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AITING,WAITING: W MITIGATIONWOES
BACKFLIP Why NSW Premier Gladys Berejiklian ‘deferred’ her plan to sort out the ESL premium tax mess. Will it ever happen?
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Work for yourself, the way you want. PSC Connect give you the power to succeed. If you want the freedom and flexibility to run your own general insurance broking business then speak to PSC Connect. The PSC Connect team provide you with full administrative and compliance support. We are solely focused on providing value add benefits and services to each Authorised Representative to make sure your business flourishes. • National partnerships arrangements with major Insurers • Placement & support to help negotiate better terms with insurers and agencies • Marketing support and sales collateral • New business growth services • Small Business management support • HR and OH &S support • Compliance and regulatory services • Steadfast membership and access to exclusive tools, products and systems • Access to the significant buying power we have with all our suppliers and partners.
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Contents 6 Newsmakers » 10 Backflip » Why the NSW Government suddenly ‘deferred’ its emergency services levy reform program, and will it now happen at all?
64 Driving force » UK motor insurance innovator Sam White is heading to Australia, with spiralling claims costs in her sights.
70 Green parties » Steadfast Group has partnered with conservationist Tim Jarvis to raise awareness of climate change’s impact on insurance.
14 Working with the builders » Growth-oriented SME businesses need brokers more than they realise, the latest Vero report suggests.
72 Standing up for backs »
18 New thinking, new culture, new brand » With IAG-owned NAS and Westcourt merged under an independent structure, Paul Ayton is close to unveiling a new image for Australia’s largest AR group.
24 The wait to mitigate » While governments around the world are acting, the latest federal budget shows how far Australia still has to go.
28 Tech it or leave it » How Australia’s leading insurers are faring in the race to innovate.
32 The MGA way » A partnership model is fuelling the Adelaide-based broker’s local growth as it eyes expansion in Asia.
Allianz call centre staff in Queensland are benefitting from an office makeover that focuses on worker wellbeing.
companyNEWS 74 Efficiency driver » eSentry puts plant and equipment cover online.
74 Building cladding » Broker offers an insurance solution.
peopleNEWS 76 On track to improve mental health » Aon boss James Baum completed a gruelling trek to raise money for a crucial cause.
38 Friendlier skies » 2016 was the second-safest year for global commercial aviation, but recreational flyers are a problem for specialist insurers.
42 The sky’s the limit » Drones are helping insurers respond more quickly to cyclones, bushfires and other catastrophes.
48 A painful process » A campaign group is calling on the industry to do more to help family violence survivors.
52 Ready for the Mansfield Awards » Claims professionals will gather in Sydney to celebrate service excellence.
79 80 82 84 87 88 90 94 96
JMD Ross charity fundraiser goes smoothly » Allianz partners enjoy luxury cruise » Golf day’s Swan Hill debut a winner » Steadfast Convention lives up to billing » SUA celebrates turning 25 » Hobart expo smashes records » Shanghai hosts AIMS conference » YIPs members captivated by ‘fireside chat’ » AIG celebrates its Australian journey »
98 maglog »
54 Handing over at BJS » Bill de Vos steps aside to hand Belinda Scott control of the company that’s named after her.
59 The ice age » New Zealand insurers have cracked down on crystal meth contamination claims, and their Australian counterparts may yet be forced to follow suit.
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62 65 LOCAL
50 REGULATORY & GOVERNMENT
75 LIFE INSURANCE
59 THE PROFESSIONAL
6 BREAKING NEWS More than 24,000 news articles – including 246 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
Review pushes consumer law reform A review of consumer law has recommended applying unfair contract terms to insurance contracts – a move the insurance industry has consistently argued against. Consumer Affairs Australia and New Zealand has submitted its final report for the review, commissioned in March last year. It says “a range of stakeholders” expressed concern that consumers who are party to standard-form insurance contracts are not covered by the unfair contract terms protections. “While the Insurance Contracts Act contains its own protections for consumers (such as the duty to act in the ‘utmost good faith’ and specific disclosure requirements), they are not the same as the [Australian Consumer Law] protections and have not been shown to provide equal or greater consumer protection,” the report says. The Insurance Council of Australia told insuranceNEWS.com.au it believes such a change would bring no benefits to consumers, while increasing compliance costs. Consumerlawreviewrecommendsinsurancecontractreform,24April
insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 22,000 subscribers. In April/May we published 404 articles online. These were made up as follows:
Brokers love monthly payment Premium Funding says its “gamechanging” Pay By The Month facility has been a big hit with brokers since its launch in April last year. More than 200 brokers and authorised representatives have adopted the facility, with many doubling their premium funding commissions, Premium Funding Director Ross Hayward says. About 350,000 clients have been offered the monthly payment option on their invoices in transactions worth $1.1 billion in premium. “The insurance industry is going through a shake-up right now and brokers who don’t adapt and use technology as a tool to cut costs or increase income are going to lose out,” Mr Hayward said. The facility is available to brokers with the Ebix-owned WinBEAT broking system.
Sorry, I am not sure what you mean by mitigation… – News Corp journalist John Rolfe – who told a May Senate inquiry into industry practices the insurance industry is “the greatest stitch-up since the Great Hall Tapestry” and “as transparent as the Yarra” – runs out of cliches when he’s asked about a major industry issue.
Report praises IAG model IAG’sriskmanagementmodel,wherethe chiefriskofficerreportsdirectlytothe chiefexecutiveandtheboard’srisk subcommittee,isa“bestpractice example”ofhowcompaniesshould handlerisks,accordingtoDeloitte Global’slatestreport. TheAustralianinsurer’smodelreflects theviewsofthe54%ofrespondents surveyedbyDeloittewhowanttheirchief riskofficerstospendsignificantlymore timeplayingtheroleofstrategistand havingasayinsettingthecompany’s strategicdirection. “Inorderfororganisationstobuild closeralignmentbetweenvaluecreation andrisk,organisationsagreedtheroleof theCROshouldbeelevatedtoincrease synergybetweenboards,C-suite executivesandCROs,”Deloittesays. “TheIAGmodel…wascalledoutasa bestpracticeexampleofabusinessand riskmanagementinteractionthatis scalabletoanysizeorganisation.” IAGManagingDirectorandChief ExecutivePeterHarmer(right),whowas oneofthechiefexecutivesinterviewed,
saysinthereportthat“businessisall aboutriskandreward,sostrategyandrisk aretwosidesofthesamecoin.Strategy discussionsinthefirmveryquicklyturn intoconversationsaboutrisk.” Deloittesurveyedmorethan300 stakeholdersfromtheC-levelorboard level,excludingchiefriskofficers, globallyforthereport. Almostnineoutof10 companiesrecognisethat riskmanagementshould focusonvaluecreationbut lessthanoneinfiveare takingsufficientactionto addressthis. About82%believethey aretakingtherightamount ofrisksand82%areeither extremelyconfidentor confidenttheirrisk managementactivities areoptimisingoutcomes acrossthecompany. IAG’sriskmanagement modelearnsglobal praise,22May June/July 2017
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Disruption ahead Insurers should expect the next wave of insurtech challengers to be “savvier, more creative and more ambitious”, management consultant Oliver Wyman says. “The first wave of insurtechs brought forward a lot of activity but little real disruption,” partner Dietmar Kottmann said. “There will be a second wave of insurtechs… with the potential to truly change the way insurers cover risk. The question is, how will the insurance industry respond?” Dr Kottmann and insurtech investor Policen Direkt have co-authored a report called Insurtech Caught on the Radar: Hype or the Next Frontier? It identifies major opportunities in the insurtech space that are yet to be fully exploited. Current insurtech investments “have a blind spot for some of the most attractive opportunities, which require truly innovative engagement models that go beyond the current value chain”, the report says. “However, exploiting these opportunities requires a major change in approach. The race to the next frontier is on.” Insurtech ‘second wave’ promises greater disruption, 29 May
Byrnes takes over at AHI Accident and Health International (AHI) has appointed Danny Byrnes (right) as chief executive, following the departure of Peter Banks. Mr Byrnes has been recruited from IAG, where he most recently led CGU’s national authorised representative strategy. CGU owns and underwrites AHI. Mr Byrnes has more than 27 years’ industry experience, having held senior management roles at IAG across sales, distribution strategy, underwriting and strategic relationship management. He will divide his time between the Melbourne and Sydney AHI offices, and starts in the position tomorrow. AHI appoints new CEO, 1 May
Cable risk remains Nearly half the faulty Infinity electrical cabling installed in homes and buildings across Australia and subject to a national recall is yet to be fixed, leaving thousands of people at risk of electrocution or fire. Cable installed in New South Wales homes in 2010 may have already started cracking, while remaining states and territories, where it was installed from 2011, are in danger from next year, the Australian Competition and Consumer Commission (ACCC) says. The voluntary recall began in August 2013, but only 54% of the 4313km of dangerous cable has been found and fixed. “Your home might be a ticking time-bomb if you haven’t had Infinity cabling replaced,” ACCC Deputy Chairman Delia Rickard said. The regulator has warned electricians to contact previous clients, including property owners and businesses, if they suspect they installed the Infinity product. “In some circumstances suppliers, installers and property owners may be liable to pay compensation for injury or property damage caused by Infinity cable installed in buildings,” Ms Rickard said. The cabling, imported from China, can become prematurely brittle and break when placed under stress near heat sources and roof access areas, which may lead to electric shock or fire if the cables are disturbed by homeowners or tradespeople.
Gallagher looks for new chief Arthur J Gallagher will start the search for a new Australia chief executive following the resignation of Andrew Godden (below). As revealed in a Breaking News bulletin, Mr Godden is to take over as BMS Group’s Australian Chief Executive.
He has spent seven years in charge of Gallagher’s Australian broking operations since it acquired the business he co-founded, Specialist Broking Associates. He has overseen many changes, including the purchase of OAMPS from Wesfarmers in 2014. In an email to staff, Mr Godden says the decision to leave was not taken lightly, but he feels the time is right for a new challenge. UK-based specialist insurance and reinsurance broker BMS has a small but growing Australian presence, and sees the appointment of Mr Godden as a milestone in its regional development. Mr Godden will be based in Sydney. He has a 12-month notice period. Gallagher starts CEO hunt as BMS grabs Godden, 15 May
Remaining Infinity cables a ‘ticking time-bomb’, 29 May
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Suncorp cuts premiums Suncorphascutthepremiumsof 31,000customersinnorthern Australiaaftertheymadetheir homesmorecyclone-resilient undertheinsurer’sProtectingthe Northinitiative. Customerswhoupgraded roofs,coveredwindows, strengtheneddoors,and undertookcyclone-season maintenanceandpreparation receivedtheCycloneResilience Benefit,whichinsomecaseshas takenhundredsofdollarsoff theirpremiums. Theinitiativewasintroduced ayearagoafterSuncorp commissionedresearchon cyclone-proofinghomes. “Whatwefoundwasthat somesimple,low-costupgrades canpayforthemselvesafterjust onemajorYasi-likecyclone,” ChiefExecutiveInsurance AnthonyDay(right)said.
“Homeownersshouldbe rewardedforputtingeffective safeguardsinplacetofendoff theimpactsofacyclone.The benefitisthebestexampleof theindustryplayingitsrole.” Beneficiariesinclude7000 customersfromMackayand 6000fromCairns. Suncorprewards31,000 customersforcyclone mitigation,22May
Beazley sells A&H portfolio Global specialty insurer Beazley has drastically reduced its Australian presence with the sale of its accident and health portfolio. Blend, a new underwriting agency backed by Steadfast and Fairfax Financial subsidiary Advent Capital, has acquired the Beazley book and is looking to expand. Beazley is not exiting the Australian market, and retains its contingency business. Blend Chief Executive Chris Newing joined in February following a decade with Chubb (formerly Ace), most recently as consumer manager for Australia and New Zealand. Former Beazley head of Australian accident and health Suzanne White has also joined Blend as General Manager Distribution (Coverholders & Brokers). Mr Newing told insuranceNEWS.com.au Blend was conceived before the Beazley opportunity came up. “[Steadfast] recognised that it could do more with accident and health,” he said. “The Beazley portfolio was a unique opportunity for us.
Ourcoverstoryforthismonthcouldonlyeverhavebeenaboutthe unexpectedchangeofheartbytheNewSouthWalesGovernment overitsemergencyserviceslevyreforms.It’sadevelopmentthathas disappointedandangeredmanyindustryleaders. WhilethereasonsstatedbyPremierGladysBerejiklianand TreasurerDominicPerrottetcentredontheunforeseenimpactson SMEbusinesses,therewere–asourleadingarticlemakesclear– arangeoflessobviousreasons. Whatstruckindustryleadersasmostnotablewasthecomplete lackofwarningfromtheGovernment.Ononemeasurethat’s understandable.Anywarningcouldhavebeenusedbytheindustry tomusteritsforcesandmaketheembarrassmentofapolicybackflip moredamaging. It’sthestrategyadoptedbytheFederalGovernmentinitsrecent Budget,whenitimposedalevyonthemajorbankstoraise$1.5billion ayearoverthenextfouryearswithoutconsultingthebanks beforehand. Thequestionthatshouldbeexaminedbytheinsuranceindustry (asmuchasthebankingindustry)isthis:whydogovernmentsfeel theycantreatindustrieswithinfinancialserviceswithsuchdisrespect? Thesimpleansweris,becausethey’renotparticularlywell regardedwithinthewidercommunity.Therearemanyreasonsforthat, mostofwhicharefamiliarandnotworthrepeatinghere. Buthowfarcanthisgo?TheNSWGovernment’sapproachto thelevyreformprogrammirroredtheVictorianGovernment’sin2013. BothappointedAllanFels,ahigh-profileconsumeradvocatewhose solejobhasbeentoensureinsurers’andbrokers’compliancewith thelegislation. Penaltiesupto$10millionfor“insurerswhodothewrongthing whenthe[levy]istakenoffpropertyinsurance”areasstupendously excessiveassomeofthemonitor’smediastatements. Theseroutinely“putinsurancecompaniesonnotice”ofharsh actionresultingfromsuchthingsaspricingerrors,priceexploitation andfalseandmisleadingconduct. Theyarepresumablyintendedtogivethepublicconfidenceinthe (now-halted)reformprocess,althoughthatcouldbedoneinwaysthat don’thavetheflow-oneffectofintimatingthatinsurancecompanies wouldhappilyengageincriminalactivityifthemonitorwasn’tthereto blowthewhistle. Warningsofthisnaturecouldjustaseasily–andmoreeffectively –beaddresseddirectlytochiefexecutives.Distributedtoawide publicaudience,theyportraythemonitor’sofficeinaglowinglightat theexpenseoftheinsuranceindustry. Suchstatementsfosteralingeringsuspicioninthemindsofthe publicandtheyshouldbevigorouslychallenged.Thecompaniesand peoplewhoworkininsurancedeservebetter. TerryMcMullan
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BACKFLIP WhytheNSWGovernmentsuddenly‘deferred’ itsemergencyserviceslevyreformprogram, andwillitnowhappenatall? By Terry McMullan
THE DECISION BY NEW SOUTH WALES Premier Gladys Berejiklian to put the brakes on the fire and emergency services levy reform came as a shock to the insurance industry. With just a month to go until the introduction of a fairer and more efficient system to collect funds for the state’s emergency services, political nerves took over. Newspaper reports in the weeks preceding the Government’s shock backflip had highlighted the fact some property owners in the state – most prominently large businesses and rural interests – would pay more under a move to scrap the tax on insurance premiums and replace it with a levy on all properties. There was no sign that, having enacted legislation to make the reform happen, the Government would back down with just a month to go. But that’s just what it did. At a low-key media conference in Sydney on May 30, Ms Berejiklian and her Treasurer, Dominic Perrottet, said it had become clear some fully insured businesses “are facing unintended consequences” from the changes. The announcement caught the insurance industry completely by surprise. Many industry professionals first found out about the decision through a Breaking News bulletin from Insurance News, with nearly 26,000 people reading it. The Government did not consult the industry about the decision, although Mr Perrottet has promised the Government will now work with the industry, plus councils and other stakeholders, to find a “better and fairer” path forward. Moves to replace the emergency services levy (ESL) from July 1 were also unpopular with the councils that would have to collect the funds for the Government through rates. They feared they would be the ones to feel the fury of ratepayers forced to dig 10
deeper, and many NSW councils face elections on September 9 – just two months after the new system was to come into effect. Ms Berejiklian and her Government first demonstrated their sensitivity to public pushbacks in February, when longestablished plans to proceed with forced amalgamations of local councils in regional areas were halted. Instead, only the five metropolitan Sydney councils will be subject to amalgamations. Prior to that, its decision to ban greyhound racing was scrapped under pressure from its Coalition partner, the regionalbased Nationals, and Liberal Party regional MPs. With each backflip the reasoning has always been the same: this is a “listening government”. The levy transfer plan was also unpopular in the regions, and the business associations that have easy access to the Government added their weight to the pressure on ministers. Nor was the firefighters’ union happy with the situation, accusing Ms Berejiklian of concocting a “rip-off of ordinary householders”. The union’s reasoning – that some properties, such as those in bushfire areas, are more prone to fire than homes in the suburbs, for example, and that people in Sydney would pay more than property owners in, say, Dubbo – was, at best, specious. At the media conference on May 30, Ms Berejiklian and her Treasurer focused not on the impact on households, but on the fact the reform would be felt more by SME businesses. “While the new system produces fairer outcomes in the majority of cases, some people – particularly in the commercial and industrial sectors – are worse off by too much under the current model, and that is not what we intended,” she said. insuranceNEWS
Mr Perrottet added: “It’s not enough for this reform to work on paper. Its real-life implementation has real-life consequences for families and businesses, and we need to make sure they are not placed under unfair strain.” So, with a month to go until the new system came into effect, the Government was saying it hadn’t really thought this whole thing through before it started. Ms Berejiklian is now in the embarrassing position of having to reverse legislation she pushed through the State Parliament in March. Ironically, she was treasurer when she announced the reform in December 2015, saying it was “long overdue [and] has been recommended by recent reviews into state taxes, including the Henry review, and shows the NSW Government is committed to tax reform”. Now here she was as Premier, disowning it all as a shoddily researched and illprepared plan that needs more work. Certainly, there had been rumblings in Sydney newspapers over preceding weeks, with online calculators raising alarm about big jumps in costs among businesses and some Sydney householders. Probably one of the factors that should have been addressed by the Government and the insurance industry much earlier was the need to reinforce the message to the community that this was a better and much fairer system, where everyone would contribute. Instead, the Government promoted itself in advertisements that said “insurance prices are already falling”, without making the case for the reform itself. Critics contacted by Insurance News say the plan was pretty much left to fend for itself against a mob of vested interests, with no real attempt by proponents of the plan to support it. Yet the message they had to sell was a positive one.
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Surpriseannouncement: NSWPremierGladysBerejiklian andTreasurerDominicPerrottet
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“Time will tell if this reform returns, and if it does it will probably be in a completely different form.”
At present, people who are insured are paying for 75% of the emergency services’ budget, which is about $1 billion a year, and they will continue to pay that until – if ever – the mess is cleared up. About 40 cents in every premium dollar goes to pay the levy. But under the nowdeferred reform, the saving on individual premiums would have been about $47 a year. The average levy on rates, based on the unimproved value of the land, would have been about $185. Now, despite the industry saying it has spent tens of millions of dollars resetting its systems and reorganising its resources, the Government insists its backflip will have no effect on insurers’ costs. The role of the ESL Insurance Monitor Allan Fels, a consumer advocate of enormous stature who was appointed to “protect the interests of consumers”, may now switch from overseeing insurers’ behaviour during the transfer process to monitoring their behaviour in adhering to the status quo. Deputy ESL Insurance Monitor David Cousins has stated the monitor already has the powers in place to control any premium rises. He says he is “concerned and sceptical” about Insurance Council of Australia statements that insurers may have to pass on tens of millions of dollars in costs to customers. “The insurance monitor’s current powers provide for the ability to take action against insurers that charge unreasonably high premiums, including where they overstate the administrative or other costs associated with supplying insurance,” Mr Cousins said. “Insurance companies should not assume they can pass on such costs on to policyholders. We will subject such claims to scrutiny.” The tone is typically belligerent, and the law the monitor operates under is, too. 12
Insurers stand to be fined up to $10 million for “misleading policyholders or charging unreasonably high insurance prices”. However, the monitor has no powers to prevent insurers recovering legitimate costs they have outlaid – especially when those costs were incurred meeting a government program that is no longer in force. As the Federal Government is discovering with its controversial tax on the major banks, companies affected financially by government actions will recover the losses through the normal course of commerce. And the Australian insurance industry being as intensely competitive as it is, the definition of “unreasonably high” premiums will be set by the market, not the monitor. The big question now is, does this backflip mean the end of the NSW emergency services levy reform? According to a variety of informed sources contacted by Insurance News, it probably does. And in the form of a council-collected levy, it’s almost certainly dead. During the media conference announcing she had halted her reform program, Ms Berejiklian declined to say whether it would be scrapped or deferred, saying: “If we don’t get a fairer system, we won’t introduce it. But our intent is to defer until we get a fairer system.” The sources say the NSW Government lacks the political will to undertake reforms that threaten its continuity in government or upset its Coalition partners the Nationals, support groups or even Sydney’s uniquely rabid radio shock-jocks. The counter-argument, mounted mostly by sources within the insurance industry, is that NSW will eventually find a way to make it happen because this reform makes economic sense. They point to the example of Victoria, which switched from a premium-based levy insuranceNEWS
system to a rates-based collection in 2013 without much controversy. However, they forget the particular circumstances under which the Victorian Government made the change. Politicians of all stripes were opposed to any form of change for many years, and would probably still be ignoring the need for reform had the Black Saturday bushfires of 2009 not happened. The royal commission that investigated the disaster made 67 recommendations when it reported in July 2010, the 64th of which advised the state to replace the fire services levy with a property-based collection system. It was accepted by the Government, along with most of the other recommendations. The royal commission’s findings were widely supported and respected by the Victorian community, making reforming the levy system a relatively painless political exercise. It introduced a new rates-based system with many of the same impacts the NSW system has, but without the level of opposition the Berejiklian Government has experienced. Is there an alternative way of achieving fairness and efficiency in funding NSW’s emergency services? Yes, there is, and it’s widely supported. That is to simply fund the emergency services through consolidated revenue, in the same way as the state’s police and most other public services are funded. But it might result in a taxation rise, and that’s something this controversy-shy Government seems to fear more than anything else on its long list of worries. Time will tell if this reform returns, and if it does it will probably be in a completely different form. For the sake of economic efficiency and the principle of fairness, you have * to hope it’s not completely dead.
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Additional cover for rental upgrades
Increased cover for costs of break ins, glass and theft
CGU CGU Insurance Insurance Limited Limited ABN 27 27 004 478 478 371 371 AFSL 238291
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Working with the builders Growth-orientedSMEbusinessesneedbrokersmore thantheyrealise,thelatestVeroreportsuggests By Wendy Pugh
SURVIVING THE CHALLENGES OF automation and digital disruption is becoming a highwire act in many work arenas, and insurance broking is among those wobbling – but there are opportunities to be grasped on the way to firmer ground. Vero’s SME Insurance Index overview report made confronting reading earlier this year, highlighting the sliding percentage of small-medium businesses using brokers and growing numbers buying direct. The second tranche of results presents a more positive picture, highlighting growth areas for brokers and the potential to become trusted policy advisers by demonstrating their expertise to ambitious business owners. The latest release, one of four reports planned for the year, focuses on SME motivations and ambitions, and how these influence their attitudes towards insurance and brokers. Vero, Suncorp’s intermediated insurance arm, finds many SMEs are not covered for business interruption, while only 27% of owners in the growth-oriented “business builders” category use a broker. “This is an opportunity for brokers to increase their presence with these more 14
sophisticated business owners,” Vero Head of Commercial Intermediaries Anthony Pagano says. “To attract and retain the best SME clients, brokers need to demonstrate the value they can deliver to businesses beyond a transactional relationship.” Further SME Insurance Index reports this year will examine the changing attitudes of female owners and how the sector uses financial services more broadly, as the pressure grows on brokers to ensure they better understand and meet the demand of the potential customer base.
The survey, now in its sixth year, comes amid a flurry of global reports examining the future of work, with the pace of change generating some dire views about long-term prospects. A PricewaterhouseCoopers report released in March says almost one-third of UK financial and insurance jobs may be at high risk of automation by the early 2030s. A report last year on job prospects, funded by NBN and the Regional Australia Institute, suggests the two core skills required for the future are specialist knowledge and people skills.
Level of satisfaction with current broker (broker clients) All business owners
High (8 to 10) insuranceNEWS
Mid (6 to 7)
Low (0 to 5)
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By those criteria, brokers should be well placed, allowing for the fact that increasingly routine transactions are likely to go online. “Insurance broking is, above all, a relationship business,” the Vero report says. “However, to become a trusted adviser, brokers need a deep understanding of their clients beyond their immediate insurance needs.” The report makes clear that brokers must work hard to win over areas of the SME market that offer the greatest rewards. The highlighted business builders group of owners tend to have long-term goals such as creating an empire, leaving a legacy or creating a saleable asset. They are often younger, have the highest average business revenue, are significantly more likely to have growth ambitions and demonstrate a degree of forward planning. “Their size and ambition should suggest that they may be more likely to place importance on protecting their business and seeking expert insurance advice,” the report says. “However, this suggestion is not being reflected in current insurance buying behaviour.” Not only do business owners in this category often bypass brokers, when they do
choose an intermediary they are less satisfied with the service compared with other SMEs. Only 55% of the group score their broker eight or more out of 10 for overall satisfaction, compared with 66% among all business owners. Vero suggests the difference reflects the higher expectations they have from brokers. They are “markedly more likely” to place importance on tasks that require greater expertise, such as providing indepth information and analysis, assessing risk profiles and providing advice on financial services beyond business insurance.
They also require more contact, with 79% of business builders wishing to see their broker face to face at least once a year, and 59% expecting a phone call every few months. The survey finds only 43% say they do not use a broker because they can easily do it themselves, compared with 51% among all owners, highlighting the greater complexity in their businesses. But 42% do not want to deal with a middleman, which tends to indicate they don’t understand the full benefits a broker can deliver and see the service in a more
Reasons for not using a broker (direct clients) 51%
I can do it easily enough myself
I don’t want to deal with a middleman/rather do it directly I don’t know how to find the right broker for me
36% 10% 10%
All business owners insuranceNEWS
Business builders 15
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“[Business builders] are more demanding than other business owners. To attract and retain them, brokers need to demonstrate expertise and high levels of service.”
transactional light. Of those who go direct, 23% note that using a broker could save them time so they can focus on their business. Vero says brokers need to highlight their services, relationship style and support for enterprise growth. They must also stay on top of their game once they have won over business builders. “They are more demanding than other business owners,” the report says. “To attract and retain them, brokers need to demonstrate expertise and high levels of service.” Broken down by age, 72% of 18 to 39-year-olds want to grow their business, compared with 40% of owners aged above 40. While growth can easily be derailed by unforeseen events or a lack of planning, only 21% of those with contingency plans claim to have business interruption insurance. “This significant gap is an opportunity for brokers to explain what business interruption insurance means to clients who want to protect their business for future growth,” Mr Pagano says. SME Insurance Index data released earlier this year shows the proportion of respondents who exclusively use a broker fell to 31% last year, compared with 40% in 2013, while the number who bought their latest policy online increased to 27% from 20%. Stemming the tide and becoming a trusted adviser means understanding what drives an enterprise, why it was started, and the clients’ hopes, dreams and fears for their businesses, according to the latest report. The fortunes of brokers and business clients are intertwined as they seek a secure pathway. “The opportunity for brokers is to ensure SMEs understand the power of quality risk advice to underpin their busi* ness success,” Mr Pagano says.
NZ: new ground, familiar foes VEROREPORTSONSMEINSURANCEPURCHASINGPATTERNSINAUSTRALIAAND NewZealandshowcontrastingstatesandfamiliarchallengeswhenitcomestothe useofbrokers. TheinsurerreleaseditsfirstSMEInsuranceIndexforNewZealandlastmonth,sono previousdataisprovidedtodemonstrateshiftsinthemarket. ButcomparedwithAustralia,brokersacrosstheTasmanhaveafarmoreprominent roleinSMEbuyingdecisions,evenifsimilarchallengesarelooming. Theinauguralsurveyfinds69%ofNewZealandSMEswithsixormoreemployees aremorelikelytobuyinsurancethroughabrokeroradviser,comparedwith57%of SMEswith1-5employees. InAustralia,theVerosurveyshowstheproportionofSMEbusinessesthatbought insurancethroughabrokerdecreasedto31%lastyear,comparedwith40%in2013. WhiletheNewZealandlevelslookbuoyantfromanAustralianperspective,theyare stilllowerthanlocalexpectations. “Givenbrokersandadvisershavelongbeenconsideredtobethestandardinsurance purchasechannelforbusinessesinNewZealand,thefactthatone-thirdofSMEsclaimto buytheirinsurancedirectmaycomeasasurprisetomanyintheindustry,”thereportsays. About97%ofNewZealandbusinessesareSMEswithfewerthan20employees,and thesectorisagrowthenginefortheeconomy. TheVeroreportshowstheuseofNewZealandbrokersislinkedmainlytobusiness size,whileageandgenderhavelittleinfluence,andthetypeofsectorisnotamajorfactor. “Whensmallbusinessesgrow,regardlessofthetypeofindustrytheyarein,they reachapointwheretheirbusinessbecomesmorecomplexandtheymayneedadviceto understandtheimpactofchangeandgrowthontheirinsuranceneeds,”SuncorpNew ZealandExecutiveGeneralManagerCustomerExperienceCampbellMitchellsays. Verowarnsthat“overseasexperience”suggeststhereisnoroomforcomplacency, andNewZealandbrokersshouldbepreparedtofightariseindirectpurchases,with shiftsinAustraliaalsoseeninothercomparablemarketssuchastheUnitedKingdom andCanada. “Worldwide,thetrendtowardsdisintermediationisaccelerating,drivenpartlybythe increasingpopularityofonlinechannels,”Verosays. ItoffersNewZealandbrokerssomefamiliaradvice,urgingthemtothinkabout buildingrelationshipsandbeingtrustedadviserstoguardagainstadeclineintheuseof intermediaries. Morethanhalftheclientssurveyedscoretheirbrokeratleasteightoutof10in satisfactionratings,butmorethanaquarterclaimtobe“dissatisfied”andalmostafifth are“indifferent”. “Whilethesehighlevelsofambivalencearesustainableinastaticenvironment,there couldbeconsiderableriskthattheseclientswillbethefirsttobetemptedtoalternative channelsastheybecomemorewidelyavailable,”thereportsays. Thefindingsarebasedonsurveysofmorethan1000SMEs.Furtherdetailswillbe releasedinseparatereportslaterthisyear. Buttrendsemergingoverthenextfewyearswillbemorecloselywatched. “TheresultsofourinauguralVeroSMEInsuranceIndexconfirm,challengeand illustratesomewidelyheldviewsonthedirectiontheinsuranceindustryisfollowing,” thereportsays.“Thecurrentreportedrateofbrokerandadviserusageisanimportant benchmarktofollowinyearstocome.”
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New thinking, new culture, new brand
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WithIAG-ownedNASandWestcourtmergedunderanindependent structure,PaulAytonisclosetounveilinganewimageforAustralia’s largestARgroup By Terry McMullan
IAG HAS GIVEN PAUL AYTON WHAT HE REFERS TO as “a blank canvas” to build the NAS/Westcourt authorised representative (AR) network. That involves a new brand – in August NAS/Westcourt will be relaunched as Community Broker Network – and the chance to clearly define the type of business it should be. NAS, which stands for National Adviser Services, is the industry’s largest AR network. Its footprint was boosted in the past year by the addition of the former Perth-based Westcourt General Insurance Brokers network, plus the decision to fold CGU’s group of about 120 tied agents into the group, to form an independent distribution company within IAG. Where once there were questions in the market over any AR company’s ability to be independent in the midst of a very large and driven insurance group – Suncorp is just one major competitor with a significant AR operation – Managing Director Mr Ayton is crystal clear about where the NAS/Westcourt network sits in the IAG family. “Our business is absolutely independent from IAG,” he tells Insurance News. “While IAG is our sole shareholder, we have an independent board with an independent chair and just one board member who is an IAG staff member. Outside of that it’s a fully independent organisation.” It’s a point he’s at some pains to emphasise, saying it’s important to understand how NAS/Westcourt is “corporately separate” from IAG’s
insurance manufacturing brands and the various other distribution arms. For starters, IAG holds no monopoly over the range of products NAS recommends to its clients. It has 100 different insurance relationships. “Our shareholder could be anybody,” Mr Ayton says. “One of our guiding principles – one of our trademarks that we’ve set up for a new business as we move forward – is that we are calling out very clearly that our authorised brokers are not just representing one particular organisation. “We want them to control and own their own businesses, and we’re calling that out as one of our business foundations. We are being very clear and deliberate about that. “So everyone within our network, and anyone outside the network as well, has clarity that we are absolutely not just going to be offering IAG products. “We absolutely want the business to be customerguided, and I really don’t believe you can provide genuine advice to customers under a broking model unless you have access to a whole range of products. One insurer certainly would not be able to meet the needs of every customer we have.” That approach lends greater credibility to the decision to call the network members “authorised brokers”, a term introduced in 2015 by Westcourt founder Jeff Hollands. Mr Ayton says “authorised brokers” has been adopted as a central part of the new operating model, “because they are actually broking”. The acquisition of the Westcourt network in June last year provided IAG with an opportunity to redefine its AR strategy, and at the same time transition CGU’s tied agents into the division. NAS traces its origins to May 2001. It was one of the first organisations to seize the opportunities offered by the authorised representative model, established in the Financial Services Reform Act 2001. By 2012 it was handling more than 40,000 clients and recording more than $100 million in gross written premium. IAG acquired NAS a few years after it was established, and today the combined NAS/Westcourt/CGU client list stands at more than 200,000 small businesses, with gross written premium exceeding $500 million, all handled by more than 400 ARs.
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“We want to generate more opportunity for our authorised brokers to achieve efficiency at the back end, so they can spend more time with their clients.”
But while he’s happy it is the largest AR group in Australia, Mr Ayton emphasises to Insurance News that the focus isn’t on being the biggest. “We want to be the best.” The acquisition of Westcourt signalled a complete overhaul of much of the NAS operation. Mr Ayton, a 16-year IAG veteran who has experience across the group, joined as managing director shortly after Westcourt came on board, replacing interim chief James How. Australian Business Division Chief Executive Ben Bessell hailed the acquisition as “a compelling strategic fit” for IAG and an ideal way of enhancing the NAS offering. The deal was indeed a good strategic fit. The former Westcourt businesses are primarily based in metropolitan centres, while NAS is one of Australia’s largest rural and regional general insurance broking operations. Mr Ayton has made a number of appointments to fulfil the parent company’s brief to grow and prosper. Former IAG senior manager, culture and leadership Richard Crawford is now General Manager Distribution, while Jeremy Boyle, previously an IT specialist at PMA Insurance Services in Toowoomba, is Network Development Manager. Kathryn Considine, formerly a delivery specialist in the national partnerships team at CGU, is part of the “new face” of the AR network, as Regional Manager Victoria/Tasmania. Mr Hollands, who founded and managed Westcourt, stayed with the business as national manager network relationships, to help with the Westcourt integration, but recently retired. Mr Ayton says, despite reports some Westcourt ARs were unhappy with the sale to NAS, that wasn’t his experience when he joined. From his viewpoint, the integration exercise “has gone really well”. “We were fortunate to be given a blank canvas and define the type of business that we want to be,” he says. “And the fact that NAS and Westcourt were operating quite well within themselves has given us the time to determine the type of organisation and network we want to be going forward. “I think while there was a little bit of uncertainty, the ARs on both the Westcourt and the NAS side have been very generous in giving us that opportunity, and now they are starting to see the benefits of what it is we are trying to achieve.” 20
The most noticeable looming change is the new brand. Mr Ayton says the Community Broker Network name “will be representative of our purpose and what we are trying to achieve as a business”. However, the new brand won’t be front and centre across the network members’ offices, with the organisation’s authorised brokers continuing to have the right to name their business. “They are in the best position to determine what brand they should take to market, and we are very comfortable with them using whatever name that they think is appropriate,” Mr Ayton says. “While our network name will be important for our staff and we need a recognisable name to use within the industry, the authorised brokers are the ones who’ve built the relationships and their own brands.” Reviewing the newly enlarged operation and planning for the future has occupied much of his focus since he took over last year. His summary of what NAS wants to be known for – “its purpose and why we are here” – is simple enough. “We absolutely want to be customer-centric or customer-guided. We think that’s really important, and we don’t want that to be a flippant statement. “Everybody’s got that in their mission statement. We want to be real and true and authentic around that. We also want to be sure that our authorised brokers control and own their own businesses, because I think that’s the only way you can be customer-centric. “So we will not have restrictions on what insurers they can access and so on. “I believe the value in our network is the advice provided from our authorised brokers to their customers, and they need to have the freedom to provide products that meet the needs of those customers. Otherwise how could you possibly be customer-centric?” That focus on customer-centricity is a topic Mr Ayton returns to several times in his conversation with Insurance News. “We want to generate more opportunity for our authorised brokers to achieve efficiency at the back end, so they can spend more time with their clients.” Of course, NAS/Westcourt is operating in a very competitive field, and competitors large and small carry much
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“The broker relationship will always be of value, and as long as we continue to focus and enhance that, there will always be a place for brokers.”
the same message as he does on the vital role of the broker-client relationship and the advantage of the AR model in achieving it. But NAS/Westcourt, he says, has the scale and the backing to really turn aspiration into a competitive advantage. “Our differentiator is that we understand where the value lies in the network – and that it is in the intimate relationship the authorised brokers have with their clients. “While we are a big organisation and we have the benefit of scale, we want to use that benefit of scale to ensure we enhance the relationships authorised brokers can build with their clients.” Technology, he says, is a great enabler in achieving such an aim. But, of course, technology can also be a massive hindrance to a company if the organisation with which it’s merging has different systems – and that’s the case with NAS/Westcourt. However, Mr Ayton isn’t concerned at this point, saying he and his team are in no rush to consolidate back-office operations around one system. “We have people from three different networks using various forms of technology, but we’re spending some time understanding what we believe the right system solution will be in the future. “We really want to understand first the key things the network needs from a system, and how we can deliver that efficiently. “In our view that takes a bit of time to work through, and we certainly won’t be rushing into a system decision. “At the moment we are able to deal with all sorts of different systems. For now we are continuing to do tweaks to existing systems to iron out bugs and make them as efficient as we can, and we’re not doing any big investment in systems at this point. “What we do need to focus on, and what we do have now, is data and information. [But] we want that data and information to be in a format where we can use whatever system is best at the time.” Nor is Mr Ayton too concerned with the continuing rise of the direct insurance market, and the recent Vero reports that show SME owners are increasingly confident at arranging their own insurance without the aid of brokers. 22
“All the feedback we get and the discussions and information and research we look at shows people want that close and intimate relationship with a broker,” he says. “I think where you are providing real value to a client, the risk of them going direct is quite remote. “We don’t know too many small businesses that want to spend all day on their businesses and then go home and spend all night on the internet trying to work through something that can be quite complex.” He says people starting out in business may be more likely to use the direct market, but they will eventually contact a broker when their businesses grow and they become more aware of the risks they face. “The broker relationship will always be of value, and as long as we continue to focus and enhance that, there will always be a place for brokers.” Looking ahead, does Mr Ayton see continuing consolidation in the broker market, as predicted by Mr Hollands when the acquisition of Westcourt was announced? He thinks it’s quite possible, particularly in a market experiencing new ways of distributing insurance products, and where the burden of holding a financial services licence and the rising cost of compliance are important factors. “I think there is a great opportunity for us to become more attractive to brokers, because what brokers are good at, and where their value is, lies with building relationships with their clients. “Why do they need to invest the time, resources and energy in licence fees and compliance?” He says the AR model is “the fastest-growing area of commercial insurance by far, here and in overseas markets”, and his operation is “developing a network that has a really good understanding of where the value lies in the advice model. We are going to continually focus on making sure everything else around that value is made as efficient as possible, so we can focus on that. “If we are successful in doing that, I can’t see any reason why people won’t want to join us.” Summarising the future for the soon-to-be Community Broker Network, he says it will be “an open and transparent organisation. We are independent and we operate an independent structure. And we want to focus on the relationship between the broker and the customer. * “That’s where the opportunity lies.”
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The wait to mitigate Whilegovernmentsaroundtheworld areacting,thelatestfederalbudget showshowfarAustraliastillhastogo MITIGATION AND DISASTER POOL SUPPORTERS CAN ONLY look at the northern hemisphere with envy at the moment, as hopedfor action in Australia founders amid reviews and reports. Canada this year set aside $C2 billion for its Disaster Mitigation and Adaptation Fund, supporting the infrastructure needed to deal with climate change. It was described by insurers as “the most significant disaster-proofing investment” in the country’s history. Meanwhile, the UK has hailed the success of its one-year-old Flood Re insurance program, which has cut premiums for residents previously unable to afford cover. In Australia, insurance affordability problems in disaster-prone areas continue to take a toll, while Cyclone Debbie, which crossed the Queensland coast on March 28, provided the latest reminder that the next natural catastrophe is never far away. “In the aftermath of Cyclone Debbie, the case for urgent investment in permanent, well-designed mitigation for disaster-prone communities cannot be clearer,” Insurance Council of Australia (ICA) President and Suncorp Chief Executive Insurance Anthony Day says. “Australia must do much more to prevent the impact of extreme weather, rather than throw money at it afterwards in ways that do nothing to reduce the impact of the next cyclone or flood or storm.” Last month’s federal budget allocated just $26.1 million next financial year to disaster mitigation, and $7.9 million over four years so the Australian Competition and Consumer Commission can monitor and report on insurance premiums in the north.
ICA and other groups had urged the Government to adopt advice from a 2014 Productivity Commission natural disaster funding arrangements report and set aside $200 million a year, matched by state contributions. The budget was “a missed opportunity to invest in urgent nation-building mitigation and resilience measures,” ICA Chief Executive Rob Whelan says. The issue has come under repeated review as costs increase and development continues, while climate change research suggests cyclones may become less frequent but more severe. In 2015 the Government charged the Northern Australia Insurance Premiums Taskforce with exploring options for reducing home, contents and strata premiums in the cyclone-prone region. The taskforce report went to the Government in November that year and was released by Revenue and Financial Services Minister Kelly O’Dwyer several months later, but there is yet to be a formal response. That report supported mitigation, after exploring an insurance mutual or reinsurance pool as other ways to bring down premiums. The Australian Government Actuary has also examined insurance pricing in the north, while a Senate committee is currently completing an inquiry into the general insurance industry. Mr Day says the industry has seen enough reports, and now it’s time for stronger action. “While we understand that there is support for mitigation on both sides of the political divide, the policy debate has continued too long,” he says. “The situation where only 3% of the budget available for natural disaster responses is spent on mitigation and 97% on relief and recovery must end.” Brian Head, from the University of Queensland School of Political Science and International Studies, says issues around who should pay are impeding the Federal Government from leading the way. “The Federal Government believes the states have primary
By Wendy Pugh
responsibility to deal with infrastructure that is relevant to disaster management or disaster recovery,” he tells Insurance News. “It is not surprising that they would not wish to put a lot of money into that, because if they start taking responsibility for it, it is a never-ending claim on resources.” Similar turf battles over who picks up what share of disaster costs exist between governments and the private sector. “Again, it is a cost-shifting game,” Professor Head says. “For people living in disaster-prone areas, particularly flood-prone or cyclone-prone areas, the insurance industry would love to see government invest in upgraded infrastructure to reduce the overall cost of damage.” In any case, governments typically end up being the funders of last resort, providing emergency assistance to devastated communities after a disaster. In 2014 the Australian Business Roundtable for Disaster Resilience & Safer Communities calculated that investing $250 million a year in mitigation would save the Federal Government $12.2 billion by 2050. Improved building standards and greater demand for infrastructure resilience have improved mitigation, while widespread flood insurance cover, and increased clarity over what that includes, has also been introduced in the past decade. But much more remains to be done. Cyclone Debbie and east-coast storms have highlighted issues for houses built decades ago in risky locations, while high premiums are causing some people to decide cover is simply not worth the cost. Some residents in Lismore, in northern New South Wales, faced premiums of $10,000-$20,000 if they included flood cover, forcing them to exclude it from home and contents policies, according to the town’s mayor Isaac Smith. In the face of cyclone risks, spending $30,000-$50,000 to retrofit a home to updated standards may still only reduce exorbitant premiums to slightly less exorbitant levels. insuranceNEWS
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1300 130 0 748 767 TOLL FREE www.austcaravaninsurance.com.au
NM Insurance Pty Ltd (ABN 34 100 633 0380) (AFSL 227186) has been given a binder authority by the insurer AIG Australia Ltd (ABN 93 004 727 753) (AFSL 381686). NM Insurance enters into policies, handles and settles claims as it were the insurer within the terms of the binder authority.
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“You are not stopping the cyclone from coming and you are talking about adapting the building stock to better withstand the events.”
“Mitigation in a cyclone sense is a little bit more complicated,” Allianz Australia General Manager Corporate Affairs Nicholas Scofield says. “You are not stopping the cyclone from coming and you are talking about adapting the building stock to better withstand the events.” Cairns-based MP Warren Entsch is promoting a mutual insurer for the far north to ensure affordable cyclone cover, teaming with Regis Mutual Management and Willis Re to this year lodge a revised proposal with the Government. “I can guarantee you mitigation in itself is not going to fix the problem,” Mr Entsch tells Insurance News. “I think what has happened with Cyclone Debbie is that it has reinforced the need for something different.” Mr Entsch says either a catastrophe underwriting scheme or a mutual deserves further investigation because the premiums taskforce report was heavily influenced by the insurance industry’s agenda. “They desperately want the taxpayers to subsidise their profits through mitigation,” he says. “I think we have to look past their self-interest.” The proposed mutual, owned by policyholders, would operate alongside private insurers covering other risks, and as its funds grow, profits could be invested back into the community. It would probably need to be compulsory and underwritten by the Government to get off the ground. The taskforce report says a reinsurance scheme is preferable to the mutual insurer model – if government intervention is pursued – because it would have a lesser impact on the insurance market and a greater potential for government exit. “If the mutual exited the market, private insurers would have to return to providing cyclone cover, yet private sector capabilities to understand, model and price cyclone risk are likely to have deteriorated during the period they did not offer cyclone cover,” the report says.
A partially funded intervention scheme would have a 10-20% chance of costing the Government more than $2 billion over a 10-year period and a 5-10% chance of costing more than $5 billion, according to the report. Allianz says the Australian market is sometimes unable to provide affordable insurance for property owners facing cyclone and high flood risk, but suggests reinsurance pools, which have operated successfully in other markets, are preferable to a mutual. “If governments think there needs to be a public policy response to the fact so many people can’t afford to insure their house, the question then becomes, how do you make the insurance affordable?” Mr Scofield says. “Our view is a reinsurance facility is the most efficient way and the least disruptive way to the insurance sector.” Allianz points to the success of the Australian Reinsurance Pool Corporation (ARPC), set up to fill a gap in the market for terrorism cover after the September 11 2001 attacks in the US. A natural catastrophe pool could be funded by a modest levy on residential policies, similar to the ARPC levy on commercial property cover, and insurers that wish to use the facility could voluntarily cede nominated properties. In the UK, Flood Re operates as a non-profit fund owned and managed by the insurance industry and established through government legislation. The pool of money comes from a charge on each policy passed into the company, plus an annual levy on insurers that totals £180 million. The scheme is set to end in 2039, meaning beneficiaries need to become more aware of their risk and, if possible, take action to reduce it. Other overseas schemes include New Zealand’s Earthquake Commission, which received lukewarm mentions in the Northern Australia Insurance Premiums Taskforce report, with comments highlighting Christchurch quake response problems due to the complex government and private sector interplay.
ICA warns market intervention schemes to lower premiums would be Band-Aid measures, and muting pricing signals could set up communities for future devastation due to inappropriate development in high-risk areas. “The facts are that where you reduce the risk, the premiums will follow, because it is that equation,” Mr Whelan told the Senate inquiry in April. “If you are able to reduce the risk, we are able to reduce the premiums.” ICA points to success in Roma, Queensland, where premiums in some areas fell more than 90% after a levee was completed and risk data reviewed. Ostensibly, all options remain on the table, with the Government yet to formally respond to the premiums taskforce report and minimal budget offerings leaving the door ajar for bolder action. “The Government continues to consider the findings of the report and is always open to other options,” a spokesman for Finance Minister Mathias Cormann told Insurance News. Another suite of review recommendations will be thrown into the mix, with the Senate inquiry due to deliver its report on the general insurance industry on June 22. An IAG and SGS Economics & Planning report last year found 28.4% of Australia’s GDP comes from areas with high to extreme risk of flooding, and 20.3% is from areas with high to extreme risk of tropical cyclones. IAG Australian Consumer Division Chief Executive Anthony Justice says the Productivity Commission’s recommendation for $200 million federal spending on mitigation is conservative. “I think it is a good start, but it could go a lot further,” he told the Senate committee. “There is an awful lot more that we could be spending as a country on mitigating risk. “When we have the sorts of disasters that we have seen recently in Queensland with Cyclone Debbie, I think that brings * it into very sharp focus.”
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1300 130 0 960 437 TOLL FREE www.nationalmotorcycleinsurance.com.au www.nationalmotorcycleinsurance.com.au
NM Insurance Pty Ltd (ABN 34 100 633 0380) (AFSL 227186) has been given a binder authority by the insurer AIG Australia Ltd (ABN 93 004 727 753) (AFSL 381686). NM Insurance enters into policies, handles and settles claims as it were the insurer within the terms of the binder authority.
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Tech it or leave it HowAustralia’sleadinginsurers arefaringintheracetoinnovate By Andy Swales
BARELY A DAY – OR AN Insurance News bulletin, for that matter – goes by without some industry leader or analyst offering their thoughts and prognostications on the digital revolution and the new technologies transforming the ways we do business. The buzzword for this new age is insurtech, and it represents the ultimate opportunity-threat to established institutions. For example, in May, Willis Towers Watson published its inaugural Quarterly Insurtech Briefing, detailing the “burgeoning phenomenon that is modernising the insurance industry”. “Insurers that stick too long with the old model will fade as premiums and their balance sheets shrink,” it warns. “Those that thrive will learn to ride the wave of disruption to capture new opportunities, although whether they will still be known as insurance companies remains to be seen; they might have to reinvent themselves entirely.” It’s a bold claim – and entirely typical. Everyone is now aware of the need to at least talk a good game on insurtech. However, in an industry with a reputation for somewhat sloth-like reflexes, it is action that counts. With that in mind, Insurance 28
News checked in with Australia’s leading insurers (the Top Five, in fact) to get the rundown on insurtech projects they are already implementing here, or in which they are investing.
the fire-starter IAG is driving innovation through its Firemark Labs – one in Singapore and another expected to open in Sydney this year. They allow the insurer to team up with external experts and businesses on new projects to serve “the customer of the future”. Executive General Manager Innovation James Orchard says the Singapore hub, supported by the Monetary Authority of Singapore, allows the insurer to work “with the best and brightest talent, start-up, research and technology partners that can help us test and develop new products and services for our customers across Australia, New Zealand and Asia”. Similarly, the Sydney Firemark Lab will “play a key part in helping us innovate… by bringing the outside in to IAG. The incubator has been set up as a collaborative space for our people to work alongside external partners who will contribute new ideas, skills and ways of working to our business. The space will house projects led by our own ‘intrapreneurs’ insuranceNEWS
and business divisions, as well as start-ups we have commercial partnerships with, and independent start-ups.” IAG is also tapping into the Internet of Things, launching the NRMA Insurance Beam earlier this year. Beam is “a portable home security system that allows customers to check in on their home, family and even pets any time, anywhere from their smartphone”. Mr Orchard says it is “much more than just a burglar alarm” and represents a shift “beyond traditional insurance, which protects people following unexpected events, to assurance-based solutions”. “The technology will keep you up to date with events like someone entering or leaving the home, and send real-time alerts to notify you of movement,” he says. “Customers can also use Beam’s live video function to keep an eye on elderly parents, young kids and pets, or even find out when that special delivery has arrived.” IAG’s latest policy innovations focus on evolving consumer needs. ShareCover targets the ever-growing home-sharing economy, exemplified by online platforms such as Airbnb and Stayz. June/July 2017
“Standard insurance won’t cover damage or theft from renting out your home to holidaymakers,” Mr Orchard says. “That’s where ShareCover comes in. It’s insurance tailormade for hosts renting their home or room out.” The policy covers “common risks associated with hosting guests such as theft, accidental damage, liability and loss of rental income”. And the insurance is “on demand” – hosts pay only for the times the property is occupied by guests. Flexible coverage is also central to the app-based Insurance4That, an “alternative to traditional home and contents insurance” that reflects the growing trend for people to live with parents longer, rent longterm and move around more. It allows single-item cover for electronics such as laptops, phones and games consoles, plus furniture and musical instruments, letting users protect key items without paying for more comprehensive – and expensive – contents policies. “Insurance4That represents the next generation of insurance, offering affordable, single-item insurance for just the gadgets or valuables you choose to protect, without having to pay for the things you don’t want to,” Mr Orchard tells Insurance News.
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“Our bias is towards analytics, digital and Internet of Things solutions, which we believe can add value to our underwriting and claims processes.” treasure hunt Suncorp has also made moves into the single-item insurance space, through its investment in Silicon Valley insurtech start-up Trov. “Trov’s platform [an appbased possession inventory] is designed to offer customers, particularly those in the Millennial generation, ondemand access to insurance for the items they value most, such as cameras, tablets and laptops,” the insurer says. “Suncorp and Trov together created Trov Protection, a unique insurance product that customers can switch ‘on or off’ for each individual item, from a smartphone, whenever and wherever it is needed.” Suncorp has invested in Trov since 2014, and says as the app’s customer base grows it aims to be the “go-to provider of insurance”. The insurer has helped establish Australia as a test
market for the Trov app, and last year announced it was investing $US5 million for an equity stake. In April Suncorp invested a further $US3.1 million in Trov as part of a wider fundraising drive to enable global expansion of the app. Suncorp now has a 6% interest in the business.
Forming partnerships In May QBE announced a $US50 million global insurtech investment program for this year, and revealed it has shortlisted seven start-ups for partnerships. Due diligence will follow and it expects to finalise agreements with three or four. “We screened more than 200 companies with solutions that looked beneficial to our business,” Chief Executive John Neal said. “Our bias is towards analytics, digital and Internet of insuranceNEWS
Things solutions, which we believe can add value to our underwriting and claims processes, providing efficiencies and service benefits for QBE and for our customers.” Meanwhile, QBE Australia “continues to invest in new and enhanced technology”, according to Executive General Manager Transformation Steve Raynor. “Recently we launched our web-chat and chat-bot functionality, helping customers and brokers in the discovery stage as well as providing a shortcut for claims queries,” he tells Insurance News. “We’re continuing to develop our data and analytics capabilities, particularly for customer intelligence and segmentation, to provide a more personalised experience.” In motor, QBE is behind the Insurance Box telematics product – a first for Australia when it launched several years ago. A telematics box installed in policyholders’ cars uses sensors to identify habits such as speeding or harsh braking. The data is used to calculate a driver safety score, which influences the insurance premium and encourages behavioural improvement, particularly among young and new drivers. Mr Raynor says QBE is also collaborating with third parties on autonomous vehicles. June/July 2017
innovation communities At Allianz Australia, a spokesman says the company is, at present, unable to reveal specific examples of its insurtech projects. But General Manager for Innovation, Digital and Data Nagib Kassis says the business is “focused on developing both internal and external innovation ecosystems, which we expect will cultivate a strong network of venture capitalists, corporate venture capital teams, accelerators and innovation communities”. He tells Insurance News that Allianz Australia is “working with our global counterparts to take a leading role as both a sponsor and valued partner in the business models that are adding value or creating new business opportunities within the insurance industry”. “This includes the establishment of partnerships with insurance digital (insurtech) start-ups, development of mobile apps, investment in digital channels and talent acquisition programs targeted at tech and innovation.” The insurer’s incoming Managing Director Richard Feledy seems to be on the same page as Mr Kassis. He recently told Insurance News: “I want to focus on improving the customer experience by 29
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simplifying our products and giving customers more choice in how they want to engage with us. “We’ll look to do that by using new developments in automation and tech.”
Keeping track Zurich Australia’s latest insurtech play is Z Track, “a new claims-tracking and reporting tool designed to make it easier for brokers and customers to see how claims are progressing, and giving Zurich’s motor fleet clients a wealth of data”. Motor fleet tracking includes benchmarking – on a non-identified and aggregated basis – of the customer’s fleet against others. The insurer says Z Track was launched in May with three elements: claims enquiry, allowing brokers to quickly and easily see how claims are progressing, including optional email notifications at key milestones; Z Fleet Navigator, which lets brokers and large commercial motor fleet operators monitor, measure, review and report on fleet performance; and claims experience reports for policies. Head of General Insurance Platforms Leesa Torrington tells Insurance News the tool – accessed online – follows 30
broker and customer feedback around tracking needs. “The new benchmarking reports in Z Fleet Navigator will give our motor fleet customers a whole new level of data on what to target to reduce risks,” she says. Zurich also points to Z.stream, its online broker transaction platform, which went live almost 15 years ago but has undergone a series of upgrades, including an expansion last year from the SME market into the mid-market. The insurer says Z.stream “provides an end-to-end solution” for brokers, with “online quoting, new business, renewals and endorsements for high volumes of business”. “Z.stream has been designed to help brokers improve their efficiency and ultimately their customer service,” Ms Torrington says. “While it is standard today to provide brokers with 24/7 access and full life cycle functionality, brokers can use Z.stream to bind the policy, make mid-term alterations, process renewals and produce customer documentation online. “Z.stream’s differentiators include fast quoting, integrated rego search in motor and automatic pre-populated * limits and deductibles.”
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The MGA way Apartnershipmodelis fuellingtheAdelaidebasedbroker’slocal growthasiteyes expansioninAsia By John Deex
FROM HUMBLE BEGINNINGS IN Adelaide in 1975, MGA Insurance Brokers now boasts 40 offices across Australia and a solid foothold in Asia. It’s one of the top 10 Australian brokers, but the family-run firm is not done yet. Managing Director Paul George has big ambitions to grow further, both in Australia and in the emerging markets of Asia. He tells Insurance News he wants to double MGA’s size over the next decade, and build on the company’s early success in Cambodia. The Phnom Penh operation, launched in 2014, should be profitable for the first time this year, and opportunities in Laos and Myanmar are being closely tracked. Mr George says the Cambodia venture spun out of the philanthropic work of his father – and MGA founder – John George, but has become a crucial part of the company’s strategy. John George was very involved with the Australia Cambodia Foundation, which supports at-risk children in the community and in residential care through the Sunrise Cambodia charity. “Dad spent a lot of time over there, and that was really the start of it,” Mr George tells Insurance News. “He got to know some people and the lay of the land, and when we met our insuranceNEWS
partners they came over to Australia for about two or three weeks and looked at our operations. “They liked what they saw, and we had our licence granted. It was fairly pioneering stuff.” From small seeds the branch has grown to 20 employees, two of whom are ex-Sunrise children, giving a nice link back to the charity. “Our current experience in Cambodia has been good,” Mr George says. “We’re finding we do have a point of difference in that market, and one of the main things is the credibility factor – the fact that we have been in business and broking for a long time. “We are expecting the branch to make a profit this year, which we are very happy about.” Mr George is well aware of the market’s limitations – he predicts gross written premium for the entire country is around $US60 million – but sees it as a temporary barrier because it also means there is huge opportunity to grow in years to come. “It is very different over there,” he says. “You can be standing on the 10th floor of a modern building in a lawyer’s office or something like that, and there is a better than even chance that the building is uninsured.
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MGA on a mission 1975:
“It is a very small pie at this stage, but we are hoping that there is a lot of potential for growth. “Right now [the Cambodia operation] is in start-up mode, similar to a mid-size country branch. But it will grow a fair bit faster, I think. “In the next two years it might be halfway up the ladder of MGA branches [in terms of earnings], but a lot of those branches have been around for 20 or 30 years.” Mr George says cheaper costs allow the employment of more staff than in Australia. He believes an equivalent office back home might have three people, not 20. The Cambodia team includes a full-time security guard, and a motorcycle rider shuttling documents in a backpack through the traffic. “Over there if a document doesn’t have a ‘wet signature’ on a piece of paper it doesn’t really exist,” says Mr George. “[Documents like] policy schedules or confirmation of cover have to be live documents with that wet signature on them. Otherwise no one will recognise them.” MGA is confident in Cambodia, and sees it developing as its Asian hub as they look to explore opportunities elsewhere. Laos and Myanmar are being monitored, but there are no firm plans to expand there yet.
“Cambodia for us has a relatively stable government, we can see a real loyalty with the people there, we can see it being a hub, just like we see Adelaide as our hub in Australia. “There are not a lot of things stopping us expanding. These countries do want to grow and let new intelligence in.” Mr George says MGA wants to focus on emerging markets rather than developed markets such as Hong Kong or Singapore where “everyone is there already”. “We are getting in fairly early. The industry in Australia is pretty advanced and that is why we have got so much to offer. “Asia is on our doorstep, and we believe that we need to be there. It is changing so fast. There will potentially be a lot more of Asia in Australia in future, and vice versa. We’ve been knocking on the door for the last 10 years. “We had a look at Kuala Lumpur at one point, but everything aligned with Cambodia, and we could bring some value to the table.” On the domestic front, MGA is just as eager to expand, and recent years have seen a flurry of acquisitions. In 2015 it purchased the Adelaide portfolio of Cranston Australia, and last June it acquired the business insurance portfolio of the Bank of South Australia. insuranceNEWS
Last August it added Cranston’s business in Horsham, Victoria, expanding the MGA network to 40 offices. Mr George believes MGA can hit 80 offices within the next 10 years. “We’re always keen to look at good opportunities with like-minded people,” he says. But the conditions must be right. Mr George says MGA wants to work with principals and make use of their relationships and expertise. “If there is a principal who is going to sell and disappear, we are generally not so interested. The asset of any business is the person, the relationship the broker has with their clients. “The ideal situation is someone who wants to spend three to five more years in the business, and we can assist with a strong succession plan. “Anyone who wants to move out within five minutes – that’s a bit more difficult. “We’d like further expansion, particularly in the eastern states. We’d love to keep going. We think we’ve got the talent pool to support it from the back-office and operational perspective.” Mr George is quietly confident that MGA “will get its fair share” of the market. He believes that while some brokers will look to Steadfast or Austbrokers as a reliable 33
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“We know our guys are really good insurance brokers at the end of the day, and when you get beyond the terminology [between brokers and ARs] there isn’t a great deal of difference.”
partner, others will suit MGA’s “unique proposition”. Mr George says MGA is proud to be in partnership with Austbrokers – the cluster group became shareholders in 1996. But what is it that makes MGA stand out from the crowd? “We like partnerships, whether a portfolio management partnership, or an equity partnership,” Mr George says. “And we have a lot of input into the front office. We have a pretty much fully managed system. “Every single one of our offices has a managed print system, managed phone system, conferencing system, all the branding and marketing. We probably resemble a franchise a bit more than most [broker organisations].” MGA is strongly established in regional Australia, and its farm insurance offering has been in place for 20 years with a stable of exclusive products provided through its underwriting agency Millennium. “We like to think of ourselves as a managed network with principals and business owners in each office who are engaged and part of their area or community. “It has worked very well in the past and it will in the future.” insuranceNEWS
Mr George believes the MGA partnership model is not vastly different to the increasingly prominent authorised representative (AR) model, and says too much is made of the difference between ARs and brokers. “Sometimes that hand gets played a bit hard,” he says. “It’s a bit polarising. There are really good ARs and then there are not so good ARs, and it’s the same with brokers and employees. “We know our guys are really good insurance brokers at the end of the day, and when you get beyond the terminology there isn’t a great deal of difference.” Mr George says the crucial difference is that MGA must have equity in the business. “If we can’t have equity within a few years then we would refer people to the AR model. We don’t want to get into that [AR] market – it’s pretty full. “We like the partnership model. It’s not for everybody. Some people insist on owning 100% and we respect that. “The AR term has been brought to the surface way too much. There are different motivation triggers, but at the end of the day we are all insurance brokers whether we are engaged by a salary or by another model.” As well as growing in size, MGA is determined to innovate, and is piloting an online
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“A lot of people get disillusioned in the direct space and they want to go somewhere, but they don’t necessarily want to go for the full-service broker model.”
solution that fills the gap between direct insurers and full broker advice. Mr George believes there are small business owners out there who want a selfservice model, but with the option of upgrading to broker assistance if required. “There is a growing appetite and we are testing it at the moment,” he says. “We are going to need that tier in the future, where the client doesn’t need to call us and they can pretty much do everything they need to online. “But if they do need us we are there, at which point it will cost them some money. “A lot of people get disillusioned in the direct space and they want to go somewhere, but they don’t necessarily want to go for the full-service broker model. “Our industry has got to lead the way on that.” Mr George believes the MGA partnership model, together with its consistent approach and client focus, has been the basis of MGA’s growth and success. By continuing to grow at home and abroad, and by leading the way on innovation, he has every reason to expect that * success to continue. June/July 2017
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Oneaccidentper3.2millionflights: thescenelastNovemberafteran airlinercrashesinColombia,killing71
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Friendlier skies 2016wasthesecond-safestyearforglobalcommercialaviation, butrecreationalflyersareaproblemforspecialistinsurers By John Wilkinson
TERRORISM, PILOT ERROR, BAD weather, mid-air equipment failures… the headlines may have been troubling at times, but the fact remains that last year was one of the safest on record for the world’s commercial aviation industry, with only 19 accidents and 325 fatalities. According to the Aviation Safety Network (ASN) database, it was the second-safest year on record by both fatal accidents and fatalities. In 2015 there were 16 fatal accidents and 265 lives lost. Most accidents involved passenger flights, and based on about 35 million flights worldwide, the rate was one fatal passenger flight accident per 3.2 million flights. The worst accident last year was on November 28, when a chartered LaMia Bolivia airliner crashed near Medellin, Colombia, when it ran out of fuel. It killed 71, including most of the Brazilian soccer team Chapecoense. Despite the threat of terrorism, last year only two incidents were linked to militant action. While investigations are ongoing, Egyptian authorities say they found traces of explosives on an Egypt Air Airbus A320 that crashed in the Mediterranean Sea in May. And in February last year a bomb detonated on an Airbus A321 as it departed from Mogadishu, Somalia. Only one person – the bomber – died.
In the past five years about one in three accidents occurred during approach or landing – the most critical phases in any flight. But the ASN says five-year average trends show a decrease in accidents occurring during the approach and landing phases. The five-year average is at its lowest point in 45 years.
thunderstorm at Camden Airport in February last year destroying six aircraft. In 2015 Australia recorded 31 fatalities from 227 aircraft accidents, according to the Australian Transport Safety Bureau (ATSB). QBE National Manager Aviation Julian Fraser told Insurance News last year was “reasonable” for general
“In the past five years about one in three accidents occurred during approach or landing – the most critical phases in any flight.” But the cruise and descent phase has recorded a marked increase to 45% of all accidents in the past five years – the highest proportion in 50 years. There were about 100 general aviation accidents in Australia last year, according to the ASN database, with about 20 fatalities. These figures include recreational aircraft and a number of hot-air balloons. Not all accidents resulted in the loss of an aircraft. Some aircraft were written off due to storm damage, especially in New South Wales, with a severe insuranceNEWS
aviation accidents. “Certainly for us it was an improvement on the previous year, with the exception of aerial agricultural operations,” he says. “Exceptionally good winter and spring rainfall across much of the cereal belt, resulting in restricted access for ground-based vehicles, meant aircraft utilisation for treatment was significantly higher than average – and so too the accident rate.” But overall, the number of general aviation accidents caused by weather fell. 39
Mr Fraser says there were fewer instances of losses caused by unqualified pilots flying into “instrument meteorological conditions” – such things as clouds and storms, where they must rely on the cockpit instruments to navigate safely. Rising costs in mainstream general aviation have pushed many pilots to fly in the sports or recreational aviation category, where visual flight rules are the norm. The ATSB reports a tenfold increase in the number of recreational flying incidents from 2006-15. However, it attributes some of this growth to a better understanding of accident reporting requirements. Mr Fraser says QBE’s records show the recreational flying category is more prone to losses. “In recent years, there have been a high number of single-occupant fatalities,” he says. “As such, the severity is lower than general aviation, given the aircraft values are generally lower and, in the absence of passengers, there’s no ensuing liability for underwriters. “Our most recent experience also reflects the good work being done in safety awareness in the recreational aviation space, which seems to have arrested the trend.” The accident rate appears to be tracking in line with the growing number of pilots becoming qualified in this aviation category. And Mr Fraser says the 40
“increasing safety awareness programs seem to be rewarding their administrators’ efforts”. Another area of aviation that is growing rapidly is remotely piloted aircraft, commonly called drones. The ATSB notes a considerable increase in the number of accidents and serious incidents involving these aircraft. In 2015 there were 27, com-
Engineering and Edith Cowan University, which examined more than 150 incidents including the Heathrow event, says safety regulations “must keep up with this rapidly growing industry”. Noting that 64% of the incidents examined involved a mechanical or other technical failure, they say greater “redundancy” – systems able
“Increasing safety awareness programs seem to be rewarding their administrators’ efforts.” pared with six in 2014. Most occurrences involved crashing into the ground, loss of control, power failure or aircraft systems malfunctioning, the ATSB says. Last year’s figures will likely be higher again, due to the huge expansion of this sector. So far the most serious incident involving remotely piloted aircraft occurred last year when a British Airways Airbus A320 struck a drone while on final approach to London’s Heathrow Airport. A report by researchers from RMIT University’s School of insuranceNEWS
to take over when a component fails – should be considered for drones. Recreational drone pilots in Australia are not required to be licensed, but they are restricted to flying no closer than 30 metres to vehicles, buildings, boats or people. The researchers say that although the regulations call for commercial drone operators to be trained and licensed, drones weighing less than 25kg do not require an airworthiness certificate, “despite the potential damage that could be caused if they fail while * flying in a built-up area”.
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The sky’s the limit Dronesarehelpinginsurersrespondmorequickly tocyclones,bushfiresandothercatastrophes By Wendy Pugh
DRONES SWEPT OVER FLOODED buildings, marooned boats, damaged roofs and unscathed areas in the wake of Cyclone Debbie, highlighting both the extent of the catastrophe and insurers’ growing use of unpiloted aircraft following disasters. Insurers are turning to drones to get an early start responding to disasters, and they are not alone in exploring the benefits. Regulators are scrambling to keep up with the growing number of drones, as enthusiasm for the technology crosses the spectrum from commercial operations to hobbyists surveying their neighbourhoods. QBE and Suncorp both used drones for the first time to assess large-scale cyclone devastation after Debbie, while IAG mobilised the technology in January last year following bushfires along Victoria’s Great Ocean Road. “Several years ago drones were something out of a sci-fi movie, but advances in this technology mean drones have become another ‘tool in the toolbox’ for how we respond to severe weather events,” IAG Head of Supply Chain Scott Lindsay tells Insurance News. Drones operated by various piloting companies flew over hard-to-access areas in northern New South Wales and coastal Queensland after Debbie crossed the coast in late March. “Because this was the first time Suncorp had deployed drones at such a scale in 42
Australia, we gained some important insights into how this technology can be used in event response,” Suncorp Executive General Manager Property and Specialty Claims Matt Pearson says. “The aerial images confirmed the extent of the damage before we hit the ground. “This meant our assessors and builders were more aware of what to expect and it allowed us to allocate the right resources to support them.” Loss adjuster Cunningham Lindsey says drones are valuable for showing both a broad perspective as well as detail at individual locations where the extent of damage isn’t apparent using traditional inspection methods. They are also particularly useful where access is restricted or when it is dangerous for an adjuster to enter a premises. The company's UK business deployed drones extensively following floods in northern England early last year, and Debbie marked an expansion of their adoption in the local market. “In Australia we have been using them for about a year and half, but this is the first significant catastrophe where we have been able to demonstrate to our clients the benefit of these drones, particularly from a wide-area aspect,” Head of Major and Complex Loss Asia-Pacific Mark Thompson tells Insurance News. Drones that provide vision for insurers include large, fixed-wing aircraft and nimble insuranceNEWS
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multi-rotor models that can explore inside buildings and be easily transported to sites. Technology advances in recent years have improved camera quality and the ability to analyse data collected, while drones have also become lighter and more stable. IAG’s Mr Lindsay says aerial images captured after the Great Ocean Road fires allowed assessors and customers to review damage from a safe location, rather than risking on-site dangers from asbestos, fallen power lines and land slips. Fire agencies prohibited access to affected communities for about two weeks after the blaze, but drones made early property assessments possible. “We received great feedback from both our customers and employees who had benefitted from the technology,” Mr Lindsay says. IAG used drones again after the eastcoast low in June last year, and then for flyovers following hailstorms that hit northwest and northern Sydney earlier this year. For Cyclone Debbie, the company conducted initial flyovers before deciding on-the-ground site assessments were the most effective solution. “We see drones as part of the suite of services we offer our customers following severe weather events,” Mr Lindsay says. The insurer mobilises drones through its property supply chain partners, which use skilled and qualified operators to ensure safety. The drones are mostly in the sub-twokilogram class and are operated in line with Civil Aviation Safety Authority (CASA) regulations. “Drones are controlled from a safe zone near the property or area, with images or video captured… consumed into our geospatial mapping systems at IAG,” Mr Lindsay says. “This is then used by our supply chain team and assessors.” CASA operating conditions, which vary according to drone size, use and whether the pilot is licensed, include keeping the drone within line of sight, limitations on flying near aerodromes with a control tower and staying set distances away from other people. These rules can reduce drones’ usefulness for insurance in some cases. Cyclone 44
Debbie was near its most powerful when it battered the Hamilton Island resort, but CASA restrictions limited drone inspections due to the local airport. The Insurance Council of Australia says there is merit in supporting development of over-the-horizon and beyond-visual-sight capabilities, given the geographic remoteness of some communities. Providers meeting the demand for vision include Aerial by Drone, founded by Lorraine Scott in 2014. The company has a network of CASA-accredited pilots around Australia and specialises in the building and insurance sectors.
provide that situational awareness in the first instance,” Ms Scott tells Insurance News. The vision’s usefulness increases dramatically when combined with Google Earth mapping and data from insurers, so the level of damage at specific locations covered by policies can be identified, colour-coded and further analysed. Insurers can receive a link enabling them to see the extent of damage at a site and assess whether a covered risk may be a total loss. “It is that mapping data that you can sift through, and triage resources accordingly, that provides the most benefits,” Ms Scott says. High-resolution pictures also allow an
“There can be quite a disparity between the reality the media portrays compared to what the damage actually is, so the drones provide that situational awareness in the first instance.” In the latter area it has worked with loss adjuster Crawford & Company. Ms Scott recently teamed with Aeroeye director Anthony Marsh, an accredited drone pilot, in the AirAssess joint venture. After Cyclone Debbie, Mr Marsh flew to the cyclone-hit region and, with a colleague, captured vision from a small drone that he transported in a backpack as they moved around the area. Such vision could be streamed live to an insurer if internet capabilities are available following a disaster. Compared with news reports, which may repeatedly show the same worst-hit sites, images collected by drones for insurers give a more complete picture. “There can be quite a disparity between the reality the media portrays compared to what the damage actually is, so the drones insuranceNEWS
assessor to magnify images, to inspect the smallest details such as hail-damage holes, leaf-filled guttering or structural issues. A few clicks can give a quick measurement of the affected roof or area. Demand for drones is growing generally in the residential sector, particularly as occupational health and safety rules restrict people from clambering up steep, high or difficult-to-access roofs to view damage. “They can’t get on there with a ladder any more, so to inspect it they are having to get either a scissor lift or a cherry-picker or erect some sort of elevated platform,” Ms Scott says. “That is where we are finding the biggest interest is right now.” With large commercial structures, drones can fly inside to give 360-degree views of damage. The agile aircraft have entered
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blackened buildings after fires while the ruins are still smouldering. Insurers mostly rely on outside companies and contractors to provide drone operational expertise, but religious and heritage specialist Ansvar has bought two remotely piloted aircraft for its use. The subsidiary of London-based Ecclesiastical Insurance Group, which insures Westminster Abbey, has trained its own pilots as it trials the technology for the group. “For us as a specialty insurer, and the nature of what we do, we think it’s better to have that skill set internally,” Chief Executive Warren Hutcheon says. “We provide sum-insured assessments and we do a lot in the faith sector, so you can imagine with cathedrals and things like that a drone is very valuable in terms of looking at those steep roofs.” After Debbie, two drone operators spent four weeks driving around the affected region, capturing “an enormous amount of footage”. The fast pace of change is acting as something of a brake on further substantial outlays by the insurer, while opening new areas of potential. “The quality of the cameras is getting better and better, and that means from a safety point of view, you can fly the drone further away from a building or a site and still get very accurate images,” Mr Hutcheon says. Advances in battery life are also expected to increase drone potential, while related software is continuing to improve. At AirAssess, Mr Marsh sees drone capabilities, Big Data and virtual reality coming together to deliver benefits greater than the sum of those parts. Potentially, insurers could examine high-quality, three-dimensional views from various locations at a damaged site. The insurance industry isn’t alone in seeing a surge in drone interest; they have become more mainstream and affordable, moving beyond an early focus on military capability. Pilotless aircraft made an appearance during World War I, and by the Vietnam War in the 1960s they were used extensively for reconnaissance. 46
Recently, drones have offered potential for any number of uses, including parcel deliveries, monitoring remote infrastructure and taking real estate pictures. That has occurred alongside the surge in recreational interest. Amid this uptake explosion, CASA caused controversy late last year by deciding that commercial operators flying very small craft would no longer need an operator’s certificate or remote pilot licence. Flying a drone or model aircraft for fun requires no approval. “It has taken most of our guys 12 months to be trained and certified, and with the new
ducting an inquiry into drone use, and is concerned by the lack of recreational regulation. A report is due on December 6. “It is like a lot of things – technology has advanced so much more quickly than legislation has been able to keep up,” Ms Scott says. “CASA has a very tough job on its hands.” Privacy issues, which are outside CASA’s remit, are another area in which care must be taken – around both the footage provided and the handling of data. Pixellation can conceal the details of properties beside an insured home, but people can become alarmed by the unexpected sight of a drone outside their house.
“The quality of the cameras is getting better and better, and that means from a safety point of view, you can fly the drone further away from a building or a site and still get very accurate images.” sub-two-kilogram legislation there is no training necessary at all,” Ms Scott says. Concerns have emerged over the risk of too many drones operating in small areas and too little oversight, while industry pressure and requirements for drone insurance also support the case for training standards. Incidents overseas and in Australia have highlighted the potential for things to go wrong. In the US last year a drone plummeted onto a lawn at the White House when the operator lost sight of the craft while flying it near his apartment. In Adelaide last month a drone crashed into a car windscreen as a woman was driving with her daughter in the back seat. The Senate Rural and Regional Affairs and Transport References Committee is coninsuranceNEWS
Insurers expect the technology will continue to improve, allowing them to save time and money, and complementing the expertise of loss adjusters and other professionals. New applications will emerge and rules and regulations will evolve. IAG sees an opportunity for wider use of drones in asset inspection. “We think the use of drone technology can be extended beyond assessing claims to support us in identifying and monitoring high-risk areas ahead of a disaster, helping to prevent or reduce risk for our customers,” Mr Lindsay says. Pressure is typically on insurers to act quickly after natural disasters. Cyclone Debbie and recent bushfires have shown drones are likely to play a key role in * responding.
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A painful process Acampaigngroupiscallingontheindustrytodomore tohelpfamilyviolencesurvivors By John Deex ONE IN SIX AUSTRALIAN WOMEN HAVE experienced violence at the hands of a partner or former partner, and one woman a week on average is killed. For survivors, the violence itself is often just the start of the ordeal, as they attempt to move on and cope with a range of complications. This can include dealing with solicitors, banks, utilities – and insurers. Unfortunately, the response from the insurance industry has at times fallen short. The Economic Abuse Reference Group (EARG), a coalition of eight Victorian organisations, has presented the Insurance Council of Australia (ICA) with a paper highlighting the key issues and possible solutions. The group says “current insurance laws and practices result in unfair outcomes that can exacerbate the emotional and financial impact of family violence on victims”. One of the most significant problems is the fact that under Australian law, coinsureds are held jointly responsible for each other’s conduct. A precedent was set by a ruling in the 1989 case Advance (NSW) Insurance Agencies v Matthews, in which the insurer rejected a claim by a husband and wife on the grounds that the husband had fraudulently failed to disclose a material fact. 48
The High Court found that fraud on the part of one joint insured is “sufficient to characterise the joint failure to disclose as fraudulent”. The implications for a family violence scenario are clear. If a couple separates, and the husband returns to burn down the jointly owned and jointly insured home, then the wife’s insurance claim is likely to be rejected on the basis the damage was caused deliberately by a co-insured. “In addition to not receiving compensation for loss, the victim of family violence will be liable for joint debt (such as a house mortgage) after the property is destroyed,” the EARG says. “It is unjust (and seems to defeat the purpose of insurance) if a person cannot protect their interests in property, such as a house, against events over which they have no control.” The group says insurers could have family violence policies, which accept damage by a family violence perpetrator as a basis for paying the victim’s part of the claim. However, the problem would be “better addressed” by changing the structure of household insurance policies. “The option of clearly wording household insurance policies as composite insuranceNEWS
policies – where each insured can claim their share of the loss – should be considered.” Lawyer Denis Nelthorpe, whose group WEstjustice is part of the EARG, tells Insurance News insurers should distance themselves from the Matthews precedent. “Matthews says… where one co-insured is at fault, the other co-insured has to bear the consequences,” he says. “This is not the case in the UK or New Zealand. Australian law is out of step with other countries, and outdated.” Professor Nelthorpe believes a solution could involve a “public acknowledgement” from insurers that Matthews is obsolete, along with changes to policy wordings and definitions. Joint insurance policies are by no means the only problem. Insurance claims can also be rejected on the basis that the policyholder invited the perpetrator onto the property. The EARG says this exclusion can have a harsh impact on victims of family violence, with perpetrators sometimes forcing their way in. “We believe the insurance industry should examine this exclusion and consider options for compensating ‘innocent’ claimants,” it says.
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“The industry has been a bit shocked by the nature of some of these issues and there are significant challenges.” “In the meantime, insurers must better understand the nature of family violence, and that an ex-partner or violent relative may not have actually been ‘invited’ onto the property.” Other dangers include valid claims being paid to the perpetrator alone if the insurance is in his name, and policies being cancelled without the victim’s knowledge. The victim may also be unable to access information about insurance if it is in the perpetrator’s name only. And as in Matthews, claims may be rejected due to non-disclosure by one co-insured, even if the other was unaware of the matter. Insurance investigations are flagged, not for the first time, as being particularly problematic for family violence survivors. A General Insurance Code Governance Committee report recently found that external investigators are not always given enough guidance when interviewing consumers, and some contracts with services suppliers do not align with the code of practice. “Incorrect assumptions can be made about a person’s knowledge or control in relation to the actions of a family member,” the EARG says. “Interviews can be intimidating, inappropriately handled and can take several hours, after which time the interviewee is exhausted.”
The group says the insurance industry also needs to implement more general practices that have been adopted by other industries, such as staff training, identifying indicators of family violence, and not requiring a victim to repeat her story. Professor Nelthorpe tells Insurance News action is badly needed, after a number of “extreme cases” came to his attention. “The industry has been a bit shocked by the nature of some of these issues and there are significant challenges,” he says. “It is a complex issue and we are going to have to sit down and work through it together.” ICA spokesman Campbell Fuller told Insurance News the issues raised by the EARG “are multifaceted, and require a considered response from the general insurance industry”. He says family violence will be made “a priority issue” for consideration in the current review of the General Insurance Code of Practice. ICA is “examining how other sectors are addressing these problems, with a view to seeing whether similar measures could be adopted by insurers”. It will also take action on insurance investigations and “consider how consumer protections could best be incorporated into * the next iteration of the code”. insuranceNEWS
Harsh reality ThefollowingareFinancialOmbudsman Service(FOS)casestudies.
Thewifearrangedhouseand contentsinsurancetocovera jointlyownedproperty.Thehusbandwas namedasaco-insured.Thewifehad beenlegallyadvisedtoforcethe husbandtoleavethehousebywayofan apprehendedviolenceorder,butagreed tolethimstayinthehouseuntilthere wasapropertysettlement. Thehusbandsetfiretothehouse. Theinsurancepolicyhadbeencancelled bythehusbandamonthearlierwithout thewife’spermissionorknowledge. FOSfoundthattheinsurershouldn’t havecancelledthepolicy.However, FOSalsofoundtheinsurerhadthe righttodenytheclaimbecausethe damagewascausedbyamemberof thefamilyandbysomeonewhowas lawfullyattheaddress.
Thecouplewereseparated.The wifelivedinthejointlyowned house,andthehusbandwaslivingina shedontheproperty.Thehusband deliberatelysetfiretothehouse.The insurancecompanyrejectedthewife’s claimonthebasisthehusband(acoinsured)deliberatelycausedthedamage. FOSconsideredcaselawto ascertainwhethertheinsurancecontract was“composite”or“joint”.Hadthe policybeenconsideredcomposite,it wouldprotecteachparty’sshareinthe assets.However,basedontheinsurance contract,FOSdeterminedtheinsurance contractwasjoint,andthereforethe wife’sinterestcouldnotbeseparated fromthatofherhusbandandtheclaim couldberejectedonthebasisthecoinsureddeliberatelycausedthedamage.
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STATE OFFICES WA +61 (8) 9361 1979 firstname.lastname@example.org
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Only a person who strives to perform with integrity, respect and competence in each and every task will ever achieve the ultimate level of personalised service delivery for their Clients. Strategic Alliance of Independent Loss Adjusters
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Ready for the Mansfield Awards ClaimsprofessionalswillgatherinSydneytocelebrateserviceexcellence
PREPARATIONS FOR THE PRESENTATION OF THE MANSFIELD Awards recognising claims excellence are in their final stages. The awards will be presented in Sydney on July 13 to the insurance companies’ claims teams which have achieved the best claims performance in a range of categories. It’s hoped the awards – conceived and organised by Insurance News and claims services specialists LMI Group – will become an annual event on the insurance industry calendar. They are sponsored in their inaugural year by Insurance & Care NSW (icare) and Steadfast. The concept of a special event to recognise and celebrate excellence in claims-handling has had an enthusiastic reception from within the industry, with a large number of chief executives and claims specialists indicating they will attend the awards celebrations at the Establishment Ballroom in central Sydney. The awards have been named after Lord Mansfield, the British Lord Chief Justice who first espoused the principle of utmost good faith in insurance 251 years ago. The winners will be selected using a range of industry information and broker surveys collated and “weighted” by LMI Group using a specially designed program. All companies’ results will be equalised to ensure the scale or variety of classes in which companies operate do not distort the results. The gold overall Mansfield Award for 2017 will go to the insurance company that has performed best in such areas as speed of service, proactivity, accuracy and fairness. Individual awards will be presented to insurance companies whose claims teams have achieved the highest ratings in personal lines, SME property and casualty, corporate property and casualty, and specialty. Following approaches from across the industry, it’s likely the awards will be expanded next year to encompass other sectors. 52
icare, the New South Wales Government-backed public financial corporation which delivers statutory insurance and care services in the state, was the first organisation to offer financial assistance to the awards organisers. Managing Director and Chief Executive Vivek Bhatia says Insurance News and LMI Group “share icare’s belief that excellence is achieved by dedicated professionals who go above and beyond to achieve positive outcomes”. “While technology can assist in so many ways, it is the human element that makes every difference to our customers’ outcomes,” he says. “We believe passionately in the purpose behind the Mansfield Awards. The way claims are managed impacts directly on people’s quality of life outcomes.” Steadfast also volunteered to sponsor the event within days of becoming aware of the awards plan. Managing Director and Chief Executive Robert Kelly says Steadfast wanted to be involved “because we understand our customers need confidence that when things go wrong their claims will be paid quickly and smoothly”. “Claims professionals around Australia deserve to have their ingenuity, their efficiency and their willingness to go the extra yard for the customer recognised, and the Mansfield Awards will provide that recognition.” Mr Kelly says the awards will also help raise industry claims management standards. Funding from the sponsoring companies will pay for the cost of organising and holding the July event. Any funds remaining will be donated to Amal Mulia Orphanage in Sumatra, Indonesia, which cares for children orphaned by the September 2007 earthquake and tsunami. More information about the awards and bookings for the Mansfield Awards event in Sydney on July 13 can be obtained at * www.mansfieldawards.com.au. June/July 2017
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Handing over at BJS BilldeVosstepsasidetohandBelindaScott controlofthecompanythat’snamedafterher By Terry McMullan
OVER THE PAST FEW YEARS MANY founders of medium-sized broker companies have been making the transition into retirement and handing over the reins to their offspring. Most transitions have been very successful, with – let’s face it – most of the successors far more qualified than their parents. And most have also been prepared through years of working alongside the founder. BJS Insurance Brokers is very much a family company, but there are differences from the typical family model. Industry veteran Ron Smith established it in 2003 after he sold his ground-breaking underwriting agency Concord to QBE. A habitual builder of businesses, Mr Smith brought a number of brokerages he acquired together under the name BJS – the initials of his daughter, Belinda Joy Scott. But although Belinda was already a broker, she wasn’t ready to take the reins of the company when it was formed, being a bit preoccupied at the time with her own BJS business – the small brokerage she had purchased in the Victorian coastal town of Cowes in 1999. There was also marriage to dairy farmer Allister Scott and the beginnings of a family to distract her from things happening 180km away in Melbourne. That’s where Bill de Vos came in. As he tells it, he was walking along a city street one day in 2002 “when Ron Smith pulled over in his car and invited me to a chat over a cup of coffee”. Mr de Vos had been working in insurance since 1971, first with Federation Insurance, where he gained his industry grounding. Four years later he started in broking, ending up in 1979 in London, where he earned his stripes forming a mutual insurer for a client and gaining some very useful experience. 54
Eventually he returned to Melbourne and found himself caught up in the first great round of brokerage mergers in the 1980s and ’90s. Six months after arriving home, his employer was taken over by Willis, so he moved to David Brown’s DBS Insurance Brokers, in which he bought a 50% share. His work brought him into frequent contact with Mr Smith at Concord Underwriting, and the trust they built at that time would prove useful years later. Eventually DBS sold out to Heath Fielding, where Mr de Vos worked for a further 13 years. That chat over coffee with Mr Smith changed things yet again. In 2003, when Mr de Vos joined BJS – the name had somehow found its way into the senior Smith’s operation – it was a small business with an office in Prahran on the fringes of Melbourne city. The arrangement was intended to bring some order to brokerages Mr Smith had accumulated. “I was never brought in to run the whole thing – that just happened,” Mr de Vos tells Insurance News. But as tends to happen when entrepreneurs are involved, within two years BJS was growing and on its way to developing a national footprint. “Today we have about 100 staff, with offices in Perth, Adelaide, Melbourne and Brisbane, as well as [the Victorian coastal towns of] Mornington and Wonthaggi,” Mr de Vos says. There is also representation in Sydney. The company is still growing, and he believes growth is essential in the present business environment. “Brokerages need to keep expanding,” he says. “We’re always looking for new business, new opportunities and new ways to grow.” A couple of years ago Mr de Vos and Mr Smith decided on a succession plan for BJS, and on July 1 this year, five months ahead of insuranceNEWS
GreatScott:BilldeVos hascompletefaithinhis successor,BelindaScott
“Brokerages need to keep expanding, we’re always looking for new business, new opportunities and new ways to grow.”
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the schedule they agreed, the plan will be triggered when Belinda Scott becomes managing director of the company that carries her initials. Ms Scott has been a director of BJS from the start and keeps in close contact with the head office in Melbourne’s St Kilda Road with regular visits and via Skype. She said a few months ago that she was ready to take over now, and Mr de Vos says he’s ready and willing to hand over to his successor, whom he describes as “very intelligent, very capable, very likeable”. Mr de Vos says he has always accepted and supported the fact that BJS is “pretty much a family-run company. I’ve always understood that, and that’s what the staff think, too.” Apart from Ms Scott working in the company, her husband Allister has installed a manager at the farm and become a broker at BJS – an invaluable support and backstop as she takes over managing the whole busi-
ness. And there’s also her brother-in-law Simon Fanning, who joined the company in 1999 as a surveyor and who is today a director. Mr de Vos says Ms Scott has the experience and judgement to keep the company successful and growing, and there seemed little point in him staying until January 1 if she was ready to take over earlier. It will end an interesting and fulfilling period in his varied insurance career. While he agrees a company with a strong family influence has the potential to be difficult for a non-family leader – a fact reflected in the departures of professional managers from several family-owned brokerages in recent years – he says there have been no such problems at BJS. “Ron and I communicate pretty well,” Mr de Vos tells Insurance News. “He has always respected my position as Managing Director. He’s never said the family members have got to do this or have that. We get on with things. insuranceNEWS
“A feature of BJS is that we’ve got a lot of staff who have been here a long time. One or two of them were at Concord, but we’ve also got a lot of staff who have been here 15 years. People don’t tend to leave – they seem to like it.” He’s looking forward to seeing BJS continue to grow under its new managing director, and he can see it may eventually grow in different ways from the model he has favoured. “We’ve got good staff, who are professional salaried insurance brokers, and we’re not a big follower of the [authorised representative] model,” he tells Insurance News. “We have a corporate AR in Perth and that’s about it for now. Do we want to be bigger in the use of ARs? Yes, if the right thing comes along. “I don’t know if the AR model is taking over broking. There are some good ARs and some not very good. How some of them survive is a mystery to me, but if the right person 55
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comes along and wants to use that model, we’ll consider it. “We put a lot of time into our people in terms of their personal growth, training, having them get involved in projects for growth and things like that. “They are people who’ve been here for a while. They’re younger, and we are trying to mould them into all-rounders to look for opportunities. “Our staff want a challenge. We reward them accordingly and they work hard for their clients, and we have a reputation for that. We get a lot of referrals from our client base. “Lots of clients still want to deal with an independent operator, someone who gives good advice and will be there when they need them.” The BJS business is largely SME-based, “but we do have quite large accounts that have been with us for a while”, Mr de Vos says. And those larger accounts can present challenges. “We’ve managed to gain and keep larger clients. Some of them have grown large, some have come from opposition brokers and some of them from the internationals, where they believe they’re not getting the right level of attention. “They want to deal with people who offer continuity. They come to us and say, ‘We’ve had three or four different account executives on the account in the past three or four years’. “I just picked up a new account, and the only concern the client had was that I’d been the first insurance person in that office for three years. They never saw anybody from their previous broker.” A big influence on new directions in broking is technology, which Mr de Vos describes as “a great leveller”. He says the development of broker systems has enabled 56
ADAPT OR DIE: Brokers and the value of advice
smaller broking groups to compete against larger brokerages. “Before that you were miles behind. Now everybody knows how to use spreadsheets. “Our clients want information presented a certain way, and for a lot of clients, less is more. Keep it simple.” BJS is part of the Steadfast network, but chooses not to be an equity member. Mr de Vos says the growth of the cluster groups into diversified operations with their own distribution arms is another significant feature of broking over the past 10-15 years. “They’ve mopped up a lot of smaller brokers, which is probably more about succession plans. I obviously have more to do with Steadfast than I do with AUB or IBNA, and I see Steadfast moving into a whole bunch of insurance and distribution avenues and ultimately earning a lot more revenue in the insurance space than the insurance broking space. “That’s what it’s about – control and distribution and bringing in people to those facilities.” After the handover, Mr de Vos will take some time off before returning to BJS on a three-day week. He intends to “play a role in development work with our interstate people and just work with Belinda. I’ve known her for 15 years, and I’m really looking forward to working with her. I’ve got no long-term plans but I want to stay relevant. “I’m not retiring,” he says. “I’m semiretiring. That’s one of the problems with brokers – a lot of guys seem to hang on forever. I just wonder if they’re stopping other younger people coming through. “I’ve personally lost a few good friends in broking in recent years, and they were all in their 60s. I feel fine but you can’t work * forever.” insuranceNEWS
MR STEADFAST: Robert Kelly still tells it like it is
LATEST REPORTS: Brokers face battle for SME market
KIDS, COWS AND CLIENTS: How Belinda Scott started a little brokerage that grew and grew
Coverstory:BelindaScottin Insurance News in2014
“That’s one of the problems with brokers – a lot of guys seem to hang on forever.”
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The ice age NewZealandinsurers havecrackeddown oncrystalmeth contaminationclaims, andtheirAustralian counterpartsmayyet beforcedtofollowsuit By Andy Swales
RELATIVELY CHEAP, HORRIBLY addictive and with monstrous implications for users’ physical and mental health, crystal meth – or ice – is a scourge of communities worldwide. It is also a growing concern for rental property owners and home buyers. Ice production in properties used as labs, and its consumption through smoking, are potential sources of chemical contamination. Residue has been linked with organ damage and reproductive issues, among other ill effects, with children particularly at risk. Remediation of an affected home can range from a chemical clean and removal of soft furnishings such as carpets to major reconstruction, meaning the owner could be on the hook for anything from a couple of thousand to tens and even hundreds of thousands of dollars. Insurance Council of New Zealand (ICNZ) Operations Manager Terry Jordan says ice contamination has been a hot topic recently across the Tasman, where a media spotlight on the drug’s widespread production and abuse has led to a spike in the number of landlords, tenants and home buyers commissioning tests on homes and turning up positive results. “It accelerated from there, and insurers who four or five years ago were getting maybe two [crystal meth clean-up] claims a year were suddenly faced with 30 to 40 claims… a month,” he tells Insurance News. “And they were very significant claims: $NZ30,000, $NZ40,000, $NZ50,000, $NZ100,000, and sometimes total losses of properties.” He says this has prompted insurers in insuranceNEWS
New Zealand to conduct a total review of their exposures. “Whereas previously they have fully covered meth damage, most of them have now capped it, and they have increased excesses. They have also increased requirements for property owners – landlords and property managers – to vet tenants and do regular inspections.” In March IAG, New Zealand’s largest insurer, published an information booklet detailing its changes to landlord and homeowner policies this year. It has capped payouts at $NZ30,000 and raised excesses from the standard $NZ400 to $NZ2500, with premiums on landlord policies – which have borne the brunt of claims – to rise between $NZ40 and $NZ130 a year. Other insurers have set similar caps. IAG says claims costs for ice contamination in the previous year were about $NZ14 million, from about 60 claims a month, across all brands including AMI. “At the same time, an unregulated industry has developed around testing for contamination and subsequent cleaning of properties, and that has contributed in some situations to misinformation about risks,” IAG says. “We are… establishing a list of preferred partners who can provide our customers and ourselves confidence in the work they do.” Mr Jordan agrees a “cowboy industry” of clean-up companies has arisen as a result of the ice phenomenon. “Suddenly everyone was getting told their house was contaminated and they could get it fixed for $NZ5000. A lot of that fed on the paranoia that developed and fears that were engendered,” he tells Insurance News. “There has been a lot of misinformation around it.” 59
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“When you see a thing like this rocketing, moving exponentially, insurers get quite concerned and they often exclude it.” Recipe for disaster Methamphetamineorcrystalmethismost commonlycallediceinAustralia,which accuratelydescribesitsappearance.Inits crystallineformitlookslikerocksalt– clearinitspureformandslightlypinkor yellowifithasbeencontaminatedinthe “cooking”process. InNewZealandit’scalled“P”,presumablyreferringtoitspseudoephedrine content–aconstituentfoundinordinary over-the-countercoldandhayfeverremedies. Allittakestomanufactureiceisa recipeobtainedfromtheinternetanda varietyofeasilyobtainedhousehold chemicalslikeacetone(nail-polish remover),iodine,anhydrousammonia (fertiliser),hydrochloricacid(pool chemicals),lithium(batteries),red phosphorus(matchheads),sodium hydroxide(lye),sulphuricacid(drain cleaner)andtoluene(brakefluid). Foreverykilogramoficeproduced, thecookingproduces7kgofpoisonous waste,whichisinvariablydisposedofby tippingitdownthenearestdrain. Expertssayhousesusedto manufactureandconsumeiceoftenhave residueembeddedinthesoftfurnishings, wallboardsandeventhetimberframing ofwalls.
Mr Jordan sits on a standards committee set up to tackle this issue. The group also includes representatives from the Government, testing companies, remediation businesses and other stakeholders. Its report – due at about the time this issue of Insurance News is published – will establish how to test for contamination and how to remediate: what to clean, which furnishings to remove and so on. “Key to it all is the level of contamination,” Mr Jordan says. He says the committee will establish a minimum level of contamination – above which remediation is required – of 1.5 micrograms of residue per 100 square cm. This is an increase from a government guideline of 0.5 micrograms, established in 2010. (The Australian Government’s remediation guidelines set the same benchmark). “There’s a lot of debate around this [figure],” Mr Jordan says. “Some scientists say there are no adverse health effects under, at a very minimum, 12 micrograms. “Others say there are severe implications even at 0.5, which sort of defies logic, because people who smoke this stuff suck in anywhere between 300-800 micrograms with a pipe or whatever they have, and they get insuranceNEWS
up and walk around… and function.” The committee has – perhaps understandably – erred on the side of caution for now. “I suspect the science will clarify itself because there’s a lot of interest in it,” Mr Jordan says. Last year New Zealand insurers were criticised for their policy changes. In an article on a New Zealand financial advice website, Shine Lawyers New Zealand Managing Director Andrew Hooker wrote: “While… homeowners are struggling to come to grips with this scourge, the insurance industry has again wiped its hands and amended its policies to severely limit cover.” But Mr Jordan says the industry has taken a “pragmatic approach”. “When you see a thing like this rocketing, moving exponentially, insurers get quite concerned and they often exclude it,” he says. “I think insurers have been pretty reasonable, and said, ‘okay, this is a problem, it’s an increasing problem. We still want to offer protection, but we’ll offer it on these terms and there has to be a certain amount of property owner responsibility as well as insurer responsibility.’ I think the insurance industry has landed in a pretty good place.”
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A slippery slope Themainstreammediaisrarelyshortof headlinesonAustralia’sice“epidemic”. Themostrecentexample:inApril policereportedlyseizedarecord903kg ofthedrug,worthalmost$900million,at apropertyinMelbourne’seast. Thebustapparentlytook9million “hits”oficeoffthestreets. Areportpublishedlastyearbythe NationalDrugandAlcoholResearch Centrerevealeduseofmethamphetamine –includingice,amongotherformssuch asspeedand“base”–hadtripledoverthe previousfiveyears. Thereport,publishedintheMedical JournalofAustralia,foundthatin2013/14 therewere268,000regularmethamphetamineusersand160,000dependentusers aged15-54–equatingto2.09%ofthe populationand1.24%respectively. Therateofdependentusehad increasedsince2009/10andwashigher thanthepreviouspeakrecordedin 2006/07.However,thereportsuggested crystalmethuse–isolatedfromother forms–hadremainedstable. InMarchthisyeartheNational WastewaterDrugMonitoringProgram issueditsfirstreportonsewagefacility teststomeasuredruguseinthenational population. Itsaystheprogramwasestablished because“self-reportusersurveys,seizure andarrestdataandmedicalstatistics provideonlyalimitedpictureofdrug consumption”. Itsheadlinefindingisthat “methamphetamineisthehighestconsumedillicitdrugtestedacrossall regionsinAustralia”. “Thistrendwasconsistentforboth capitalcitiesandregionalsitesand,on average,regionalandcapitalcityAustralia showedcomparablelevelsofusage,”the reportsays. “Thehighestmethamphetaminelevels wereseenatWesternAustralianand SouthAustraliansites(capitalcityand regional),aswellasatseveralregional sitesinQueensland,Victoriaand Tasmania.Comparingthelatestfindings ofdrugusewithpreviousdataforsitesin QueenslandandSouthAustralia,current methamphetaminelevelshavebeen consistentlyincreasingandarecurrently athistorichighs.”
“We’re finding a number of testing companies are already opening up and the number of tests coming back positive are quite significant.” Ice abuse is a major problem in New Zealand, where the drug is called “P”. “If you cut it out of New Zealand, you’d halve the crime rate,” Mr Jordan says. Australia’s ice “epidemic” and associated crime problems are also well documented (see panel), and the risks of property contamination have recently attracted coverage in the mainstream media. So could the trend for testing homes and claiming remediation costs take off here? LMI Group director Steve Manning believes it’s “not a matter of if, but of when it becomes an issue in Australia”. “We’re finding a number of testing companies are already opening up and the number of tests coming back positive are quite significant,” he tells Insurance News. “It’s certainly not a time I’d want to be a landlord.” He says if testing becomes more prevalent and claims start rolling in, “I think you’ll find the insurers will start taking a stronger stance”. And he shares the concern over cowboy operators. “Any time you’ve a got a new hot-button issue – asbestos or black mould, for example – you have companies coming out of the woodwork, so I think you’re going to find a whole bunch of companies being set up that are just one-man shows that are going do a very bad job cleaning, put in big bills and cause all sorts of problems.” In a video interview with Mr Manning in February, Steven Dabelstein, Chief Executive of environmental consultant OCTIEF, reports seeing “a lot more demand” for its ice contamination screening service in Australia. Tests typically cost about $550. insuranceNEWS
He predicts increased take-up of testing “won’t be dictated by the Government, so much as the public will start to adopt it over time as they become more aware” of the risks. ICNZ’s Mr Jordan says if Australia goes the same way as New Zealand, “insurers will have to protect themselves, I would say. They could probably do that by copying what New Zealand has done – why reinvent the wheel?” IAG Australia told Insurance News it is “mindful of the situation in New Zealand and monitoring its contamination claims” in this country. It is yet to record a significant number of ice contamination claims. A spokesman says IAG Australia’s landlord policies will cover “vandalism or a malicious act by a tenant or their guest [and] intentional and deliberate damage by a tenant or their guest. If it is discovered during the claim that a property may be contaminated, then our team will review the claim and review on an individual basis.” Insurance Council of Australia General Manager of Communications and Media Relations Campbell Fuller says the industry body “doesn’t have any insights into the prevalence of claims due to clandestine drug laboratories in Australia”. He adds: “Landlord insurance policies typically do not specifically exclude claims for losses due to drug use or manufacture by tenants. “Landlords who require this type of cover should read their policy’s product disclosure statement or consult their insurer. They may also consider contacting a broker that specialises in providing insurance to * landlords.”
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Driving force UKmotorinsuranceinnovatorSamWhite isheadingtoAustralia,withspiralling claimscostsinhersights By John Deex
FOR SAM WHITE, MOST motor insurance problems stem from the same source – incurred claims costs. In her native UK, it’s a huge issue, with the industry barely making a profit in two decades. It has been better in Australia, but we’re catching up fast, and the warning signs could not be clearer. Ms White says she can help, and has spent weeks working with Australian insurers explaining how she could implement some of her solutions here. One of the key services provided by her UK business, Action 365, is third-party claims intervention, because third parties are where the claims costs spiral – taking control (and profits) out of insurers’ hands. Put simply, Action 365 contacts the third party quickly after an accident and establishes a link that prevents things taking a wrong and expensive turn. “I see massive opportunity in the Australian market to provide the same services we provide in the UK,” she tells Insurance News. “Four or five months ago a business associate who moved over here approached me and said there seem to be some similarities. “The Australian market is a little further behind [the UK] in 64
terms of problems in potential motor incurred claims costs. “You’ve run quite a profitable motor insurance market for the past 10 years, whereas, as everybody knows, the UK motor insurance market has run at a loss for the past 20 years. “But I can see from what’s happened in the past 12 months that it is starting to be a problem here, and will continue to be a problem and probably escalate quite quickly.” Most insurers have pretty tight control over their own clients’ repair costs, she says, with efficient supply chains managed effectively. But they get hit from the other side when the third party uses a repairer outside of that insurer’s network, or they get a replacement vehicle, and associated costs begin to spiral. “That to me is where your loss ratios can be quite badly affected,” Ms White says. “Somebody’s had an accident, the insurer hasn’t managed to speak to the third party and they are unaware that this client is now with a solicitor, their vehicle is in storage, they might be in a hire car, and all the time those costs are racking up, literally by the day. “We as a business offer an early intervention service where insuranceNEWS
we are looking to get hold of the third party and put them back into a process that is much more cost-effective on behalf of the insurer we are working with.” At its heart, it’s about communicating effectively, building rapport and treating people as decent human beings. It’s a simple process that delivers staggering results. “In the UK we’ve done this on behalf of a number of the large insurers and we have reduced the cost of claims by probably 60%,” Ms White says. “It’s a really effective tool that, from the conversations I have had so far, has real value today in the Australian market, but has an even bigger value for where it’s heading.” Ms White believes her approach can have a major impact on reducing fraudulent claims – a growing issue in Australia. “If you can have a conversation with the third party very early days, you get a lot less of these claims that come up later because they had a conversation with somebody down the pub, or they’ve seen an advert or whatever,” she says. “There is quite a lot of opportunistic fraud in the motor insurance market. These aren’t professional fraudsters, June/July 2017
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The White way Sam White, ChieF eXeCUtiVe oF aCtion 365 and Pukka insure, is known in the UK as an entrepreneur with attitude – not afraid to shake things up or take risks. She leads from the front and takes staff and community interests seriously, with Pukka incorporating profit share and philanthropy. “We really do want to give back in every way – 10% of the profits go back to staff, 10% go to charity and we are currently changing contracts so employees have an option to go and work with a charity for one day a week,” she tells Insurance News. “these things are not always practical and not always easy to do. But one of the benefits i have is that the business is independently owned. i am the majority shareholder. there’s nobody else’s money dictating what i can and can’t do, and so i’m able to make decisions that i think are the right decisions, not based purely on shareholder returns. “i am hoping that if we can get it right, then other larger companies will follow our lead. “there are a few insurers [in australia] that would definitely engage with that kind of activity.” She lives her life, and runs her businesses, by appealing to people’s humanity. “i know it sounds like such a strange concept. But most people are not bad at heart.” Last year action 365 turned over £10 million and generated earnings before interest, tax, depreciation and amortisation of £770,000. in the first 10 months of trading, Pukka insure sold more than 14,400 policies and recorded gross written premium of £9 million.
these are just everyday people that think, ‘actually, I’ve had a little bit of neck ache, should I put a claim in?’ “Then you get the people who are genuinely injured, but because of the way the system is set up the costs are still going to be a lot higher than they should be. “In all these circumstances, being able to communicate with the third party and have an upfront and honest conversation is always going to put you in a situation where your costs are reduced. It is so significant.” Ms White wanted to prove just how successful her methods were, so put her money where her mouth is and last year set up Pukka Insure. Pukka focuses on commercial van drivers with claims histories or convictions, who may have been refused cover elsewhere. Such clients might be considered bad risks, but by putting third-party intervention principles into practice, Ms White still turns a healthy profit. “Pukka has a loss ratio of 16% – way lower than the market average,” she says. “Obviously, it’s not going to end up there, but we will probably come in at 50-55% as an overall loss ratio, which is still substanJune/July 2017
tially outperforming the rest of the market. “And it’s because my intervention rate on third parties is so significant. “I have a 92% intervention rate. I aim to get hold of everybody involved in the accident as quickly as possible and determine what it is they need, and what is the most efficient, costeffective way of delivering that for them. “The consumer doesn’t end up out of pocket or in a worse situation because of that. “You look at something like car hire, the cost of that is significantly higher than the insurer providing a vehicle themselves.” Ms White is carrying out test programs with Australian insurers to see how her methods would translate. As well as insurers, she’s talking to repair networks, hire car companies, even solicitors, to understand what the margins are. “We are looking to go live with a couple of insurers,” she says. “In the UK we estimate that if an insurer manages a repair themselves the average cost of that is probably £2500, for their own client repair. The thirdparty costs are closer to £10,000. “If we are able to put that control back in their hands, you
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“You end up with fraud in a system when people are disconnected from the outcomes of their own actions.”
are talking about an incurred claims reduction, probably worth 15, 20 points on the loss ratio. “I’ve got no reason to believe it is not at least as significant as that over here.” Ms White believes her services are unique in this part of the world. “It’s totally new. I think there are some insurers attempting to intervene, but by their own admission it probably isn’t a real strength of theirs. “It’s quite a specific skill set. I always say it’s not a claims skill set, it’s a sales skill set. “The problem is that in the insurance industry they tend to try to get their claims people to perform the function. The claims people are used to processing stuff instead of getting hold of third parties. “Our methods are more time-effective and cost-effective and we find it is always a better outcome for all concerned.” Ms White says it’s not just about communicating well, it’s about having a conversation at all. Insurers generally have no link with the claimant bringing a suit against them. “Because it has already ended up in the hands of a solicitor, you’ve got somebody in front of you all the time. 68
“You end up with fraud in a system when people are disconnected from the outcomes of their own actions. “I don’t believe that most people are anything other than fundamentally honest. I think the system sometimes lends itself to people taking advantage in certain sets of circumstances. “But if you can emotionally connect with that third party and have an honest and fair conversation with them, that changes everything. “What I’ve found in the UK is actually a lot of the time, even the claimants themselves are shocked when they get to the end of the claim. Things like legal bills, car hire cost, they have no idea.” Ms White sees herself as an insurtech innovator, but not in the traditional sense, as some of her methods shun modern technology. And she warns that too heavy a reliance on digital tools could be damaging for some of the most vulnerable people in society. “I like to think of Pukka as a hybrid,” she says. “Yes, we’ve got some really cute insurer tech, and we are doing some great, interesting stuff on data analysis. “But I like to think we are trying to bridge the gap between insuranceNEWS
the IT set and humanity, and not lose ourselves totally in one side or the other. “I genuinely believe a combination of the two is the way we will create better businesses in the future. There are lots of advances we have made with technology that can help any business be more efficient. “But there are times where that falls down, and the claims process is absolutely one of those. “If you allow people to hide behind technology and process, you can end up with some quite unsavoury behaviours.” Modern data analytics have huge potential, but Ms White is uncomfortable with the idea of insurers consistently cherrypicking good risks over bad. “If we can profile and find out through tech who the good risks are and who the bad risks are, you end up polarising society. “These people are already struggling, they are already on the lowest income stream, but because of where they live, because of the car they drive, the insurers don’t want to protect them either. “The basic construct of insurance is that a group of people all put in together so that when some have a difficult June/July 2017
time, you’d all help them. That has been lost.” Ms White says she wouldn’t rule out bringing Pukka to Australia, but her initial focus is on working with incumbent insurers. It makes more sense to collaborate with those with market share, and she is quite happy to share techniques and information. “Too many people are too closed because they think somebody is going to steal their idea or copy them,” she says. “For me, if you really want to make something better then you should be as open as possible, and then everybody can improve what they are doing and the market improves across the board.” Ultimately, she believes insurers need to accept responsibility for problems in the motor market, and take decisive action to solve them. “Insurers have almost denied accountability by saying claims costs are out of their control, that it’s almost a construct of the market,” Ms White says. “But actually no, you could have done a better job than that, that is on you, and I’ve proven time and time again that this is absolutely something that insurers could control if they approach it in the right way.” *
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Green parties SteadfastGrouphaspartneredwith conservationistTimJarvistoraiseawareness ofclimatechange’simpactoninsurance By Bernice Han
ECO-CAMPAIGNER AND polar explorer Tim Jarvis’ quest to highlight the devastating environmental impact of climate change has a new ally: Steadfast Group. The pair have formed an alliance to raise awareness of climate change and its impact on insurance to Steadfast brokers and strategic partners. As Steadfast’s environmental ambassador, Mr Jarvis’ tasks include speaking at functions and writing articles for the broker network’s Sustainability Series project. Their tie-up may have raised a few eyebrows, but Mr Jarvis says the industry has a vital role to play on the issue. Warmer temperatures and rising sea levels are already affecting claims, which will eventually hit premiums. “The one industry that doesn’t need convincing about climate change is the insurance sector,” Mr Jarvis tells Insurance News. “The sector is very aware of the increase in weather-related claims. What the weather modelling is telling us is that changes to the climate are being caused by our activities. Weather events are becoming more extreme.” Mr Jarvis has seen the devastation wrought by global warming in Antarctica, the site of his last expedition in 2013, when he re-enacted legendary British explorer Ernest
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“The science is decided. Unfortunately, we apparently have some way to go to convince certain individuals that it is real.”
Shackleton’s epic voyage to the continent in 1916. He has no doubt what the future holds if global efforts to reduce carbon emissions are upended by climate change sceptics – an increasingly vocal group that includes US President Donald Trump. “There is no industry whatsoever in Antarctica,” Mr Jarvis says. “Any changes we have seen there are caused by changes elsewhere. “The western part of Antarctica is in wide-scale melt as we speak. That ice melt will have repercussions for us all. This is a major issue for us given that many of the world’s most populous cities are coastal.” Steadfast – Australia’s largest broker network, with more than 348 brokerages, including in New Zealand – gives Mr Jarvis the ideal platform to reach out to the industry. “Brokers are very important in this equation,” he says. “They are in contact with both the customers and the insurers. “My long-term goal, which is shared by Steadfast, is to continue the dialogue, to have it more wellversed in the science, the policies and the practical aspects of what is going on in this issue. “I think the insurance sector has such a large part to play in this whole climate change piece.” The partnership came about after Mr Jarvis’ participation as a
keynote speaker at the Steadfast Convention last year. Steadfast Group Managing Director and Chief Executive Robert Kelly and Mr Jarvis bonded over shared concerns for the environment. “Mr Kelly is always very keen for Steadfast to make contributions on important issues, and the environment is one of those issues,” Steadfast Group Company Secretary and Corporate Counsel Linda Ellis tells Insurance News. “There is more and more interest in climate change and how it impacts business. “So we do think it’s very timely for us to have someone with Tim’s calibre and experience on board to assist us on climate change issues. “He is a resource available to Steadfast on issues of climate change and the environment.” The Sustainability Series project, a combination of articles and video clips, was introduced in March on the Steadfast website. Environmental risks facing the business community are not the only topics addressed. The project also sought to widen its reach to schools and universities through its article titled: “Life lessons – when education and sustainability collide.” The article says: “A green future or a green economy simply cannot happen without green education. insuranceNEWS
“Our future depends on protecting the health and wellbeing of our children and the planet on which they live. “Therefore, it is our responsibility to educate future generations with the skills to solve the global environmental problems we face. Teaching sustainability not only builds awareness and knowledge around sustainability issues, but also develops students’ capacity to think critically, innovate and come up with solutions.” Meanwhile, Mr Jarvis’ 25Zero project aims to use the disappearance of ice on 25 mountains at the equator that have glaciers as an urgent call to action to reduce greenhouse gas emissions. He and his teams climbed eight of these glacial mountains during the two-week United Nations Climate Change Conference in Paris in 2015, and had images of the glaciers broadcast to delegates, to illustrate their fragility and the fact it is humans causing their rapid decline. “25Zero is about using the disappearance of these glaciers to show people the global issue that is climate change and to use the project to support projects doing something about it,” Mr Jarvis says. “The science is decided. Unfortunately, we apparently have some way to go to convince certain individuals that * it is real.”
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Standing up for backs AllianzcallcentrestaffinQueenslandarebenefittingfroman officemakeoverthatfocusesonworkerwellbeing By Bernice Han
SORE BACKS ARE A THING OF THE PAST FOR ALLIANZ Worldwide Partners employees who man the 24/7 call centre in Broadbeach, Queensland. The outcome is exactly what management hoped for, having forked out more than $500,000 to have the office fitted and furnished to maximise staff health and wellbeing. Much of the budget went on 200 electric sit-and-stand desks, for the eye-popping sum of $220,600, and employee feedback leaves the Allianz Group subsidiary in no doubt it is money well spent. “It has proven to be a real success for us,” Head of People and Culture Gerard McCarthy tells Insurance News. “We have people reporting less pain, less discomfort. They feel more energised as a result of being able to vary their sitting postures.” The desks are a hit with employees, who attest to the benefits of having the option to switch between standing and sitting positions. “I no longer have a sore back after work,” a team member tells Insurance News. “I feel more energised and I never get headaches at work because I get to stand up and move around my desk and this keeps my blood flowing. “I’ve even seen staff exercising at their desks in between calls. “I believe I speak on behalf of the entire office when I say the new desks are amazing and we are all very grateful to have them. “Having a sit-down-stand-up desk has improved working quality greatly.” Feedback from staff indicates 55% feel more energised and about 64% more focused since they moved to the 2114-squaremetre office at the end of last year. The Broadbeach office is a first in Australia for Allianz 72
Worldwide Partners, with furniture and layout chosen after seeking employees’ views. “The work can be quite challenging… you can sit for long periods of time,” Mr McCarthy says. “We consulted with the workforce on what was important. “We wanted to make sure we captured their thoughts and requirements. They wanted to be able to address their sit-stand issues, they want to have the ability to sit and stand.” The desks represent one of the largest procurement assignments for office products supplier COS Working Spaces, according to its Managing Director and founder Dominique Lyone. He says Allianz made it clear that staff requirements were the driving force. “What made this unique was [Allianz’s] attitude around employee wellbeing and understanding that this particular job, which is a call centre, is where people are literally at their desks all day long,” Mr Lyone says. “Making them as comfortable as possible was key to Allianz, and that is where it went with the sit-and-stand desks.” Mr Lyone says companies such as Allianz are taking a longterm perspective when they opt for sit-and-stand desks and other ergonomic fittings. “The environment to hire people is extremely competitive today,” he says. “A well-fitted office also helps them to attract better people. That’s why companies are investing in these. It gives them one more tick to get the best talent available. “Allianz [Worldwide Partners] went further than the desk. The desk is one thing, but it also chose ergonomic chairs and adjustable monitor stands. It went beyond the furniture, with * better natural lighting.”
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Building cladding: Broker offersaninsurancesolution
Efficiency driver: eSentry putsplantandequipment coveronline EVERY SECOND COUNTS IN THE BUSINESS OF broking. That’s why eSentry’s new mobile plant and equipment product is the perfect answer for brokers who are after cost and efficiency gains. Launched in November last year, the product is a total online package from the Sydney-based online construction underwriting agency. Mobile plant and equipment covers various types of plant items including excavators and earthmoving equipment, scissor lifts, skid steers, prime movers and trailers, tipper trucks and back hoes. Cover includes material damage, road risk and broad form liability. Tokio Marine, a joint shareholder of eSentry, provides the security and local claims service. The policy is designed to meet the risk needs of civil contractors, earthmovers, excavation contractors, landscapers, site preparation contractors, residential and commercial builders, dry hirer and agricultural contractors, among others. All quotations are issued instantly by the system providing there are no referral triggers, policy documents can be issued at the click of a button and policies can be endorsed online at any time 24 hours a day, seven days a week. “There isn’t actually anything like it in the market, as it’s whole lifecycle and 100% online, which is how we operate at eSentry,” Chief Executive Adrian Martin tells Insurance News. “Plant and construction brokers who use eSentry love our systems, because it saves them time and money. It’s that simple.” Operating entirely online has been the DNA of eSentry since day one, and the reception from the market has been very positive. Mr Martin says the market is “pretty much underwritten in a traditional offline process”, and the emphasis on online production and service is eSentry’s big market differentiator. “While there are a few simple quote and bind competitors, there is nothing that empowers brokers like eSentry. It allows them to quote and bind and indeed administer any policy online for its whole-life cycle. “This way of doing business online and efficiently is what we are known for. It allows us to focus on what matters for * brokers – our service and turnaround times.” 74
MELBOURNE-BASED BROKERAGE AB PHILLIPS HAS launched a new facility aimed at reducing insurance costs for buildings featuring certain types of expanded polystyrene (EPS) panels. EPS panels have been blamed for a number of significant fires in Australia and across the world. In Australia they have been found in a number of buildings, and an apartment block in Melbourne was badly damaged in 2014 when fire raced up the side of the building, fuelled by noncompliant EPS panels. As a result, such buildings can be four times more expensive to insure than traditional brick or concrete structures. In an Australian first, broker AB Phillips has teamed up with the Insulated Panel Council Australasia (IPCA) to deliver an exclusive insurance facility designed to insure certain panel classes. AB Phillips says all panels “have long been treated as equals” despite the differences in fire risk. It says the facility “accommodates the risk reduction presented in certain panels” and is able to offer significantly lower premiums. “The facility is market-leading in that it recognises certain classes of EPS panels present a lower fire risk than traditional panels, and as a result are eligible to receive lower insurance premiums,” AB Phillips says in a statement. IPCA Chief Executive Ron Lawson tells Insurance News development of the facility followed significant research into the issue funded by the Australian Research Council. He says there has been “40 years of misinformation” but that the industry must take its share of the blame for not spreading its message effectively. He says the facility is not limited to assessment of different types of panels, but more crucially how they are used and whether construction is in accordance with the Building Code of Australia. “The [research] findings demonstrate the importance of a more holistic approach to reducing risk as opposed to the long held view it was the product or even the types of core materials alone that are the most important,” he said. “Hence the agreement to establish a devoted facility and pathway. “The facility requires people going to the industry for insurance to construct to code requirements, or bring a building up to speed. * “This is a very significant and positive change.” June/July 2017
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On track to improve mental health
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AonbossJamesBaumcompletedagruelling trektoraisemoneyforacrucialcause By Kate Hanley
THE INTERNATIONAL HIT POP SONG My Head is a Jungle summed up for many what poor mental health can feel like – a dark, internal landscape thick with confusion and no clearing in sight. Fittingly, taking on the Kokoda Trail through Papua New Guinea’s unforgiving jungle is how Aon Risk Solutions Managing Director of Commercial and Chairman of Aon Broking James Baum raised money and brought attention to an issue close to his heart. In April Mr Baum embarked on the famous trek with his Aon colleague Haydn Hewitt and six others to raise money for the Black Dog Institute – a non-profit facility for diagnosis, treatment and prevention of mood disorders such as depression and bipolar. So far, he is on course to raise $25,000 from the trip. Mr Baum has seen family and friends suffer from such illnesses and wanted to do everything he could do dispel the stigma around them, raise money to help research treatments. Walking the Kokoda Trail also allowed him to imagine the mental torment of the Australian soldiers who fought there during the Second World War. “It was a confronting thing to do,” he says. “The conditions are really tough. It does test your mental health. Mentally, it was very challenging. “It was an incredible amount of repetition. Steep mountain after steep mountain, and mud. Every day it was 5am wake up, ready to go at six. “You go to bed each night exhausted. It really tests you out.” Making the notoriously difficult trek seem even more torturous was the fact Mr Baum embarked on a “fast Kokoda” – covering the route in five days as opposed to the standard eight or nine. This was tour leader Mr Hewitt’s idea. He was on his 11th Kokoda walk and wanted to spice things up. Mr Baum says he naively went along with it. “I didn’t put a lot of thought into it and I was a little taken aback,” he says. “When you are walking down an incredibly steep hill and there’s mud everywhere, insuranceNEWS
you need to concentrate on where you put your foot. “If you fall off a ravine, the best you will do is severely injure yourself, and at worst you will die. I didn’t realise how dangerous it was.” He says the group of eight had to rely heavily on each other, and consequently formed a very strong bond. By coincidence, the “strangers” in the group also belonged to the insurance industry, including Peter Laidlaw from London-based Atrium. To prepare physically and mentally for the trek, Mr Baum spent six months hiking around the hills near his home on Sydney’s northern beaches, including up and around the Barrenjoey lighthouse every Saturday. Colleagues may also have wondered why he spent his lunchtimes and spare moments marching up and down the 40-plus flights of stairs at Aon’s offices in Sydney and Melbourne. Mr Baum says, during 12 years at Aon, he is lucky to have worked with mental health organisations to address the discrimination people routinely suffer when buying insurance. When the Black Dog Institute became part of Aon’s charitable foundation, support flooded in. “At Aon, it’s something people are incredibly interested in,” he says. “We do this charity auction every year and normally raise $50,000, but when we chose mental health we raised double the money. “What I put it down to is how many people have a direct connection to mental health issues.” It is estimated one in five Australians has experienced some sort of mental health disorder, ranging from anxiety to depression and bipolar disorder. “It needs to be publicly discussed and understood. Doing Kokoda – on a personal level it gives you the sense of achievement and the ability to feel good about yourself. How you feel about yourself goes a long way to having good mental health.” Mr Baum says next year’s charitable trek will be either in Finland or up Mount * Everest. 77
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Andrew Sharpe, Principal Direct Line: +61 2 9265 3261 Email: firstname.lastname@example.org
Business interruption insurance – a riddle, wrapped in a mystery, inside an enigma SKM Industries Pty Ltd v Australian Reliance Pty Ltd  VSC 159 Overview In 1937 Winston Churchill said that trying to forecast the actions of Russia was ‘a riddle, wrapped in a mystery, inside an enigma’. Judged by the recent history of insurance brokers’ negligence actions, both in Australia and overseas, the phrase appears apt to describe business interruption insurance. SKM Industries Pty Ltd v Australian Reliance Pty Ltd illustrates the potential dangers inherent in arranging business interruption insurance and the care needed by both brokers and their clients.
Background The SKM Group carried on the business of recycling general waste materials and glass. It held an industrial special risk policy with Vero Insurance Ltd. The policy had been arranged by Mr Riddle of Australian Reliance. At renewal in 2009, the broker obtained from MSM Loss Management an advice in respect of the appropriate declared insurable gross profit for the purpose of the business interruption section of the policy. MSM’s calculations included ‘growth factors’ of approximately 3% p.a. arrived at by MSM following discussions with SKM’s management. During 2009, SKM’s business manager, Robert Italiano, informed Mr Riddle of two changes to its business: 1. SKM was starting a glass recycling business to commence in February 2011; and 2. SKM had entered into contracts to receive and process recyclable materials from five local councils which were estimated to result in a 20% increase in tonnage processed. Prior to the 2010 renewal, the broker provided SKM with an insurance renewal questionnaire which contained a form to be used by SKM for the calculation of the insurable gross profit and notices relating to the need to advise of any change of risk circumstances and the average/co-insurance clause (including a worked example). SKM’s company accountant, Mr Matheou, completed the calculation form. His figures produced an insurable gross profit as at 30 June 2009 (including a ‘growth factor’ in respect of the policy period of 10%) of $15,750,000. In response to prompts in the calculation form, Mr Matheou indicated further growth factors of 10% in respect of each of the two 12-month periods comprising the indemnity period. Mr Matheou returned the calculation form to the broker by email which stated:
‘Please note that in both instances I have put 10% for the increase as per Robert’s advice but I was unsure whether they needed to be added together and ultimately added back to the gross profit figure and payroll figure.’
The broker renewed the policy with an insurable gross profit of $15,570,500. That figure did not include any increase to reflect Mr Matheou’s additional growth factors in respect of the indemnity period. Fire at SKM premises On 5 November 2010 SKM’s premises were extensively damaged by fire. SKM’s settlement with Vero SKM made a claim on the policy in respect of losses sustained as a result of the fire. Vero had paid an amount of $24,690,000 under the policy. SKM sued Vero alleging that it was entitled to a further payment of $8,775,110.75 (including $4,113,820 in respect of business interruption). Those proceedings were settled, following mediation, for payment by Vero of $5,400,000.
SKM’s claim against the broker SKM commenced proceedings against the broker in the Supreme Court of Victoria alleging that the broker had breached its duty of care by: 1. failing to increase the insurable gross profit figure declared to Vero by reference to: a. the 9-month period between 30 June 2009 and the commencement of the policy on 31 March 2010 (7.5%); and b. the two periods of 10% growth in respect of the 24-month indemnity period as instructed by Mr Matheou on the calculation form. (the growth factor inclusion issue) 2. failing to question the sufficiency of the growth factors provided by Mr Matheou having regard to the broker’s knowledge of the SKM business including: a. The commencement of the new glass recycling business; and b. the council contracts. (the growth factor sufficiency issue) 3. Failing to advise SKM of a change to the 2010 policy which amended the definition of uninsured working expenses thereby reducing the extent of indemnity available to SKM for such items. (the uninsured working expenses Issue)
Decision Growth factor inclusion issue and uninsured working expenses issue The broker admitted negligence in respect of each of the growth factor inclusion issue and uninsured working expenses issue. It was agreed that SKM’s entitlement to indemnity under the ISR policy was reduced by $1,738,041 as a result of that negligence compared to the amount which would have been properly payable by Vero in the absence of such negligence (the agreed shortfall figure).
The only issue which arose, in respect of those breaches, was whether a further reduction from that agreed loss figure should be made to reflect any additional recovery obtained by SKM as a result of the Vero settlement. Justice Riordan was satisfied, based on detailed evidence as to the course of negotiations, that the Vero settlement did not result in SKM receiving moneys in respect of its business interruption claim greater than the amount of SKM’s policy entitlement (which had been factored the calculation of the agreed Shortfall figure). Growth factor sufficiency issue In relation to the issue of whether the broker ought to have questioned the sufficiency of the growth factor estimates provided by SKM, Justice Riordan held that the boker was entitled to accept the growth factor calculations provided by SKM because: a reasonable broker could not be expected to be aware how the expansion in the business would flow through to revenue or gross profit; the growth factor figures provided by Mr Matheou indicated a very significant growth of the business over the relevant periods (cumulatively in excess of 30%); the broker was aware that the figures had been arrived at by the company’s internal accountant based on advice from the general manager. His Honour also rejected SKM’s claim that the reference to the growth factor in the calculation form was ambiguous which had led to SKM providing inadequate growth factors calculated on past, rather than future, growth trends. His Honour held that the broker’s documentation had made it clear that the reference to ‘growth trend’ in the calculation form asked for an ‘expected’ trend in respect of each of the three relevant periods. In any event, SKM had not proved that it was actually misled or that, if further explanation had been provided, it would have provided different figures.
Implications This decision provides an important reminder to insurance brokers as to the procedures and care required in arranging business interruption insurance and the importance of clearly informing clients of any relevant changes to the policy wording at any renewal. Of some reassurance, it shows that brokers will generally be entitled to rely on instructions provided by clients provided that they have taken reasonably steps to advise the clients of matters and concepts necessary for the client to provide informed instructions and that there are no other circumstances indicating that the instructions are erroneous.
)? 7)?/ 650) 9636@ mccabes.com.au
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JMD Ross charity fundraiser goes smoothly Brokers,insurersandunderwritersgatheredinlate Marchtohelpraise$6655forSydney-basedJMD RossInsuranceBrokers’annualcharityday. ThemoneywillbegiventotheExodus Foundation,whichprovidesthosewholiveinpoverty withfood,healthcareandcrisissupport. Morethan60peopleattendedJMDRoss’ StLeonardsofficetoenjoythefun,andsupport Sydney’shomelessandmarginalised. AhighlightwaswatchingChiefExecutiveJohnG Duncanhavehislegswaxedtoraisecharitycash.
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Allianz partners enjoy luxury cruise Allianz’stop-performingkeypartnersweretreatedtoa luxurycruiseanddinnerduringtherecentSteadfast Convention. TheAllianzSignatureeventbeganwiththeonehourSydneyHarbourcruiseontheItalian98-footsuper yacht,MySevenStar,duringwhichguestswereserved welcomedrinksandplattersofprawnsandoysters. ThiswasfollowedbydinnerattheMuseumof ContemporaryArtontherooftopsculptureterrace. ThemedfoodstationsfromMorocco,Indiaand Mexicowereaccompaniedbymusicperformedby localduoAmyChaseandJordanMillar.
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Golf day’s Swan Hill debut a winner McLardyMcShane’sannualcharity golfdaywasheldforthefirsttimeat thenorthernVictoriantownofSwan Hill,gaininganenthusiasticresponse fromtheregionalcommunity. Theday’ssportingactivitywas followedbyagaladinneratthe MurrayDownsgolfclubattendedby morethan150people.Thecombined eventsraisedmorethan$30,000for youthcharityReachandtheCurefor MNDFoundation. Thedinnerfeaturedan“onthe couch”discussionhostedbyveteran AFLjournalistMikeSheahanthat highlightedtheworkofthecharities. FormerEssendonfootballerand MelbournecoachNealeDaniher,who hascampaignedtoraisefundsfor motorneuronediseaseresearch sincehisowndiagnosisin2013,was aspecialguestattheevent. Speakersalsoincludedformer RichmondfootballerandReach FoundationChiefExecutiveChris NaishandMcLardyMcShaneChief ExecutiveDonMcLardy. Reachrunsmorethan1000 workshopsayearaimedatimproving thewellbeingofyoungpeopleaged 10-18.Theorganisationwasformed in1994byBrownlowmedallistand youthmotivatorJimStynesandfilm directorPaulCurrie.
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Steadfast Convention lives up to billing The19thannualSteadfastConventioninAprilhaditall– networking,charity fundraising,andstrategytips. FormerTelstrabossDavidThodeyandYellowBrickRoadExecutive ChairmanMarkBouriswereamongheadlinespeakersatthefour-dayevent atSydney’snewInternationalConventionCentre. Thethemewas“Evolve”anddelegatesheardfirst-handtipsandtactics tostayrelevantinarapidlychangingindustry. Itwasn’tallaboutbusiness,withpeopletakingtimeouttodotheirbit forcharityinkeepingwithtradition. Steadfastbrokersraisedabout$226,000forNewSouthWalescharity KidsXpressatthegaladinner. ManagingDirectorRobertKelly,adirectorofthecharity,saysthe donationwillsupporteffortstoreachouttomorefamilies. Thedinnerwasattendedby1600,withattendancefortheconvention, includingexhibitors,hitting2383. Melbournewillhostnextyear’seventfromApril7-10.
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After 25 years of independence, we still think about brokers. In 2017 we’re proud to be celebrating 25 years as an independent, Australian owned and operated underwriting solutions provider. Since 1992 our thinking has been about our broker customers, and providing you with a diverse range of quality products. SUA is one of the few truly independent underwriting agencies in Australia. We don’t engage in retail broking. We don’t deal with unlicensed intermediaries nor unauthorised Insurers. Product development and claims management are our strengths, meaning we are Always Thinking of ways to achieve the best possible solution for your clients. We are aware of the ever-changing demands of the Australian insurance market, so better able to offer a range of products that will satisfy your clients’ needs.
Contact P: 07 3624 9400 F: 07 3624 9433 255 Sandgate Road Albion QLD 4010 PO Box 324 Clayfield QLD 4011 www.sua.com.au
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peopleNEWS SUA celebrates turning 25 Aquarterofacenturyisalongtimein insurance,wherecompaniesarebought, soldanddisappearasamatterofroutine. Solongevityisn’tallthatcommon,which wasaverygoodreasonforBrisbane-based SpecialistUnderwritingAgencies(SUA)to celebrateturning25withacocktailfunction attheQueenslandCricketers’Club. Underwritingagenciesusuallyhavea widerangeofbusinessassociatesfrom manysectorsoftheindustry,andtheSUA functionattracted150businessfriends frommanypointsinAustraliaforthe celebrations. DirectorsBobPage,NarellePageand JohnIlespaidtributeintheirspeechesto thelateFrankPage,whofoundedSUAand playedakeyroleinlayingthegroundwork forhiscompany’slongstretchofsuccess. Thedirectorsalsothankedtheir employees–mostofwhomhavebeenwith SUAformanyyears–fortheirdedication andloyalty.
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Hobart expo smashes records UnderwritingAgenciesCouncil(UAC)membershada hugelysuccessfuldayatthebiennialHobartexpoheldin conjunctionwiththeNationalInsuranceBrokers AssociationattheHotelGrandChancellorinMarch. Morethan150brokerscamefromasfarasBurnieand Launcestontotalktothe44UACexhibitors– thebiggest turnoutinthehistoryoftheTasmanianevent. UACGeneralManagerWilliamLeggesaysbrokerswere abletohavein-depthconversationswithexhibitorsoverthe five-houreventandevenwrotebusinessontheday. Participantsenjoyedlunchrefreshmentswitha magnificentharbourbackdrop.
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Shanghai hosts AIMS conference WhatbetterplacethanShanghaitoholda conferencethemed“TheNewWorld”? Thefinancialhub,asymbolofChina’srise toeconomicsuperpower,wasthefittinglocation fortheannualAustbrokers&IBNAMember Services(AIMS)conference,attendedbymore than400people. GeneralManagerGlennSchultzandother speakerssharedobservationsonhowtheglobal economyischangingtheinsuranceindustry. Technologicalchangewasamongthemost discussedtopicsasdelegatesweretoldthey neededtoadaptandseizeonopportunities. SpeakersincludeMunichReHeadof BusinessDevelopmentGreaterChinaAxel Fuerderer,FujitsuOceaniaInternetofThings GeneralManagerCraigCarterandinnovation strategistAndersSorman-Nilsson. Theconferencetakesplaceoverseeson alternateyears,andwillbeinPerthnextyear fromApril15-18.
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YIPs members captivated by ‘fireside chat’ About60YoungInsuranceProfessionals(YIPs)attendedanintimateeveningwithBerkshire HathawaySpecialtyInsurance(BHSI)globalChiefExecutivePeterEastwoodinMarch. ItwasthefirstYIPs“firesidechat”,designedtogivemembersachancetoengagewith highlysuccessfulindustryfigures. BHSIRegionalPresidentAustralasiaChrisColahanbegantheeveningbyinterviewing MrEastwood,beforeaQ&Asessionthatranwellovertime. MrEastwoodengrossedtheaudiencewithcandidstoriesabouttheearlyyearsinhis career,industrygrowthopportunitiesforthefuture,andwhatatypicaldayforhiminvolves. Thenightconcludedwithnetworkingdrinksandcanapés.
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AIG celebrates its Australian journey SixtyyearsinAustraliaandstill goingstrong.ThatwasAIG’s messagewhentheinsurancegiant markedthe60thanniversaryof itspresenceinAustraliawith commemorativeeventsinkeycities inMay. Brokers,clients,vendorsand employeespastandpresentjoined inthecelebrationsatAIG’sPark StreetofficeinSydneyand Melbourne’sSeaLifeAquarium. OthereventswereheldinPerthand Brisbane. AIGAustraliaChiefExecutive NoelCondonsaystheinsureris lookingtocontinueitsAustralian journeysinceitshumblestartwith justfiveemployees60yearsagoin anunfurnishedbuildingin Melbourne. Theinsurerhasalsosetupa dedicatedmicrositetopaytributeto itsheritagewithatripdown memorylane,chroniclingsignificant milestonessincesettingupshopin Australiain1957.
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sam Pentecost Contributor
FromKing’sLanding toNTI:RoryMcCann, AKATheHound
WHEN YOU INTRODUCE A NEW INSURANCE BRAND, BEST TO DO IT WITH a bit of imagination. And when it’s a mundane subject like logistics, bung the drama on in bucketloads. Former truck insurer, now diversified truck, plant and marine insurer NTI seems to have followed this dictum with the launch of its new brand Marine Protect. They’ve gone to the trouble of producing an introductory video that bypasses the usual talking heads and product spruiking while holding people’s focus long enough to get through to the message. How did National Brand and Communications Manager Luke Muller and his team make this happen? Here’s the recipe: Assemble some varied and catchy footage of trucks, trains and ships hauling and handling containers, intersperse with moody sea shots, and find something interesting to say. The NTI team dug deep when it came to what to say, and when they did find what they wanted they went to town. Words about transport and logistics are hardly the stuff that’s going to give make the hair on your arms stand up, and our increasingly short attention spans will start going “yadda yadda” if you overdo the message. So why not use the immortal poem Sea Fever by the late English Poet Laureate John Masefield? You know the one: “I must go down to the seas again, to the lonely sea and the sky, And all I ask is a tall ship and a star to steer her by; And the wheel’s kick and the wind’s song and the white sails shaking, And a grey mist on the sea’s face, and a grey dawn breaking.” There’s two more similarly stirring verses that also have nothing at all to do with containers or transport logistics in general. But wow, it works. The NTI crew found a deep, dark, moody voice to use that simply commands you to pay attention. That voice – and what a voice – is supplied by a Scottish actor named Rory McCann, known far and wide for his scary portrayal of The Hound in the TV superseries Game of Thrones. That’s him in the picture, last seen left for dead in some barren valley in Westeros (The Hound, that is). Rory auditioned via telephone for the gig, and being a sailor who’s just completed a restoration of his wooden sailboat, he was thrilled to do the job and, as anyone who has sailed in English waters would agree, he knows what he’s reciting. You can catch the video at launch.marineprotect.com, or on Youtube. Highly recommended. 98
JUNE 30 WILL BE A SAD DAY IN THE Insurance News office, because John Wilkinson (below) is retiring after 41 years working as a journalist. The ebullient Englishman has been entertaining everyone in the office for the past seven years with stories of his remarkable career. And what stories he can tell. His special subject is the Australian financial services industry, including life insurance, which he’s been covering for about 21 years. What he knows about the life business – and where the corporate bodies are buried – is legendary. At Insurance News he’s been our investigation specialist on top of his life coverage. He’s never happier than when he’s surrounded by piles of documents that detail the goings-on in some of the less savoury corners of the industry. On top of that he’s an aviation nut, a licensed balloonist (don't ask) and all-round encyclopedia on civil aviation. When he returns to what he calls the “mother country” to visit family, he plans his trip around the different aircraft types he can fly in. It might not be the fastest way to get from A to B, but he always returns full of stories about his adventures aboard interesting aircraft. He’s the aviation equivalent of a trainspotter, with a vast collection of photographs. Not surprisingly, he has also covered the aviation insurance round at Insurance News, and you’ll find one of his articles in this edition – one of his last, alas. You can’t easily replace the sort of wit and wisdom that John has brought to this place. He’s always cheerful, funny and chatty. And also helpful to anyone who asks. His popular Thursday morning show on Melbourne community radio station 3MBS will continue, so he’ll be able to keep impressing everyone with yet another talent – an extraordinary knowledge of classical music and the stories that surround its composers. * We’ll all miss him.
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