines to imprisonment. But regulators worldwide are increasing the pressure for more corporate disclosure of cli66
mate change risks and related incidents, and Marsh warns litigation against companies and their boards over climate change exposures has accelerated in recent years. And while directors’ and officers’ liability (D&O) policies are designed to protect the insureds’ personal assets, “they might not always respond to a climate change risk in the manner expected”, Marsh says. The research paper, based on a presentation to last year’s International Legal Symposium on Climate Change Risk and Corporate Governance at Melbourne University, says D&O insurance was established in the 1930s, while climate change risks first came to the fore in the 1990s. So the issue doesn’t fit neatly within existing definitions and exclusions, which can lead to gaps in cover. Until recently, most D&O policies contained a pollution exclusion. Some exclusions are in absolute terms and others more narrowly defined, and “as insuranceNEWS
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is the case with all policies, there is endless variation in wording”. This common exclusion operates because pollutionrelated claims are addressed by a raft of other insurance products. Marsh says a public and product liability policy will generally respond in the event of “sudden and accidental” pollution, while environmental liability policies may be triggered by “gradual seepage and contamination”. “Coverage is also available under contractors’ pollution legal liability policies, site pollution legal liability policies, or tailored under special purposes policies,” it says. When applying this exclusion to climate change risks, the issue becomes about determining whether greenhouse gases are considered “pollu-
tants”. This is defined in most D&O policies as any solids, liquids, gaseous or thermal irritant or contaminant. In the United States, the conclusion appears to have been drawn that carbon dioxide (along with other greenhouse emissions) falls under the classification of “pollutant”. Notwithstanding that carbon dioxide is a natural and necessary component of the atmosphere, the argument was made that an excessive amount of carbon dioxide poses a threat to an ecosystem and, on that basis, can be considered a pollutant or contaminant. “This finding has been recognised in various jurisdictions, including in Australia.” While the better D&O policies do not contain a pollution exclusion, Marsh says they generally exclude clean-up costs, including the loss incurred in
The triggers of D&O A typical D&O policy covers individual directors for all acts, errors or omissions arising from their conduct as directors, and could therefore include matters relating to climate change risks. Some of the allegations that may trigger a D&O policy include: • Breaching their fiduciary duties in not considering the financial risks associated with climate change • Failing to comply with legislative reporting requirements • Failing to disclose climate change liabilities • Disseminating false or misleading or incomplete information on climate risks • Mismanagement of climate-related risks • Negligence in allowing the company to emit greenhouse gases into the atmosphere • Failing to protect the company’s assets. If the D&O policy contains company securities cover (commonly referred to as Side C cover), coverage may also be available for the entity itself in the event of shareholder litigation. This is a real risk because share prices have been known to plummet following adverse news on climate change exposures. In most D&O policies, critical definitions such as “claim”, “loss” and “wrongful acts” are broadly defined so far as coverage for directors and officers is concerned. In responding to the increasing visibility of climate change exposures, some D&O insurers are now expressly covering these risks both for directors and officers, as well as any securitiesrelated claims made against the company.
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removing, containing, treating, detoxifying, neutralising, assessing, monitoring or testing for the effects of pollutants. “Other pollution insurance policies specifically provide for this cover.” There are also exclusions in D&O policies that may restrict cover for climate change exposures. They include: • Bodily injury and property damage exclusions, because such claims are covered under public and products insurance policies or workers’ compensation insurance. “If couched in broad terms, the exclusion will likely capture any climate change event that leads to property damage, along with mental and emotional distress caused by associated pollution.” Marsh says “the better D&O policies” exclude only claims for bodily injury or property damage, rather than “any claims howsoever related”. • Fines and penalties are also excluded in some policies, limiting any cover following an adverse regulatory finding into a breach concerning climate change. • Further climate change exclusions could be introduced in future D&O policies if “boards fail to demonstrate a prudent and diligent approach to climate risk governance in their proposals for insurance”. • Some policies limit coverage to the Australian and New Zealand jurisdictions or territories, which raises coverage issues
for climate change exposures that often have global impact and implications. • Other exclusions, such as fraud and dishonesty and prior known matters, can also affect policy coverage. Marsh says regulatory investigations relating to climate change are expected to rise in number globally, “in line with the growing body of climate science”. Most D&O policies include some form of cover for legal costs incurred by directors or officers in preparing for, responding to and attending an investigation. Fortunately for directors, if a prosecution is started by a regulator following an investigation, a claim will likely trigger under a D&O policy, because criminal proceedings are typically covered. Consequently, directors and officers should be covered for amounts for which they become legally liable in defending such a prosecution. However, Marsh says cover for prosecutions against a company itself is not expressly included in most policies. “Cover should also be available for any civil penalty proceedings that may be instigated by a regulator against a director for statutory breaches following an investigation,” the paper says. “Most D&O policies will provide some form of cover for legal costs and expenses incurred by
What’s needed Adequate protection for directors and officers in today’s climate essentially requires three items: 1. Good corporate governance practices. 2. Properly worded indemnification provisions and/or deeds of indemnity from the corporation. 3. An appropriate insurance program.
“It is critical for directors and officers to take great care in the reporting of claims and circumstances.” directors in defending disqualification orders.” Another option available to directors and officers (and their organisations) is statutory liability insurance, which covers penalties that an insured becomes liable to pay following contravention of an Act of Parliament. The policy only covers penalties as defined and associated legal costs, specifically excluding other types of loss including damages. It is also subject to, among others, the usual exclusions for claims arising out of deliberate, wilful, intentional or reckless wrongful breaches. Marsh says cover for preinvestigations is a recent evolution in D&O policies that is rapidly taking hold. “The development addresses the costs incurred by directors in preparing formal notifications to regulatory bodies in the event of an actual or suspected material breach of a company’s legal duty. “Additionally, internal investigations requested by a regulator following a company’s formal notification can also be covered. “Given the myriad of factors that determine whether D&O policies respond to climaterelated risks, it is critical for directors and officers to take great care in the reporting of claims and circumstances.” February/March 2017
Just as importantly, companies should follow the notification and claims-handling conditions set out in the policy, to avoid prejudicing their cover. “The failure to notify a potential claim within the policy period can have serious consequences for the policyholder, especially when the policy does not expressly provide that right.” In the face of larger stakes, the research paper warns directors must have a thorough understanding of the risks involved and how they can be best managed. “This is a sentiment echoed by regulators.” A D&O policy provides some coverage for climate change exposures, but it does not necessarily respond to all related losses and liabilities. Directors and officers should therefore carefully analyse their own risk profiles to ensure a D&O program is structured to meet their needs. “An excess Side A policy, statutory liability insurance and environmental insurance are some of the specialised products that can help shield directors and officers from the everincreasing personal liabilities that attach to their positions. “While insurers provide standard-form policies as a baseline, the terms and conditions can be negotiated to improve * the scope of cover.”
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Boom to bust: The intriguing history of Hemisphere Insurance With an array of owners and interesting approaches to finance, this was another New Zealand-based trans-Tasman insurer that didn’t survive for long By John Wilkinson
INSURANCE NEWS’ RESEARCH INTO the complex and ultimately disastrous history of New Zealand-based insurer Western Pacific – a company that turned out to have a disproportionately large portfolio of business in Australia – turned up other insurers with similar operating methods. One of the most significant was a company called Hemisphere Insurance, which like Western Pacific was set up in New Zealand by foreign nationals, including Australians, at a time when scrutiny of the general insurance sector there was more relaxed than it is now. Formed in June 2005, Hemisphere went into liquidation in 2011 with $NZ11 million in outstanding claims – none of them from New Zealand – and no funds to pay them. Its six-year lifespan was marked by a string of directorship changes and complex international financial transactions. Tracking where the money went is impossible. Hemisphere’s insurance focus was Australia, where it offered policies covering property, taxi, rental income protection, professional liability, public and product liability, commercial heavy motor and aviation. The company began life in 2005 with two international shareholders – Manila-based Icensa Holdings and Singapore-based World Insurance Network. 70
Icensa held 900 shares worth $NZ470,849, while the Singapore arm of World Insurance Network held 100 shares valued at $NZ52,316. The initial directors were Peter Voln McCarthy of Sydney, Graham Barnett of Manila and Stuart Walbridge of Auckland. Mr McCarthy signed the shareholder approval notice on behalf of World Insurance Network, while Mr Barnett signed on behalf of Icensa. According to a Standard & Poor’s report on Hemisphere in 2007, the insurer’s majority reinsurer was National Reinsurance Corporation of the Philippines. Yet the accounts seem to show companies associated with Icensa were the reinsurers. “Hemisphere has opted to outsource its underwriting to World Insurance Network, claims management to Proclaim Management Solutions and risk management to Ark Risk Consulting,” the report said. The insurer got off to a flying start in its first year, with $NZ6.5 million of gross written premium (GWP) and $NZ3.7 million of this classed as unearned premium for the year to June 30 2006. Hemisphere had $NZ2.6 million of claims outstanding that June 30. However, the cost of sales at $NZ2.6 million and $NZ141,234 of administration costs resulted in a $NZ6869 loss for the year. Among assets listed in the accounts was a insuranceNEWS
$NZ508,555 loan from Eastern Assurance and Surety Corporation, plus a loan of $NZ366,838 from Icensa – both companies having Efren Docena as a director. These two companies were acting as Hemisphere’s reinsurers, and were later joined by South Sea Surety & Insurance Company, which also had Mr Docena as a director. Mr Docena is significant in this report. Despite a number of issues that raise serious questions about his suitability, he and the companies he was associated with were central in the intertwined business arrangements that dominate the Hemisphere story. Doubts about Mr Docena should have been obvious to anyone considering him as a suitable director for an insurance operation focused on doing business in New Zealand, or, as it turned out, Australia. For example, he was the subject of a public warning in 2010 by the Philippines Government, which said arranging insurance contracts with him should be avoided because policies he had issued were “fraudulent”. South Sea Surety & Insurance Company also featured in the history of Dominion Underwriting Agents, which was set up in Australia in 2001 by Jeffrey McNally, who – as Insurance News detailed in its August/September 2016 edition – co-owned and managed Western Pacific Insurance in New Zealand until its collapse in 2011.
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In 2004 then-Dominion chief executive Don Christie warned that South Sea’s claims regarding reinsurance it was ostensibly providing for business the agency had written in Australia could not be substantiated. He accused South Sea of falsely claiming to have arranged reinsurance on Australian contracts through a Philippines Governmentowned insurer. Yet despite this questionable history it appears that Hemisphere chose Icensa – a company Mr Docena was associated with – to provide its reinsurance cover. The story becomes more complicated at this point, because Hemisphere also had a $NZ196,338 loan from World Insurance Network in Australia. This company had former Underwriting Agencies Council chairman Robert Mauldon as a director. Both this and the Icensa loans were interest-free and repayable on demand, according to the accounts. At the end of 2006 Mr Docena and Jorge Mariano of Manila were appointed directors of Hemisphere, and the following January Mr Mauldon replaced Mr McCarthy as a director. According to the 2006/07 accounts, GWP fell to $NZ5.3 million while the unearned portion declined to $NZ1 million. Claims liabilities for the year were $NZ2.3 million, a slight decline on the previous year.
But despite the fall in revenue, Hemisphere turned in an after-tax profit of $NZ57,105 for the year to June 30 2007. However, in the following year’s accounts this was changed to a $NZ27,000 loss – with no explanation. A clue to Hemisphere’s success at selling insurance in Australia can be found in a related party note saying $NZ279,385 was
Anthony Warren of Auckland and Alan Whittle of Brisbane were appointed as directors of Hemisphere. Mr Warren, a director of Hemisphere’s landlord Ashe Morgan Young Securities, resigned on October 31 that year. In March Mr Mariano and Mr Walbridge resigned, followed by Mr Mauldon in May. At the end of 2008 Mr Walbridge was
“Hemisphere turned in an after-tax profit of $NZ57,105 for the year to June 30, 2007. But this was changed without explanation to a $NZ27,000 loss in the following year’s accounts. owed in commissions to Sydney-based World Insurance Network. Hemisphere also paid $NZ36,514 to Icensa as part of the loan repayment. The next year brought more changes on the Hemisphere board. In February 2008 insuranceNEWS
reappointed a director, along with Jose Ticzon of Manila. The 2007/08 accounts show GWP again falling, to $NZ4.1 million, with unearned premium at $NZ2.5 million. Outstanding claims fell to $NZ1.2 million. Hemisphere’s 71
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B C THE SECRET LIFE OF
The Christchurch earthquakes killed this small New Zealand insurer. But our research exposes a company focused far more on the Australian market, where its exposures amounted to billions of dollars August/September 2016
after-tax losses continued to mount, reporting a $NZ417,189 loss for the 2007/08 financial year. Related-party transactions become numerous at this point. The accounts state World Insurance Network owed Hemisphere $NZ408,931 of commissions; Eastern Assurance owed $NZ383,761 and South Sea owed $NZ114,764 for reinsurance. Icensa owed Hemisphere $NZ379,171 and a further $NZ360,559 was due from Eastern Assurance for unspecified services. But the accounts state South Sea was owed $NZ690,808 by Hemisphere. World Insurance Network was paid $NZ1.3 million in commissions, $NZ52,935 for accounting services and $NZ143,019 as part of the profit share between the two shareholders. The shareholding was with the Singapore-registered company, confirming Mr Mauldon was a director of this operation in addition to his Sydney business of the same name. Concern about the future of Hemisphere was raised in a report on the 2008 accounts by its auditors, Markhams of Auckland. The report said Icensa was trying to raise more capital in the Philippines and about $NZ1 million would be injected into Hemisphere. The auditor questioned whether it would meet forthcoming New 72
In August last year Insurance News investigated the collapse of insurer Western Pacific, a company which made much about its commitment to the New Zealand insurance market, when in fact it was far more focused on securing business in Australia. Our article revealed how the Christchurch earthquake in 2011 led to the sudden and spectacular crash of Western Pacific, which had negligible reserves and insufficient reinsurance. Hundreds of Australian businesses were forced to buy new policies, mostly at considerably higher premiums. Our research into Western Pacific turned up other insurers that set up shop in New Zealand but focused on the Australian market. Hemisphere Insurance is one of them.
Zealand regulations for general insurers. The regular changing of Hemisphere directors continued in 2008, with Mr Warren resigning, followed by Mr Whittle in 2009. Mr Walbridge resigned at the start of 2010. By 2008/09 Hemisphere’s business was in trouble, with GWP falling to $NZ1.4 million. Outstanding claims totalled $NZ1.8 million, but the after-tax losses fell to $NZ22,601. Again, related-party transactions show World Insurance Network owing $NZ246,918 in commissions, Eastern Assurance with $NZ405,676 and South Sea Surety $NZ139,904 for reinsurance. Icensa owed $NZ374,904 at June 30 2009 for unspecified services, while Eastern Assurance owed $NZ326,443. Complicating matters, Hemisphere owed South Sea Surety $NZ422,213. Two of Hemisphere’s directors were paid commissions during the year, with Mr Barnett receiving $NZ82,560 and Mr Mauldon $NZ33,892. World Insurance Network earned no commissions in 2008/09 but was paid $NZ63,264 in profit share. A further setback for the insurer was the loss of its Standard & Poor’s rating in 2009. “The reinsurance arrangements have been varying constantly with regard to the provider, as well as the extent of coverage,” the ratings agency said. “Hemisphere’s insuranceNEWS
ability to reserve adequately in an increasingly wide and volatile book of business is also questionable. “In our opinion, the company does not have in place the checks and balances that would support a higher rating.” No accounts for the 2010 or 2011 financial years were lodged with the New Zealand Companies Office, so it was not surprising when on September 30 2011 the company went into liquidation with $NZ7 million of debts. Liquidator Crowe Horwath reported $NZ11 million of claims, but the only funds in the company was the government insurance bond of $NZ500,000. The insurance bond could be accessed for claims originating in New Zealand, but Crowe Horwath found “none of the claims received were made under policies issued, granted or entered into in New Zealand”. The liquidators were also hampered by a “lack of information regarding the company’s affairs provided by its overseas directors”. The winding-up of Hemisphere Insurance is continuing, but for the creditors the outlook is bleak, as the small pile of money available is dwindling. As with our associated report on Western Pacific, Insurance News makes no allegations of wrongdoing by any individuals named in * this report.
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A model office for Marsh The thinking behind Marsh & McLennan’s latest premises is attracting attention from colleagues around the world MOVING MORE THAN 900 PEOPLE INTO new office premises over the space of a weekend is easy, if you know how. Luckily for Marsh employees settling into in their revolutionary new Sydney headquarters, Helen Hecker does. As Head of Facilities for Marsh & McLennan Companies (MMC) in Australia, she has already managed nine relocations for the company in the Pacific region over the past two years. But moving the Sydney office from Darling Park Towers to the new harbourside Barangaroo precinct in November involved the whole MMC group – Marsh, Guy Carpenter, Mercer and Oliver Wyman. The move was completed without significant hitches from noon on Friday November 5, with staff ready to work at 9.30am the following Monday morning. Ms Hecker shrugs off the success of this latest exercise. She says the co-operation of staff, specialist movers and technology support experts made the task relatively painless. But preparation is everything, and this move was two years in the planning. What has been equally challenging is the knowledge that every facet of the Sydney office design is being scrutinised by Marsh managers around the world. The new offices on four floors of the 48-level building, which is claimed to be the southern hemisphere’s tallest six-star, Green Star-rated building, have introduced a range of innovations that are expected to be duplicated in future Marsh offices around the world.
“We’ve sort of been the group’s guinea pigs,” Ms Hecker tells Insurance News. The office area is spacious and incorporates some of the latest thinking in what’s known as an “agile workplace” – the first MMC office to incorporate features that increase flexibility and encourage interaction. For example, there are no private offices. All senior managers, including Chief Executive Australia and Pacific Scott Leney, are out on the floor with their colleagues. There are no assigned desks, and about half the overall office “footprint” has been dedicated to meeting and “collaboration spaces”. It’s not unusual for executives in large companies undergoing a move to an active and open work environment to protest when they realise they won’t have their own office and support area. But Ms Hecker says that hasn’t been an issue in Sydney. “There was no pushback once people realised the most senior regional chiefs were happy to be out there with everyone else.” All employees based in Sydney have been issued a laptop and smartphone in place of traditional telephone handsets, which gives them the flexibility to move freely about the workspace without being out of touch. All meeting and collaborative spaces have the latest audio-visual technology, while all workstations have “smart office” peripherals such as flexible monitor arms, a universal docking station, keyboard and mouse. Most workstations have dual monitors, removing most of the need for paper
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records to refer to while working on new documents. Some 3.5 linear kilometres of paper records from the old office were reduced to 800 linear metres, which is stored off-site but can be delivered to the user within two hours. Ms Hecker says storage cabinets for paper files were planned for each floor, “but halfway through the process I decided to get ruthless and cut the number of cabinets in half. And as it turned out, I could have probably removed them all.” Of course, it’s unlikely all 922 MMC employees would be in the office at the same time, and internal research in the previous office showed a peak utilisation of 63%. The number of workstations in the new office allows a share ratio of 0.73, meaning there are 7.3 desks for every 10 people. However, Ms Hecker says utilisation of the space is higher, reflecting employees’ insuranceNEWS
enthusiasm for the new premises. Not that it’s going to get squeezy. Every single employee can be accommodated by using the ample focus rooms, focus pods and touchdown benches, which ensure there are seats for everyone. Desks are cleared at the end of each day and personal items placed in allocated lockers. Ms Hecker says such a move required “a huge amount of change management”, but resulted in few complaints. Items left on desks are placed in lost property for recovery the next day. That could sound like making for a sterile office environment, but she says people adapted very quickly. “In December people got out their tinsel and Christmas lights to place on their desks, and put them away at night.” It’s a big change from the traditional MMC offices around the world, and Ms 75
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Hecker says the Sydney office “has become the blueprint” for the corporation globally. Two MMC operations in the United States had previously looked at such concepts “but couldn’t get it off the ground”, she says. “I told my team, ‘We need to get this right, because the whole world is watching us,’” she tells Insurance News. “My counterpart in New York has visited and they’re planning a similar version of this office in Hoboken, New Jersey. “A similar concept is in the planning stages for Paris, and I’ve been told the Los Angeles operation is going to ‘pick up Sydney and put it in LA’. The Boston office is also shaping its new office plans around this concept.” And Ms Hecker is now looking at the possibilities for new offices in Wellington, Brisbane and even Hong Kong. Swiss Re has also moved to Barangaroo, and as the precinct becomes more established, other insurance industry companies 76
will doubtless also make the move in their quest for more modern and efficient offices. Carbon-neutrality and sustainability are must-haves for the developers of Barangaroo. There’s easy access to public transport and the central business district is just a few streets away. For MMC employees tempted to step out of their plush and friendly new surroundings to sample what Barangaroo can offer, the precinct already has more than 90 retail outlets including restaurants, cafes, casual eateries and bars, as well as health and beauty, lifestyle, leisure and convenience retail. More than 50% of the area around the building they occupy will be useable public space, including an urban park, harbour cove, public pier, waterfront promenade, boardwalks, squares, streets and laneways. And, let’s face it, the MMC staff are perched right on the edge of the world’s most * beautiful harbour, with views to match.
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NTI’s big move: the truck insurer takes on a marine insurance challenge NATIONAL TRANSPORT INSURANCE (NTI) IS SETTING UP Australia’s largest marine insurance company, providing holistic coverage for freight operators and their customers. Already the nation’s largest truck insurer, NTI is taking up the marine insurance portfolios of its joint venture owners, CGU and Vero. The new company will be called Marine Protect: Powered by NTI. As Anthony Day, Suncorp’s Chief Executive Insurance – and NTI Chairman – explains it, NTI’s reputation for excellence in claims, internal expertise, specialist focus and innovation in electronic delivery and customer service makes it “the natural home for bringing the two marine businesses together”. “NTI is already a leader in delivering insurance solutions for the heavy motor and logistics industries, and it will now become the truly definitive holistic freight logistics insurer in Australia.” Chief Executive Tony Clark says the transfer of the two insurers’ marine insurance portfolios will see NTI become the largest marine insurer in Australia, and will add about 25% to his company’s book. It will also add up to 100 staff to NTI’s present complement of about 280. “Marine wasn’t a big part of the shareholders’ business, but it will be for us,” he told Insurance News. “It brings new expertise into NTI, and will enable us to invest in new digital platforms that see improvements in everything from underwriting to claims.” In April marine insurance specialists from CGU and Vero will move across to Marine Protect. They will be led by Queensland-based Vero Executive Manager Corporate & Risk Managed Underwriting Andrew Kidd , who until last year was marine practice leader at Suncorp. He has worked in the marine sector since 2002. Mr Kidd will be backed up by CGU National Underwriting Manager Marine Chris Kelsey and CGU National Manager Marine Claims Mike Sullivan. Mr Clark says NTI is “committed to providing a leading product suite, exceptional service and best-in-class claims services to our intermediary partners and customers, [and] Marine Protect will be no exception.” IAG Australian Business Division Chief Executive Ben Bessell says the joint venture “provides an opportunity to create superior * value to customers and partners in niche areas”.
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Kickstarting business: Suncorp online platform assists emerging entrepreneurs SUNCORP IS MAKING IT EASIER for aspiring entrepreneurs to start a business with an online platform that offers a diverse range of information and advice in the one place. The Suncorp Smart Company website also aims to help businesses that are recently established and already trading to take the next step with access to education tutorials, tips and other help. “We know small business owners are busy, and want to focus their time on building and growing their business,” Suncorp Customer Platforms Chief Executive Gary Dransfield (above) tells Insurance News. The new website aims to remove start-up complexities and speed the process by consolidating the various elements that should be considered when establishing a business. “Insurance is a key element, and through Suncorp Start Company new business owners can access information and resources which explain the different types of cover that may be suitable during their start-up phase,” Mr Dransfield says. “It also educates them on when they should review their policy and consider new options – for example, additional cover for employees or acquired assets.” The “Understanding Business Insurance” page on the site highlights likely cover requirements in areas such as workers’ compensation, liability and risks related to the physical assets of the enterprise. Links provide access to online quotes from Suncorp brands like Vero and GIO, and to other advice such as 80
the Need a Broker website driven by the National Insurance Brokers Association. For those aspiring businesspeople at the beginning of the journey, the website can check if names and websites are available, assists with business name registration and offers video tutorials on starting an enterprise. The site also includes information on website development tools, payment systems, email options and accounting systems that are necessary as a company gains a place in the market. For those looking for further growth in their business there is advice on marketing, short courses, hiring staff, office locations and business loans. The business and legal section offers a range of document templates and access to quotes through LawPath, as well as information on trademarking a business name, licences and permits, dispute resolution and planning for emergencies that could disrupt a business and prevent it from operating. Mr Dransfield says the launch of the new platform follows Suncorp’s partnership with 9 Spokes, a listed company dedicated to helping small businesses access data and technologies normally only available to much larger businesses. It provides a “business toolbox” which allows customers to gain insights across their business. He says Suncorp Smart Company has consolidated solutions from partner companies and insights from customer feedback “to develop a product which solves problems and * helps to meet their needs”.
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Coverage under fire Top award honours a reinsurance underwriter who became an influential figure in building terrorism protection
Protecting the nation: ARPC Chief Underwriting Officer Michael Pennell
REINSURERS PROTECTING AUSTRALIA’S ECONOMY FROM terrorism are no longer unsung heroes, after Michael Pennell was awarded a Public Service Medal in the Australia Day honours for his work in this field. Mr Pennell, Chief Underwriting Officer at the Australian Reinsurance Pool Corporation (ARPC), received the medal for outstanding public service in the development of the terrorism insurance scheme. The ARPC was set up by the Federal Government in 2003, when a global withdrawal of terrorism insurance following the September 11 2001 attacks left Australian business with a major challenge. Mr Pennell came on board after working with Gen Re and Swiss Re. He also has experience in civil engineering. He describes his role at the ARPC as extremely interesting and always challenging “It gives you a real sense of purpose when you know that what you’re doing has a direct benefit to the nation and the economy, because the ARPC is there purely to protect the Australian economy against the threat of terrorism,” he tells Insurance News. The honour recognises his work developing the ARPC’s unique blast and plume modelling, plus achievements such as strengthening the scheme through a $3 billion annual retrocession program, which passes some risk to other parties. Modelling the likely damage from terrorist attacks was an early priority for the ARPC, with a preliminary two-dimensional model followed by work to enable more detailed analysis. The ARPC teamed with Geoscience Australia and added information from the Department of Defence and Australian Federal Police to develop a three-dimensional model that can assess likely damage from different-sized explosions and plume releases at various locations in the nation’s capital cities. 82
“We have had discussions with other modelling companies around the world, and when we compare the different models available it is really obvious that what we have got is a world-leading product,” Mr Pennell says. The ARPC started with a Commonwealth guarantee to provide cover in the event of a major attack, while Mr Pennell also identified retrocession as an invaluable tool to strengthen the scheme. The pool has been adding a steadily rising layer of retrocession coverage. “The retrocession is enough to handle the medium-sized claims and then, of course, the Commonwealth guarantee is the backstop that will handle the large claims,” Mr Pennell says. The Lindt cafe siege in Sydney remains the nation’s only declared terrorism incident, but numerous arrests and court appearances on terror-related charges show the risk has not gone away, and the ARPC’s role remains critical in ensuring cover is available and banks continue lending. “We don’t want businesses to be suffering because there is little availability of terrorism insurance,” Mr Pennell says. “There is some, but there is not an adequate amount to cover the exposure in Australia.” Mr Pennell has also influenced industry policy, education and technological innovation as an advisory board member for the Australian and New Zealand Institute of Insurance and Finance, and as a past advisory board member of Macquarie University’s Natural Hazards Research Centre. Receiving the medal in recognition of his efforts is an honour, he says. “I look forward to continuing to play my part in protecting Australia * from the economic losses caused by terrorism catastrophe.” February/March 2017
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Christmas cheer for Reach AFL premiership player Marcus Bontempelli was among speakers at the McLardy McShane Christmas lunch in Melbourne that raised more than $105,000 for the Reach Foundation. The Western Bulldogs champion appeared along with actor and cancer research campaigner Samuel Johnson, comedian Lawrence Mooney and motivational speaker Beau Vernon, a former Leongatha player who became a quadriplegic after an accident on the football field. More than half the sum raised at the lunch – which has become an established event on the Melbourne insurance social calendar – went to the Reach Fused program, which comprises a series of workshops designed for participants aged 13-17. McLardy McShane has raised more than $900,000 for Reach since its first Christmas lunch in 2009. At December’s event, a quick impromptu whip-around organised by Don McLardy saw $66,000 raised by donations from brokerages and insurers for the Fused program.
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peopleNEWS Supporters cheer Lion’s roaring success Clients and other guests gathered at Lion Underwriting’s office in Sydney in November for a small party to celebrate the agency’s success since its launch last year. Managing Director Kurt Nilsen says the event was Lion’s way of sharing pride in its progress and thanking supporters and service providers. The function will now become an annual fixture on the company’s calendar. The Sydney-based underwriting agency is an authorised representative of National Adviser Services, and has access to underwriters locally as well as in Singapore and London.
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NTI serves up a treat for car-lovers National Transport Insurance’s recent business partners function in Melbourne was more than just about networking and business for the 120 guests. The annual event was held at the Fox Classic Car Collection, which gave guests the opportunity to view some of the most rare and prestigious marques ever manufactured. State Manager Victoria Tasmania Renzo Antidormi says the venue was a hit with the guests, most of whom were brokers – and many brokers are interested in autos. A museum guide was on hand to brief guests on the cars collected by transport and logistics tycoon Lindsay Fox. Mr Antidormi and General Manager Sales & Distribution Mike Edmonds thanked the guests for their support and shared some of the company’s key milestones and targets.
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peopleNEWS Allianz closes out 2016 in style with golf and cricket slugfests It was no Ryder Cup or Ashes series but that didnâ&#x20AC;&#x2122;t stop Allianz from hosting two thrilling slugfests at the Australian Golf Club and Sydney Cricket Ground to close out last year in style. On both occasions, the Commercial group came out on top over their Corporate counterparts. Managing Director Niran Peiris was among the 36 who joined in the Allianz Key Partners Golf Challenge and later presented the winners with their trophies. In the Allianz Key Partners Cricket match, General Manager Commercial Denis Morrissey led the Commercial team to victory.
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You could WIN a $500 Flight Centre Voucher Allianz Alive is here! Simply place a new business policy through Alive between 1 February and 31 July 2017 to be in with a chance to win one of six $500 Flight Centre vouchers. A winner will be drawn at the conclusion of each month during the competition period and every policy placed is an entry into the draw to win. Designed in consultation with brokers, Alive is our enhanced commercial packages user interface that delivers an improved customer experience and makes Allianz easier to place business with. For more information contact your local Allianz representative. Promotion period 1 February to 31 July 2017. Prize drawn at Allianz Australia Insurance Limited, 2 Market Street, Sydney NSW 2000. The Promoter is Allianz Australia Insurance Limited, ABN 15 000 122 850 of 2 Market Street, Sydney NSW 2000. See competition terms and conditions available at allianzengage.com.au
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Dragon boat races and history enjoyed by MGA delegates Dragon boat racing on the Torrens River and a themed gala dinner at the Carrick Hill historic estate provided plenty of lighter moments at the MGA broker assistants conference. The conference was held in the companyâ&#x20AC;&#x2122;s home city, with 85 delegates attending sessions covering a wide range of topics at the Adelaide Convention Centre. Workshops focused on topics ranging from ways to advise clients on the security of their premises to understanding the grey areas of professional lines to the importance of understanding clientsâ&#x20AC;&#x2122; needs. Delegates also received updates on the Millennium underwriting business and were taken through the finer details of compliance and training and latest IT updates. Bruce Buckley, Principal Weather Research Analyst at CGU and a former meteorologist for the Australian sailing team, was among those who delivered presentations. The first day concluded with an arresting dinner at the Adelaide Gaol, one of the oldest remaining colonial public buildings in the city, with stripes a suggested dress code for the evening. The Carrick Hill homestead, a manor built in the 1930s designed in 17th century style, was the scene for the site of the final eveningâ&#x20AC;&#x2122;s celebration.
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HDI parties on in true Californian style Guests were California dreaming at HDI Global’s Golden State-themed annual Summer Fiesta party. About 75 brokers and 25 HDI staff dressed up in “California casual” for the party in February at SoCal Neutral Bay, a rooftop bar in Sydney inspired by California’s laidback surf culture. Guests mingled with senior HDI Global executives including Regional Head ASEAN & Australasia, Managing Director Stefan Feldmann.
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Major and complex, but also delightful It was a delightful sun-filled affair for Cunningham Lindsey when its Major & Complex Loss team hosted a function at L’Aqua on Sydney’s Darling Harbour. More than 150 guests comprising insurers, brokers, lawyers, the Cunningham Lindsey team members and other service-providers networked with drinks and canapés overlooking the stunning harbour. The national Major & Complex Loss team has more than 50 specialist adjusters across forensic accounting, liability, property, construction, engineering, marine and resources. Asia Pacific Chief Executive Damon Bennett and Head of Major & Complex Loss Mark Thompson thanked guests for their continued support of Cunningham Lindsey.
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Sam Pentecost Contributor
THE MEDIA AND MARKETING PUBLICATION Mumbrella recently ran an article on office dogs, which sparked a bit of interest here at Insurance News because we have our own office dog. It turns out an amazing number of ad agencies, marketing offices and public relations companies have dogs around the place, each of them happily fitting into working life. The Insurance News office dog is a six-month-old west highland white terrier named Lucy. Her official title is Chief Morale Officer; it’s a tough job that basically involves keeping everyone smiling. Lucy has the run of the place, goes to the post office every morning and enjoys outings to coffee bars. She also accompanies the office addict on her smoke breaks in the busy street outside the office, where being small, white, fluffy and friendly she’s also a bit of a people magnet. Although there’s nothing in the office procedures manual about the Morale Officer’s duties, Lucy does nevertheless have to abide by a set of rules. These include doing her best to keep herself nice, and where she fails to make it to her pad in time her owners, Mr and Ms Publisher, must immediately clean up after her. Having a dog around to talk to, pat and play with – and yes, even senior journalists have been spotted on the floor having a play-fight with Lucy – boosts the immune system and lowers anxiety, depression and blood pressure. Don’t take my word for it. Dr Johannes Odendaal, Research Professor of the Life Sciences Research Institute in Nova Scotia, took blood from humans and dogs before, during and after a dog-petting session. He found a rise in the amount of several neurochemcials in the brain, including dopamine, oxytocin (the chemical released during orgasm, apparently), prolactin, beta-endorphin and norepinephrine – all of which directly influence feelings and emotions of “exhilaration, positive excitement, pleasurable experiences, social bonding, a sense of well-being and contentment, and feelings of comfort and security”. Doug Ford, the Managing Director of major pet insurer Petplan, is a long-time office dog person, who admits that his office is occasionally over-run by pooches. “There’s up to half a dozen dogs in here at one time, but one or two is actually more practical in an office,” he says. “We encourage staff to take their dogs out of the office three or four times a day, and if there’s a mess the owner cleans it up.” Doug says managers should be aware of some liability issues, like a dog taking a dislike to someone and biting them. “When someone makes an appointment to come to the office, we ask them if they have a problem like 82
IN OUR DECEMBER 2012 MAGLOG COLUMN WE INTRODUCED readers to Lucy, the Chief Morale Officer in the Insurance News office. Lucy, you may remember, is a west highland white terrier. Four years later she’s still going strong, although she now has deputies to assist in keeping the office humans happy. That’s Lucy on the left in the picture, now very grown up and like all westies quietly in control. With her are cavoodles Maggie and Ella, and maltese shih tsu siblings Bruiser and Velvet. From time to time we also have visits from maltese/pomeranian Fergie and two rotund English bulldogs named Charlie and Oscar, who look fierce but are in fact as soppy as pussycats. Thankfully, we’ve never had all the pooches in the office at the same time. But with four or five of them here routinely there’s rarely any interpersonal drama. Unlike humans, dogs enjoy each other’s company. They’re always delighted to catch up in the morning, and after a frantic 10-minute game of chasey to start the working day they settle down under their various owners’ workstations to do what dogs do best – sleep. The experts tell us dogs sleep for around 50% of the day and spend another 30% “awake but inactive”. That’s when they get taken for toilet walks, or simply wander quietly around searching for spots in the sun to doze. They also spend time checking out what’s happening in the ’hood and saying hi to their favourite people. Maggie and Ella often walk a total of 12km to and from work, which means they spend much of their time at work resting up for the walk home with Marketing and Development Manager Madison Seymour. So all in all it’s remarkably peaceful – unless a strange dog is spotted in the street below and all hell breaks loose. If you’re a business-owner or manager and you’re wondering about allowing employees to bring their pets to work, it’s worth rereading that long-ago maglog to learn about all the wonderfully 98
Sam Pentecost Contributor
allergies or a dislike of dogs, and we warn them there are dogs on the loose. That’s important. “But from the overall office point of view, having dogs around here definitely reduces stress.” Lucy learned early that people eating at the lunchroom table are suckers for the right begging approach. However, apart from the tendency for a begging dog to be annoying, dogs don’t need a great variety of food. Lunchtime loot sometimes results in an unexpected afternoon poop, so the “don’t feed Lucy” rule is strictly observed. Staff also have to be aware that Lucy sleeps much of the day in sunny spots, under desks and around her favourite people, so she can be a tripping hazard. She leaves her toys – an old ugg boot, a hand puppet, a length of rope and a stuffed toy owl she routinely disembowels and scatters – wherever she has lost interest in them. She likes to empty handbags left on the floor under desks (sorry Jan!) and is an efficient but indiscriminate paper-shredder. Despite her less sociable traits, it’s impossible to stay stressed about something when Lucy strolls in for a visit, which may involve her curling up for a kip next to your feet (as she is right now) or a nuzzle and a bit of a pat or even – if you’re lucky – a full-bore cuddle. She attends all news meetings, where she sits on the floor and mercifully keeps her opinions to herself, although she has been known to utter an irritated growl from under the table when a certain politician’s name is mentioned. Perhaps I imagined that last bit. But you’ll eventually find yourself valuing their opinions if you keep a pooch or two around the place.
positive neurochemicals stirred up by contact with a dog. You can view this here: www.insurancenews.com.au/maglog. In short, pets lift moods, promote happiness and lower stress. Plus they add a little indefinable something. Surely that Marsh office featured in the Style section of this edition of Insurance News would look even better with some canine inhabitants reclining in the various hubs and spaces? And then there’s this: a recent report from business publisher Forbes says millennials place great value on pet-friendly offices when they’re comparing potential employers. That’s worth thinking about if you’re searching for some high-quality young recruits. Millennials generally are marrying and having children later than previous generations. That means their pets are especially important to them, and being able to bring Fido to work is a very attractive drawcard. And everyone gets to share in the benefits. From what I’ve observed around this place, dogs do most of their sleeping close to their owners, but show special affection for colleagues who babysit them when the owner has to go to a meeting outside the office. Of course, if there are people in the office who don’t like dogs (and such people do apparently exist), bosses have to consider how to ease the tension. However, I reckon a dog gets the message early in the piece and will simply ignore someone who doesn’t want to know them. As the millennials change everything about the world, here’s hoping dog-friendly offices become a standard part of business. Lucy * would like that. Does your office welcome pets? Send us pictures and a description of your experiences and we’ll publish the best ones in maglog. Send pictures and comments to firstname.lastname@example.org.
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