FEB/MAR 2014 - Insurance News (the magazine)

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Updating a 60-year-old event


So much cash, so many options


Marsh likes the SME space


IAG’s GAME PLAN Why Mike Wilkins outbid his competitors to snap up Wesfarmers’ insurance companies

February/March 2014

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Zurich Australian Insurance Limited ABN 13 000 296 640, AFS Licence No. 232507. 5 Blue Street North Sydney NSW 2060 www.zurich.com.au

LBAT - 007935 - 2013


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Over 100 years of

global marine experience makes one insurer stand out. For security and expertise choose Zurich’s dedicated team of marine insurance specialists. Minimise your customers‘ overseas exposure with our global reach and product coverage that is tailored to their business needs. Whether their cargo travels by rail, land, sea or air, we understand the complexities your customers face daily. With Zurich‘s century of technical marine expertise, including claims and risk engineering, you can rely on us. Zurich Australia is at the forefront of marine insurance. Contact us for more information or visit www.zurich.com.au/marinelogistics for full details.

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Contents 6 Newsmakers » 10 Big, bigger, biggest »

64 Sharing the load » The principle of general average has been around for as long as pirates. Here’s how it works.

How and why Mike Wilkins’ IAG outbid the industry to secure Lumley and WFI.


18 …and what about OAMPS? » After digesting 140 acquisitions, the national broker is moving ahead with a workforce united behind a strategy of organic growth.

66 The devil really is in the detail » Recent Insurance Contracts Act amendments raise some big issues for insurers.

20 Soaking up the money »


Reinsurance renewals on January 1 have revealed a market that’s flush with funds, new players and new ideas. Now the ratings agencies are worrying about profitability.

70 The rise and rise of cyber insurance »

24 Opportunity knocks »

It will be standard business cover within five years, says a new study.

Aon’s Lambros Lambrou returns to Australia with an eye on innovation.

72 Axis all set for privacy changes »

28 Marsh goes for growth »

Broader wording covers potential pitfalls.

The giant broker is building up its local SME broking capabilities – and bringing in sister company Mercer to build new markets, too.

36 2013: better, but still grim » Last year saw record floods around the world and the most destructive windstorm ever recorded.

38 A marriage made in Pitt Street » Ironshore and Assetinsure find plenty to love about each other.

72 When things get uncool » Vero moves to counter heatwave breakdowns.

72 Pollution cover fills a gap » Lawsons brings Argo product to Australia.

peopleNEWS 74 Loving the business » The Underwriting Agencies Council’s new chairman is right where he always wanted to be.

40 Scenario for disaster: The next Adelaide earthquake » Little has changed since the last Big One in 1954 – except the city has tripled in size. The insurance losses from a similar quake today would cost insurers as much as $14.5 billion.

48 Moving with the times » There’s no standing still for Sandra Purser and the team at Planned Cover.

52 Room with a view » Zurich wants its Australian customers to use its awardwinning global risk analysis tool.

58 Chaos theory »

77 78 80 82 84 86 88

NTI goes behind the scenes at the MCG » Advantage, Marsh » Life imitates art » All in the family as Whitbread turns 35 » eQuip participants celebrate » McLardy McShane reaches out » A glimpse of winter as Sportscover celebrates »

90 maglog »

RIMS has moved into the region as the risk management discipline defines its role in a fast-changing world.

February/March 2014

Cover image: Illustration by Krisztina Strzebonski, with acknowledgement to Namco Bandai Games Inc.

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newsmakers at

iSelect takes a Budget cut: Online comparator iSelect has signed a two-year distribution agreement with Auto & General Services that cuts commission rates while allowing it to sell a wider range of products. South Africa-based Auto & General operates under the Budget brand in Australia. The agreement – which extends a five-year commercial relationship – allows iSelect to sell an expanded range of Auto & General comprehensive motor vehicle insurance products. “The strategy for our car business is to improve conversion metrics, expand the number

of providers on the panel and increase the breadth of products we offer,” iSelect interim Chief Executive David Chalmers said. The cut in commissions will help the company accelerate growth and “better meet the needs of more price-conscious consumers”, he says. The net financial effect will depend on sales volumes in the car business and the proportion of those sales referred to Auto & General. iSelect cuts commissions in deal with insurer, February 10

Insurers may have to pay for aggregator site they don’t want:

Beale steps up at Lloyd’s: Lloyd’s has appointed Inga Beale, the group chief executive of reinsurer Canopius, as the market’s first female chief executive. Ms Beale has held senior positions at Zurich Insurance Group and French reinsurer Scor in a 30-year (re)insurance career. She is the first female chief executive in the market’s 325-year history. She replaces Richard Ward. Lloyd’s Chairman John Nelson says he is “absolutely delighted” with the appointment. “Inga’s chief executive experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make her the ideal chief executive,” he said. Ms Beale spoke at the Steadfast Convention in Melbourne in 2011 when she was Zurich’s Global Chief Underwriting Officer. Lloyd’s appoints its ‘ideal’ CEO, December 17

Federal Treasury is investigating whether insurers should establish an aggregator site comparing prices for home and contents cover and strata insurance in north Queensland. Assistant Treasurer Arthur Sinodinos revealed in December that the department had been directed to help develop a website to compare insurance pricing. insuranceNEWS.com.au understands Treasury is now preparing a paper suggesting insurers establish and maintain the site – a proposal likely to draw industry resistance. The cost of insurance in north Queensland has jumped since 2011 and most insurers have withdrawn from the region, leading to problems with affordability and availability. The Australian Government Actuary last year found the region’s premiums had been underpriced for years and had tripled since 2007 as insurers responded to losses. The actuary is now conducting another study comparing north Queensland strata with prices in the rest of the country, and is also working on a review of home and contents pricing in the region. Senator Sinodinos told a Cairns radio station in December that aggregator sites have led to significant reductions in motor vehicle and other insurance costs in Britain. He and Queensland Premier Campbell Newman say the federal and state governments will look at attracting foreign insurers to the market, reviewing insurance commission payments to strata managers and introducing a program of engineering assessments to help property managers mitigate risk.

The Federal Government is examining insurance affordability as part of its policy to develop northern Australia. Government considers north Queensland aggregator, February 10

Growth will slow as premiums flatten: Australian insurers face weaker growth prospects this year, with commercial lines premiums forecast to be flat, according to the latest JP Morgan/Taylor Fry General Insurance Barometer. “We would not be expecting profit margins on an underlying basis to rise,” JP Morgan Senior Insurance Analyst Siddharth Parameswaran said last week at the launch of the report. Increased competition, claims pressures, an expected slowdown across all premium rates and macroeconomic factors will constrain growth, the report says. 6

“The industry is forecasting a slowing in rate increases in domestic lines and flat rates for commercial lines,” Mr Parameswaran said. Last year domestic lines premium rates increased 8%, driven mostly by householders, while commercial lines fell 1%. “There is basically a lot more competition in the [commercial] market,” Mr Parameswaran says. “Some players have a growth mandate, and that’s putting pressure on top-end markets such as big risks like mining and other big industries that have a lot of insurance needs.” Some Lloyd’s capacity is also being insuranceNEWS

February/March 2014

deployed, which is keeping pressure on rates. Taylor Fry Senior Actuary Kevin Gomes says the current “high-capacity environment” is “pushing down or putting pressure on rates on the commercial insurance side”. Rate increases of 5% are forecast for domestic lines this year, although the report says “that number could prove to be a little optimistic”. Householders insurance premium rate growth is expected to slow to 5% from 12% last year and 15% in 2012. Profits to fall flat on weaker premium growth, February 10

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Bushfire misery:


Caught in the line of fire: flames approach Gisborne, north of Melbourne

Insurance companies are monitoring the impact of dozens of bushfires that swept across Victoria at the weekend, according to the Insurance Council of Australia (ICA). About 6000 firefighters tackled the worst conditions the state has faced since Black Saturday in February 2009. At least 20 homes have been reported destroyed by the fires, which threatened Melbourne’s fringes in Warrandyte, Craigieburn and Gisborne. A fire at Maiden Gully in Bendigo had the potential to be as devastating as those of February 2009, but was “pulled up” quickly. Meanwhile, ICA says insurers have received very few claims from policyholders affected by ex-cyclones Dylan, Edna and Fletcher. Insurers assess bushfire impact, February 10

D&O still caught in legal web:

Tackling Insight’s challenges:

Company directors, their insurers and brokers face further uncertainty about whether directors’ and officers’ (D&O) policies provide guaranteed access to defence costs, with a crucial Australian case now heading for the High Court. At the same time, New Zealand’s Supreme Court has settled the matter there in a decision that restores the original Bridgecorp judgement of 2011, giving a company’s creditors precedence over directors’ and executives’ access to defence costs under D&O policies. The 2011 decision triggered litigation in both countries because New South Wales, the ACT and the Northern Territory have similar legislation to that on which the New Zealand ruling was based. Insurers began redrafting policies to separate defence costs from third-party claims by shareholders and receivers, or writing stand-alone policies for defence costs. The NSW Court of Appeal last year rejected the Bridgecorp decision when it heard the Great Southern-Chubb case and decided a third-party claimant should not be in a more favourable position than the insured when a policy is intended to cover defence costs. The case involving collapsed plantation company Great Southern was a victory for seven insurers that sought the right to pay legal costs before damages or compensation payable under shareholder class actions. An application for leave to appeal in the High Court could be heard this month. New Zealand and Australian courts have now taken opposing positions on D&O entitlement.

New Insight Chief Executive David McKinnis (below) says he will bring stability to the organisation but is prepared to tackle challenges “head-on”. He told insuranceNEWS.com.au his priorities are building relationships with insurers and members, and making sure partnerships provide value. Mr McKinnis was appointed to the position last week. He says he does not intend to implement large-scale, immediate change but “there are plenty of challenges”. “My experience is that if an organisation isn’t facing some challenges, then perhaps it is not pushing boundaries.” He has spent most of his career in the insurance industry, including senior positions at Allianz, Wesfarmers Insurance and Stream Group. He has also been an active participant in industry forums, particularly through the Australian and New Zealand Institute of Insurance and Finance.

Great Southern heads to High Court as Bridgecorp decision overturned, February 3

McKinnis vows to tackle challenges as Insight CEO, December 9

Stream moves to lift Cerno: Claims services company Stream is to list on the Australian Securities Exchange next month as it progresses its integration with major loss adjuster Cerno. At the same time Stream Managing Director Don McKenzie has been appointed Cerno’s Executive Director – Transformation. Mr McKenzie told insuranceNEWS.com.au he has been working on the integration of Cerno and Stream into a joint operating model since his appointment as a director of the loss adjuster in April last year.

His company is to merge with listed shell company LongReach Group, which has changed its name to Stream Group Ltd. The shares are expected to start trading under the code SGO on March 3. Mr McKenzie says the listing will increase cash reserves significantly and also provide additional financial capacity to raise capital for further growth. In November insuranceNEWS.com.au reported Cerno’s auditor had expressed “significant uncertainty” for the company’s


February/March 2014

future after it reported a loss of $4.23 million last financial year on top of a $7.17 million loss the previous year. Mr McKenzie says the two companies intend to “take the best parts of the traditional loss adjusting process and couple it with independent building and procurement capabilities and leading collaborative technology” to reduce costs and timeframes. Stream listing bolsters Cerno transformation, February 3


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newsmakers at

Insurers get a new code of practice: The Insurance Council of Australia (ICA) has approved a revised General Insurance Code of Practice that will take full effect by July next year. ICA says the new code establishes a transparent and independent governance framework for monitoring and compliance, has stronger and more detailed obligations for helping consumers in financial difficulty and features easier-to-follow claims and complaints processes. “The code has been revised after a robust and thorough review [and] extensive consultation with a range of consumer groups and regulators and the general insurance industry,” ICA President Mark Milliner (pictured) said. The code review, compiled by lawyer Ian Enright, was released last August and contained 60

recommendations that were then assessed by an ICA working group. The new code stops short of introducing governance oversight as proposed by Mr Enright, who called for the code compliance committee to become a more independent code governance body with three independent members, an industry representative and a customer representative. Mr Enright also proposed that associated committees with minority industry representation should set policy and oversee promotion of the code, industry education and training. ICA also consulted the Australian Securities and Investments Commission and the Financial Ombudsman Service before releasing the new version.

The revised code creates a “code governance committee” comprising a consumer representative, an industry representative and an independent chairman, which effectively replaces the code compliance committee. It will make recommendations, investigate breaches by insurers and “sanction” offending companies by enforcing rectification or naming the company. The code will be formally launched on July 1 this year, with participants beginning the transition to new requirements from that date. They must be fully compliant within 12 months. ICA releases revised code, February 10

QBE gets a new CFO:

CRO unavoidable, says APRA:

QBE’s search for a new chief financial officer is over, with UK insurance executive Pat Regan to fill the role from June. He joins the Australian global insurer from Aviva UK, where he was CFO. He was also at Willis from 2006 to 2010 and has held senior positions at Royal & Sun Alliance, Axa UK and GE. Mr Regan replaces Neil Drabsch, whose retirement this month was postponed when nominated successor Steven Burns decided instead to take up a part-time role. According to UK reports, Mr Regan was popular among Aviva investors and employees but was disappointed at missing out on the group’s chief executive role in 2012. Meanwhile, Uwe Schoberth has been appointed Head of Global Distribution for QBE Group, replacing Mike Scala. He joins from XL, where he was managing director, executive vice president and head of North American distribution and network.

The Australian Prudential Regulation Authority (APRA) has rejected industry calls for the role of chief risk officer to be undertaken by insurers’ chief actuaries. “An appointed actuary has to provide an opinion on the financial position and value of liabilities of the institution and has other responsibilities that are considered part of the first line of defence,” the regulator says in its response to industry submissions. “These responsibilities include an assessment of the suitability and adequacy of the risk management framework.” APRA says if an appointed actuary also became a CRO, the two roles could be compromised, so its standard on risk harmonisation will ban actuaries from taking on such duties. But it has given smaller insurers some hope, ruling it will accept requests for exemptions to this rule. “Where an institution seeks an alternative arrangement under the standard, the

QBE recruits CFO from UK, February 3

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Industry loses fight for combined CRO role, February 3

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board is expected to demonstrate… it has undertaken a process to identify conflicts [and] has established structural oversight and controls to mitigate the additional risk. “APRA will assess the appropriateness of alternative arrangements on a case-by-case basis.” Indusry submissions also questioned the requirement for CROs to have direct access to boards, arguing it is up to companies to decide their reporting structures. APRA maintains the CRO role is important and should feature in the senior reporting team. “To reflect this importance, the CRO needs to have a seat at the executive management table, members of which report directly to the chief executive. Accordingly, APRA has not changed its position.” The standard will take effect next January 1.


February/March 2014

Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion. Printed on FSC ® paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.

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Vero partners with brokers

From providing usable knowledge through the SME Index and Vero Expo to fostering tomorrow’s leaders with the Warren Tickle Memorial Award, we’re firmly focused on your success.

vero.com.au/support AAI Limited ABN 48 005 297 807 trading as Vero Insurance

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Big, bigger, biggest How and why Mike Wilkins’ IAG outbid the industry to secure Lumley and WFI By Terry McMullan

A compelling strategic fit: IAG Managing Director Mike Wilkins



February/March 2014

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SEVERAL HUNDRED MILLION DOLLARS filled the gulf between IAG’s bid for the Wesfarmers Insurance underwriting assets and the bids of the also-rans. But the Sydney-based insurer had plenty of strategic reasons for forking out more than any other insurer bidding for Lumley and WFI. On December 16 IAG signed on to purchase the insurance underwriting businesses of Western Australian industrial conglomerate Wesfarmers for $1.845 billion, saying the deal will strengthen its Australian and New Zealand businesses. No one is arguing about that. But the conjecture around the deal’s impact on insurance industry competition and even the convoluted process by which it came about is likely to be a major topic for discussion for some time yet. The acquisition brings Wesfarmers’ intermediary-focused Lumley and WFI direct brands into the IAG stable, as well as a 10-year distribution agreement for the insurance operations of supermarket giant Coles. While Wesfarmers’ broking businesses – OAMPS in Australia and the UK and Crombie Lockwood in New Zealand – are to be retained, market scuttlebutt as this edition went to press suggests at least one major international broker is checking out the OAMPS operation as a possible acquisition. The sale of the Wesfarmers Insurance underwriting businesses has taken some intriguing twists and turns over the past few years. The sale to IAG effectively dismantles the fifth-largest insurer in Australia (and third-largest in New Zealand). The acquisition places IAG as the undisputed king at the top of the insurance industry heap, well clear of Suncorp on both sides of the Tasman. Wesfarmers was very keen on the potential of insurance to boost its profit profile when it bought Lumley in 2003 for a mere $320 million, and as recently as 2010 Managing Director Richard Goyder was hailing insurance as “a really good business to be in”. Some disappointing results and finally the catastrophes of 2011 seem to have tempered the Wesfarmers board’s enthusiasm for insurance somewhat, with Lumley at that time reportedly being discreetly offered to selected insurers who might have been interested. But the first solid indications of a coninsuranceNEWS

February/March 2014

“The sale to IAG effectively dismantles the fifth-largest insurer in Australia (and the third-largest in New Zealand).”


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certed effort to sell off the underwriting operations came in late October, when the Australian Financial Review reported Zurich was bidding for the division. Just two months earlier, Insurance News had brought persistent market rumours to new Wesfarmers Insurance Managing Director Anthony Gianotti and asked bluntly whether the group had plans to sell any parts of the insurance business. His answer was an emphatic no. While Zurich management is unlikely to ever reveal whether it made an approach or was approached, there is no doubt that Wesfarmers was contacting major insurers by mid-November about a possible sale. It is believed that Allianz Australia and QBE did look at the businesses. For his part, Mr Goyder says Wesfarmers received a number of unsolicited expressions of interest for the underwriting operations, which in the past few years have delivered inadequate returns amid increased market volatility. Mr Goyder declined to comment on which other insurers had expressed interest in the underwriting operations, but said there had been “on-and-off conversations” with some parties “for a while”. He told a media conference after announcing the sale that the company decided to hold talks with several parties on the sale of the underwriting businesses, while retaining the broking operations. According to one reliable source, the final $1.845 billion offered by IAG was “several hundred million ahead of anyone else”. It’s agreed that whatever the price, Wesfarmers’ move to divest itself of the division had less to do with the underwriting side under-performing and more to do with the fact that it was an ideal time to sell. Insurers are enjoying a period of reasonable premiums, few catastrophes, a rapidly softening reinsurance market and low investment returns. Wesfarmers has a philosophy of selling off assets that are worth more on the market than they are on the books. That is certainly the case with Lumley. And it wasn’t going to get better. After a period of stability some insurers have already started cutting premiums to add customers, and analysts are warning of flat earnings in 2014. Announcing the purchase, IAG Managing Director Mike Wilkins described the acquisition as “a compelling strategic fit”. He wasn’t exaggerating. For IAG the Lumley and WFI businesses come with some excellent synergies. If the deal is approved by the competition regulators in Australia and 12

New Zealand, it will give the Sydney-based insurer a tremendous boost in both commercial and personal lines. IAG will end up with an estimated 24% share of the Australian intermediated market. While intermediated market figures for New Zealand are not available, the Lumley buy would give IAG NZ an estimated overall 51% market share. The acquisition in Australia has not raised any particular expressions of official concern, but brokers in New Zealand are strongly opposed to the dominance it would give IAG. A 51% overall market share is just too much, according to the Insurance Brokers Association of New Zealand. The association has a point: Lumley’s share of the Australian

“Wesfarmers’ move to divest itself of the division had less to do with the underwriting side under-performing and more to do with the fact that it was an ideal time to sell.” market is relatively insignificant, but in New Zealand it’s the third-largest insurer with 10% market share. Peter Harmer, the Chief Executive of IAG’s intermediary-focused insurer CGU, was an integral part of the team that put together the acquisition. He acknowledges the opposition in New Zealand and concerns in Australia, but suggests that broken down into the various component parts, the market share aspects are less daunting, and the personal lines share is comparatively small. He also reminds Insurance News IAG has done a lot of work with the two countries’ competition regulators in the past. The company knows the score. While the deal is still subject to regulatory approval, Mr Harmer admits he has been hoping for “the opportunity of one more consolidation in the intermediary space, and we wanted to drive it”. Several executives from other insurers contacted by Insurance News for this article have commented that the combination of CGU, Lumley and WFI probably works better than any other possibility at this time. CGU is at the right stage of its massive transformation program to take on some additional weight without being overloaded. Mr Harmer says IAG had a team of around 100 people engaged in the due diliinsuranceNEWS

February/March 2014


A really good business to be in Why Wesfarmers likes insurance. MD Richard Goyder explains April/May 2010

Times change: the cover of Insurance News in April 2010

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Largest* General Insurance Companies in Australia Gross earned premium ($billion)

12.00 10.00 8.00 6.00 4.00 2.00 0.00







Ace CommInsure



*Excluding reinsurance companies and Lloyd’s

How things will look: the Wesfarmers Insurance business is represented in green

Source: Deloitte

What IAG is buying It’s purchasing an underwriting business put together over nearly a century under the Wesfarmers’ umbrella By Wendy Pugh THE WESTRALIAN FARMERS CO-OPERATIVE opened a department in 1919 to cater for the insurance needs of the Western Australian farming community and later used that as a springboard for a national expansion and growth in a broader range of sectors. The insurance business went to another level in 2003 with the purchase of Lumley’s Australian and New Zealand underwriting operations and expanded in broking with the 2006 acquisitions of OAMPS and Crombie Lockwood. The sale hands the underwriting operations in Australia and New Zealand to IAG, while Wesfarmers keeps the broking and premium funding businesses. Australian underwriting earned $1.29 billion in gross written premium last financial year (excluding levies), with Lumley accounting for 52%, WFI 36% and Affinity & Direct (which handles the Coles insurance business) the remainder. Lumley offers general insurance through more than 735 brokerages in Australia and employs some 850 people across 14 locations. The business has an emphasis on SME businesses and is particularly strong in commercial motor. Chief Executive John Nagle has overseen a restructuring and remediation of Lumley in the past couple of years, including giving regional managers more autonomy. WFI targets rural and regional areas and offers business, personal and farm insurance products, such as cover for sugarcane and grain crops. The business operates from more than 80 locations and has around 170 local area managers.

The main feature of the Affinity & Direct acquisition is a 10-year distribution agreement with Coles. The supermarket brand had more than 200,000 home and car policies in force at the end of the last financial year. By geography, New South Wales and the ACT account for 28% of Wesfarmers’ Australian underwriting and Victoria and Tasmania 24%. Company history is reflected in a 22% contribution from Western Australia while Queensland provides 15% and South Australia and the Northern Territory 11%. By product mix, SME provides 44% of premiums followed by 18% from personal lines, 17% from specialty lines, 12% from fleet and commercial motor and 3% from workers’ compensation. The Wesfarmers New Zealand underwriting business provided $NZ441 million ($415 million) in premiums last financial year. Of the total, 69% was from Lumley Broker and 31% from Lumley Business Solutions, which underwrites Westpac products. Lumley New Zealand is based in Auckland and has offices in nine cities. Commercial motor premium earnings top a diversified product mix, providing 27% of the total, while 19% is from commercial property, 14% from liability, 11% from private motor and 8% from home contents. About 48% of the property portfolio is in the central and upper North Island region. Overall, Wesfarmers Insurance reported earnings before interest, tax and amortisation of $218 million for the year to June 30, 2013, with a $136 million contribution from its underwriting brands.


February/March 2014


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gence process. He says he’s very pleased with what the team learned. “Lumley have been remediating their portfolios and they’re now growing in the right areas,” he says. “In many ways they are on the same journey as we have been for the past three years. We started earlier than them so we’re further down the road.” He says there are some complementary skills, particularly in motor fleet. “That’s an area we haven’t excelled in as much as we have in other classes.” He also mentions the talent within the Lumley marine team, and praises the strength and credibility of the corporate solutions group.” Acknowledging that some Australian brokers will be wary of losing Lumley in the rural space, he says the addition of Lumley to the CGU rural business would “help take us to the next level”. “We’ve done a lot of work in that area already, and Lumley’s business is very complementary – it’s a very good platform. We want to continue to grow in markets we would regard as our heartland.” About half Wesfarmers’ premium income comes from Lumley and about a third from WFI. WFI is a direct operation that competes with brokers, but Mr Harmer points to the success IAG has had in operating niche insurer Swann Insurance – part of its acquisition of CGU in 2002 – as a stand-alone company. He says the IAG team was very impressed with the insurance operations of supermarket giant Coles. “Coles is a very serious distribution channel,” he says. “We were very impressed with the sophistication of their approach to the insurance sector and the granular pricing approach. They have access to some terrific customer data from the Flybuys scheme. “We liked their management team, and it was good to have [former Wesfarmers Insurance chief executive, now Coles Chief Financial Officer] Rob Scott involved.” Mr Harmer’s enthusiasm reinforces the growing impression that the Coles distribution arrangement is seen by IAG as a big plus rather than an incidental benefit. Some industry sources have told Insurance News the acquisition was decided with the Coles insurance deal firmly in the frame. Victorian motoring group the RACV owns 30% of Insurance Manufacturers of Australia (IMA), with IAG holding 70%. RACV Insurance sells IAG-sourced personal 14

lines policies under its own brand, with the joint venture agreement shutting out IAG’s major personal lines subsidiary, NRMA Insurance, from Victoria. The virtual exclusion from the secondlargest personal lines market in Australia is a challenge for IAG. The acquisition of the Coles insurance distribution arm for a 10-year period would open up new personal lines opportunities for IAG, and has been generally expected to cause some friction in the IMA arrangement. Complicating matters further is Coles Insurance’s low-end pricing, which undercuts the offering of IMA/RACV. One industry insider put it to Insurance News that “RACV is already spewing”, but it is understood the Melbourne-based mutual

“Lumley’s business is very complementary… We want to continue to grow in markets we would regard as our heartland.” has been kept abreast of developments in the deal and is supportive. That wasn’t the case when IAG acquired CGU in 2002. At that time the Victorians were extremely miffed when IAG declined to hand over CGU’s personal lines business for them to manage. The motor insurance market is becoming increasingly competitive as the established market leaders, IAG and Suncorp, find themselves being undermined by the so-called challenger brands like Coles. It’s likely to get tougher. The IAG-Wesfarmers deal will change the dynamics of the market to a significant extent. The businesses IAG wants are probably more valuable to it than any other company except, perhaps, Zurich. But after years of speculation about consolidation at the top end of the market, at least something has happened. The 110-year-old Lumley name will disappear from the scene – in Australia at least; IAG will undoubtedly have a fallback position prepared in case of a knockback from the New Zealand competition regulator. IAG is likely to end up with a welcome boost to its intermediated business in Australia, and a Coles operation that slots neatly into the no-frills end of its personal * lines operations. insuranceNEWS

February/March 2014

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AM Best rating of A (Excellent) XV

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Mixed feelings on losing Lumley Some brokers worry about loss of competition, but others see upsides By John Deex WHILE NEW ZEALAND BROKERS ARE strongly opposed to the loss of Lumley from their market, Australian brokers’ attitudes are more mixed. Wesfarmers’ WFI and Lumley brands are expected to be absorbed in some way by CGU, a move that has raised eyebrows when considered against the backdrop of CGU’s recent retreat from the rural sector with the closure of many of its regional offices. Some brokers fear the sale of Wesfarmers’ insurance underwriting businesses to IAG could see more rural business placed abroad and an increase in underinsurance in the sector. But others believe CGU – into which Lumley would be folded in Australia – is more than capable of making the merger work to the benefit of customers. And as for WFI, it’s a direct sales operation. In New Zealand, forces are already gathering to resist the loss of the country’s third-largest insurer, with opponents claiming it will reduce competition and give IAG too much market share. Significantly, the Insurance Brokers Association of New Zealand sees the loss of Lumley as “further entrenching IAG’s dominance, giving them a market share of 66% or more in the personal and motor sectors”, according to Chief Executive Gary Young. He says other insurers’ risk appetite has been severely curtailed following a spate of natural catastrophes. AIG, Allianz, QBE and Zurich are either not writing business at all in areas outside Auckland or are “cherrypicking” business. “Selective underwriting, limited capacity and the loss of a major player will result in many businesses in New Zealand no longer having any real options when it comes to cover,” he told Insurance News. “This is about the ability of brokers to obtain full cover for their clients at competitive prices.” Michael Stiassny, the Chairman of fourthlargest insurer Tower, has also weighed in, saying there is “significant risk from one business controlling two-thirds of the personal lines market if New Zealand was to suffer another event on the scale of Canterbury”. Jeff Adams, the Managing Director of Perth-based national broker EBM, agrees with the Kiwis that the acquisition “isn’t good from a competition or capacity perspective and could lead to even more business being placed offshore”. On the other hand, “brokers with good relationships with Lumley should be able to leverage this when combining with their existing CGU business”.


“IAG isn’t buying WFI to throw away rural business. We believe CGU will more than likely become the sole intermediated distributor of rural business and WFI will remain a direct and ‘tied’ agency model, and with this regain their rural focus. “Lumley has had success in focusing their efforts in certain classes of business, such as marine and commercial motor, and one of our concerns is that when swallowed up by CGU their expertise and focus in these areas will be lost.” Sharon McIver, an authorised representative for Eagle Insurance Brokers, which has offices in Kempsey, Byron Bay and Port Macquarie, also has concerns. She fears the rural sector “will be forced to underinsure due to unsustainable premiums” and that there will be “a limited number of sources where we as brokers can access a comprehensive product for our individual clients”. “If we are to lose these underwriters it will be a major loss. There are very few options out here that we can access with a good simple product at a reasonable price.” Wesfarmers has been a major player in the farm sector for many years, she says, and held “a solid, reputable product with reasonable rates”. Along with Elders they were seen as “farmers looking after farmers”. “It will be a great loss to the whole of Australia if one of the major underwriters chooses not to pick up the reins and take advantage of this change and make an affordable product for farmers. “The rural sector is hurting badly at the moment with drought and the downfall in the beef export market. “I would like to go back to the days where a broker, who knows or should know the risk that he/she is insuring, has the capability of actually speaking with an underwriter and obtaining terms on an individual basis rather than pushing the information down a computer.” But Anthony Murphy, Director of Red Star Insurance Brokers in Young, NSW, believes there are still options for consumers and brokers. He says CGU’s massive corporate restructure over the past three years doesn’t mean the company was attempting to withdraw from the rural market. “They have invested in getting their farm product onto Sunrise [Exchange], which has been a sensible move. “Their increase in pricing isn’t so much an attempt to withdraw from the rural market, rather an effort to make their farm portfolio profitable and sustainable.


February/March 2014

“The rest of the market has followed CGU’s lead on pricing, and in some areas caught up,” Mr Murphy says. CGU’s closure of its regional offices and centralising its operations has worked “surprisingly well from a broker’s perspective”. “After some initial teething problems we have found CGU’s service has improved significantly since the restructure.” Peter Brown, Managing Director of Peter Brown & Associates in Wagga Wagga, NSW, can see CGU making a comeback in the sector. “I am not sure CGU intends to get out of rural business,” he tells Insurance News. “They may be withdrawing their representation from rural areas, but they maintain a very strong rural presence as an insurer through their various agencies and a number of longterm rural agents. “I believe their long ties in the rural market will continue. With less competition, and despite their premiums seemingly being out of the market generally, I believe that they will gradually come back into the market.” He says the absorption of Lumley into CGU would be a good move for brokers. “When it all eventually settles down, Lumley’s clients will have a better policy in a number of respects.” Karen Carlon, the Managing Director of Austbrokers NTIB, based in Armidale, NSW, says the loss of WFI – one of the largest rural insurers in the country – could even work in brokers’ favour. “It’s a bit of a bizarre move, because CGU recently closed its office nearby,” she says. “But if anything [the sale of WFI] is a benefit because it has taken a competitor out of the market. “From a broker’s point of view WFI – as a direct insurer – are our main competitor.” The loss of Lumley would hurt, she says, but the damage would be limited because “they have always been choosy about where they write farm business”. John Hallman, the Managing Director of Austbrokers RWA, which has many regional NSW offices, agrees. “One question that needs to be answered is whether the WFI reps have been bought by CGU,” he says. “But whichever way it goes I think it will be good for brokers. “We found that if a WFI rep was really active they were quite hard to beat. We couldn’t get the same sorts of deals. WFI is not going to have the advantage that it had. “As for Lumley, it’s another underwriter we haven’t got and that will mean less competition. Lumley was quite good in certain areas.”



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“We need to be very strong and coherent about what our value proposition is – bringing to bear our experience and expertise.” OAMPS chief Mike Cutter: focused on the future with a supportive shareholder

…and what about OAMPS? After digesting 140 acquisitions, the national broker is moving ahead with a workforce united behind a strategy of organic growth THE ANNOUNCEMENT IN January by national broker OAMPS that it had bought small specialist broker TCIS was hardly earth-shattering. But the company’s enthusiasm for getting the information out to the wider industry was also a clear signal that the Wesfarmersowned national broker is proceeding with “business as usual” and not sitting around waiting to be sold. Sticking his head above the hullabaloo of the insurance business sales was very important for OAMPS Chief Executive Mike Cutter. The TCIS acquisition had been off and on for at least a year, but it was the best way Mr Cutter could cut through the sale rumours running rampant that have the potential to unsettle clients and staff. OAMPS is an unusual company. Formed by Terry Lane and Peter Claringbold in 1976 as the Oil Agents Mutual Provident Society to source a better insurance deal for members of the fuel transport industry, it developed into a significant industry player. The company listed in 1989, then went through a period of enormous growth in the 1990s, acquiring a raft of mainly small brokerages while shedding chief executives with unseemly haste. By the time Wesfarmers swooped in 2000 with a $700 million offer, OAMPS had settled down under the steadying influence of chairman John Jones and chief executive Tony Robinson. 18

But consolidating a very large number of acquisitions was timeconsuming and intensive, and Mr Cutter believes only now can he state with confidence that OAMPS is a tight and wellorganised company with all staff plugged into the same strategy. Mr Cutter counts 140 separate purchases, and although the pace of adding bits on has slowed to a trickle in recent years, he says consolidating the mass of disparate businesses and making them efficient was a constant distraction. No more. “Making them consistent and giving them similar capabilities across the country has been very important for us,” he tells Insurance News. “Now we have a national presence that’s nicely balanced, as well as a suitable range of products for our clients. OAMPS specialises in national associations and affinity groups, as well as a wide swathe of the market from micro-SMEs to the bottom end of the corporate sector. “There are some considerable competitors in every market we play in,” he says. “The internationals are moving down and we have a service proposition that allows us to compete very strongly. “Many of our clients need us to have a national presence as well as a local capability wherever they or their members operate. So we need not only a national footprint, but we also have to have services that are consistent. insuranceNEWS

“We’re now phasing into another period of growth – both organically through developing the opportunities we have and also through acquisition as well. This isn’t a rush to volume, but it is a more targeted approach. “Our values and culture fit and align with the industries that we are focused in on. And where we need to fill in parts of the geographic footprint, we can add a bit more bricks and mortar presence.” OAMPS has offices in 26 locations around Australia, as well as a thriving business in the UK that it claims is one of that country’s largest. While he doesn’t discount the very real strengths that the international brokers can bring downmarket, Mr Cutter says OAMPS now has the national competencies that allows the company to compete with them in the mid-market space. “We’re looking for specific types of brokers,” he says. “We need to be very strong and coherent about what our value proposition is – bringing to bear our experience and expertise. “We will focus on 10 or so sectors, and we’ve got a great opportunity to outgrow market performance.” How does he cope with staff uncertainty about the ongoing viability of OAMPS as part of the Wesfarmers organisation? “I’m not going to speculate on whether or not OAMPS is for sale. We have a very strong story and a very supportive February/March 2014

shareholder, and that’s what we focus on.” At the end of last year he and senior managers visited every office in the country to explain the company’s strategy. “We encouraged their input and there was a near-unanimous alignment around the strategy.” Since moving across in December 2012 from ANZ – where he was chief risk officer – to run OAMPS, Mr Cutter says he’s been going through a “tremendous working and learning experience”. Over the next few months he will welcome aboard new senior managers to key positions, further confirming his belief that OAMPS must move forward with a clear strategy and without worrying about what its owner might or might not do. They will work with their new boss to realise a vision where OAMPS is growing and out-performing the market in its key sectors. “Clients want local points of representation and easier ways to connect with us and get more from us, so there will be more digitised connection with them in the future, as well as having that local footprint,” Mr Cutter says. “We’re going to continue to make sure we understand our clients’ needs and aspirations and bring as much insight as we can to place them in the best possible position to survive any events that may come their way. * That’s how we’ll succeed.”

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Soaking up the money Reinsurance renewals on January 1 have revealed a market that’s flush with funds, new players and new ideas. Now the ratings agencies are worrying about profitability By Terry McMullan

THE GLOBAL REINSURANCE INDUSTRY IS BOOMING, SO much so that one of the emerging risks it has to keep a wary eye on is the negative effect of having too much of a good thing. The January 1 renewals period has revealed a market continuing to soften in the face of an over-abundance of capital, fewer catastrophes and an almost ridiculous level of capital continuing to flow in from private equity firms seeking a slice of the action. Standard & Poor’s (S&P) says rates for property catastrophe business, which dominates the January renewals, fell 10-15% in Europe, 15-25% in the US and up to 10% in the Asia-Pacific region. The only countries to not experience premium falls were Canada, Germany and Denmark, where major catastrophes were experienced last year. Non-catastrophe prices also weakened as reinsurers deployed more capacity into those lines, according to reinsurance broker Guy Carpenter. The across-the-board global property catastrophe falls come despite the Australian floods of 2011 and the New Zealand earthquakes, when reinsurers reacted with savage premium rises and some insurers warned rates would never return to their previous levels. As one reinsurance broker told Insurance News in 2012, “reinsurers tend to have very short memories”. It’s estimated that $US50 billion of new capital flowed into the industry last year from non-traditional sources, a state of affairs that prompted Willis Re to comment that the industry is experiencing “a heady cocktail of converging factors”. The number of natural catastrophes last year was down by 50%, while the bellwether North Atlantic hurricane season recorded the lowest number of named storms since 1982. As usually happens when a business sector is flush with capital, the number of companies and the variety of new ways to get the reinsurance job done have multiplied over the past year. Bermuda, often regarded as the reinsurance capital of the world, saw new insurer registrations rise by more than 70% last year. A report in January by the Bermuda Monetary Authority says 91 new insurers registered in Bermuda in 2013, compared with 53 in 2012. Most were registered as “special purpose”, which designates companies undertaking reinsurance. Among them are a number of hedge funds which have previously invested indirectly in insurance and reinsurance ventures through insurance-linked securities structures. Established reinsurers have also reacted to the need to retain their customers by offering a range of innovative products. Analysts say capital was deployed into a wider range of instruments such as 20


February/March 2014

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Gen Re’s Tad Montross: being overcapitalised is a capital management issue

Wait and see

“The bankers messed up the banking business. Let’s hope they don’t mess up the insurance business.” Change in global reinsurer capital -3%

18% -17%

















9M 2013

Insured losses by year by type (2003-2013) 140

USD Billion (2013)

120 100 80 60 40 20 0 2003



Tropical Cyclone Wildfire



Severe Weather EU Windstorm



Flooding Drought



Earthquake Other


2013 2003-2012 Avg. Winter Weather

Source: Aon Benfield Analytics


GEN RE CHAIRMAN TAD MONTROSS IS NOT PARTICULARLY impressed with the present state of affairs. He believes the market should concentrate on consistency. “I’m not sure why some are so quick to talk a market down or up,” he told Insurance News during a visit to Sydney late last year. “Clients want consistency first and foremost. Reactionary pricing is disruptive and counter to the basic purpose of insurance, which is to provide security and continuity. “It’s tempting to speculate about where the market is going but I think that is unproductive, bordering on irresponsible.” Nor is he enthusiastic about some of the vehicles being touted around the market as innovations. “Alternative capital, cat bonds or insurance-linked securities have been around for 15 years – they aren’t new. “What is new is that insurance bonds are being sold as a new asset class and touted as uncorrelated with other investment opportunities.” Asked how committed all the new capital is to the reinsurance market, Mr Montross says that’s the big question everyone is asking. “Nobody knows. We’ll have to wait to see whether a 250 to 300 basis point increase in interest rates dampens enthusiasm, or how resilient these investors are after a $150 billion catastrophe loss. “In the aftermath of a $150 billion cat event, the correlation with both equity and fixed income markets may be high for a period of time. In extreme events correlations tend to converge. “As I’ve said before, the bankers messed up the banking business, let’s hope they don’t mess up the insurance business.” Does Gen Re see the market as over-capitalised? “After the $150 billion catastrophe, I’ll predict we won’t be hearing much on this topic. The amount of capital the industry has and the pricing of our product are two separate issues. “Insurance pricing is predicated on economic capital, not balance sheet capital. If individual companies are over-capitalised or think they are, it’s a capital management issue, not a pricing issue.” Mr Montross believes low interest rates driven by central bankers’ efforts to stimulate growth have had a profound impact on the insurance industry. “It has put pressure on companies to increase underwriting profits and potentially reach for yield on the asset side of the balance sheet,” he says. “The financial crisis in Europe has made us all question what is a risk free rate, and suppressed interest rates cause us to question traditional fixed income allocations. “As a result many companies are also reassessing their equity allocations.” Gen Re deals direct with its clients, forgoing the intercession of reinsurance brokers. Mr Montross believes the “tremendous consolidation” within the reinsurance broking sector over the past 20 years has resulted in brokers taking more control and commanding higher margins. “We are committed to the direct business model. We think clients deserve a choice and that the direct relationship and discourse complement the broker relationship.” Gen Re is owned by Berkshire Hathaway, which last year forged a controversial sidecar deal with Aon that has caused a great deal of angst in Lloyd’s. That’s the new capital and innovation that is causing the traditional reinsurers like Gen Re a similar level of disquiet. Even if that’s so, it’s a subject Mr Montross stops well short of discussing. “Berkshire Hathaway Specialty is a completely separate entity within the group,” he tells Insurance News. “It reports to Ajit Jain, who has hired a lot of smart people whom I’m sure will be very disciplined in their underwriting and risk management.” February/March 2014


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catastrophe bonds, industry loss warranties, sidecars and insurance-linked securities and solutions. Other options included aggregate and quota share cover, multi-year arrangements, extended hours clauses, better reinstatement provisions and early signing opportunities at reduced pricing. Expanded coverage for terrorism and cyber risks was also offered. The problem is, the actual market into which all these new companies and reinsurance instruments are being pitched hasn’t necessarily grown at a corresponding speed. The ratings agencies fear that as the competition continues to heat up and premiums continue to decline, profits will also head south. The combination of greater levels of competition and soft reinsurance pricing has alarmed ratings agency Standard & Poor’s, which warns in a new report the global reinsurance industry is facing a ratings reassessment. For the past eight years S&P has given the industry a stable outlook, but now it is warning a negative trend is emerging. It says the high level of competition reinsurers displayed at the January renewals is now the most prominent threat to the reinsurance industry’s profitability for the next two years. Late last year investment bank Goldman Sachs nominated the influx of third-party and non-traditional capital into the reinsurance market as one of eight major business developments that will transform existing markets or open up entirely new ones. It says these developments – the list includes Big Data, cancer immunotherapy and LED lighting – will provide new sources of investment growth which are isolated from wider macro-economic influences. Reinsurance broker Guy Carpenter says innovation in general and new product generation specifically are likely to drive future growth in reinsurance. It says profitable growth opportunities can be created by reinsurers prepared to use the surplus capacity in the marketplace to provide cover for risks that are currently uninsured. “By focusing on innovation and providing solutions that expand insurance coverage, whether through narrowing the gap between economic and insured losses for catastrophe risks, increasing insurance penetration in new high-growth economies or creating innovative new products to provide protection for emerging risks, risk carriers can exploit these opportunities.” The new players in the market may well become a permanent feature in the reinsurance landscape, although many reinsurance experts say it’s too early to tell. There have been examples in the past where opportunistic investors have quickly abandoned insurance as soon as the going gets tough. That’s certainly the view of Gen Re Chairman Tad Montross [see panel], who told Insurance News late last year that he is waiting to see how resilient new investors in the reinsurance market are after a $150 billion catastrophe loss. “We are fully committed to the reinsurance business, and unlike the private equity firms we are not looking at a short-term investment. We aspire to be a consistent partner, not oppor* tunistic. We have no exit strategy”. February/March 2014

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Opportunity knocks Aon’s Lambros Lambrou returns to Australia with an eye on innovation By Wendy Pugh

LAMBROS LAMBROU HAS FAREWELLED arctic Chicago winters and chilly London summers to help Aon turn up the heat in the crowded Australian market. Arriving in January to take the helm as Chief Executive of Aon Risk Solutions Australia, Mr Lambrou returns to a country where he previously spent 16 years in roles spanning reinsurance and retail broking. “I feel very fortunate to have been given this opportunity and I think there is significant opportunity for the business to increase our market share in the segments that we play in,” he tells Insurance News. “It is a very competitive market, and that hasn’t changed in the six years I’ve been away from Australia.” The change at the top comes as Aon sharpens its Australian focus, splitting the previously united chief executive and Pacific region chairman roles. Steve Nevett, who previously held both roles, will continue to take charge of the regional responsibilities. Aon customers range from the largest corporations to regional mum and dad enterprises, and growth plans include using the company’s vast data and analytics to better serve clients and expanding its geographic reach. Mr Lambrou says Australia, which is still an over-brokered market, has a high profile within Aon and is involved in the creation of many innovations. “Australia plays some role in virtually every strategy or initiative that we get involved in across our retail business globally, because of the type of marketplace that we have here,” Mr Lambrou says. “It has quite deep penetration across all the segments that we play in globally, which you can’t say about all markets around the world.” Innovations and efficiencies that work well in the competitive Australian scene are likely to be effective when scaled up across other locations. He says Aon’s approach includes tapping into insights and opportunities flowing from Big Data and using that in a personalised way with clients. The company has also lowered internal divisional walls to improve the way it responds to customer needs. 24

“Our investment is not just around harnessing the data – it is actually about creating the insight, which is the really important thing,” Mr Lambrou says. “Clients are increasingly looking for the right combination of qualitative and quantitative input to help them in their decision-making.” While his understanding of the Australian market will prove valuable, it’s his extensive knowledge of the Aon and insurance worlds that will help the company build new approaches. London-born and raised, 48-year-old Mr Lambrou is a graduate in economics and statistics from Exeter University in England’s southwest. While accountancy, stockbroking and futures held some appeal, his insurance career took off with a graduate role at Aon predecessor Alexander Howden. That led to his previous posting in Australia. More recent positions have included chief executive of Aon’s global broking centre in London and head of Aon analytics and head of carrier management for Aon Risk Services in Chicago. The stint in Chicago coincided with moves by Aon to break down geographic boundaries in its global retail business and to successfully mine the increasing wealth of international data at its disposal. The company developed its Global Risk Insight Platform (GRIP) to track information by region and line of business around the world, and in 2008 established the Centre for Innovation Analytics in Dublin to study data for discoveries and insights. A second analytic hub later opened in Singapore. Aon has also teamed with the University of Pennsylvania’s Wharton School to delve into links between a company’s risk management and its financial performance. The focus on data and modelling was important in putting together Aon’s sidecar arrangement with Berkshire Hathaway last year, Mr Lambrou says. “The traditional insurance underwriter approach is to risk select and underwrite the individual risk, but one of the things that comes with investments in data is your ability to actually look at how a portfolio of risks starts to behave,” he says. insuranceNEWS

February/March 2014

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“One of the things that comes with investments in data is your ability to actually look at how a portfolio of risks starts to behave.”

Under the arrangement, Aon Underwriting Managers has authority to grant cover on behalf of Berkshire Hathaway, which provides capital for 7.5% of all Aon-brokered retail business placed at Lloyd’s. The sidecar concept has raised some insurance industry concerns over the disconnect between underwriting capital and risk assessment. But Mr Lambrou says Berkshire Hathaway is not a disinterested participant. Policy documents remain bespoke to individual clients and the sidecar has won market support. Since launching globally last March, four out of five clients offered the facility have chosen to participate. “If you are hitting conversion rates between 75 and 80%, that is suggesting to me that we are meeting client needs, because clients are voting with their feet,” he says. “We have plenty of Australian and New Zealand clients who have taken full advantage of the benefits of the sidecar to simplify their program design.”

Pacific Region Chairman Steve Nevett says claims have been handled smoothly and the arrangement prevents instances where price is driven by the cost of obtaining the last few percentage points of cover. “With this facility we don’t have that issue any more,” he says. “The tail doesn’t wag the dog any longer.” More broadly, Aon sees Big Data as increasingly important in tackling risk issues which cause sleepless nights for executives. The data helps drive improved modelled risk which is also particularly appealing to the alternative capital flowing into the sector, according to Mr Lambrou. Capital sources such as pension and other investment funds are finding the insurance sector alluring because of the high returns amid low interest rate environments, while money managers are also attracted by the unique drivers that offer risk diversity. “Because this alternate capital is more focused on modelled risk, that creates a wonderful opportunity for the insurance insuranceNEWS

February/March 2014


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“Insurance is losing its relevance to its customer base, and we need to reverse that trend.”

industry to start to go after elements of risk that currently are not deemed as insurable,” Mr Lambrou says. There are also credit risk advantages for those relying on the capital to cover claims. “The traditional reinsurance market place is still very much based around the promise to pay whereas with alternate capital you actually have the money,” he says. “When you have a loss you simply draw down on the funds that you have already.” Covering emerging risks is a challenging issue for the industry, which needs to adapt and keep up with new threats and changing conditions. “We think the horizon is very bright in terms of opportunity, but the industry needs to step up because if it doesn’t, it is going to become less relevant,” Mr Lambrou says. “If you look at the facts today, insurance premiums as a percentage of GDP globally are actually going backwards. People can turn around and say, that is because the economic climate is what it is, or market rates are softening, or whatever it might be. “The reality is, if you just take a step back from all of that, what it really means is that insurance is losing its relevance to its customer base, and we need to reverse that trend.” Executive concerns that are gaining a higher profile include brand reputation risk, regulatory risk and workforce risk. Recent natural disasters, such as the Brisbane floods and Christchurch earthquake, have highlighted business interruption shortcomings, such as when there is no physical damage at the premises of either the supplier or customer. Some have raised the spectre of the new capital disappearing as returns from other areas improve, while investors may also lose their stomach for the sector after experiencing large insurance payout events. But Mr Nevett says traditional capacity has also shown at times that it can suddenly exit a market. “You can imagine any number of underwriters over the years which have come and gone as different events have occurred around the world,” he says. Aon’s plans for Australia include an increased presence in the SME market, and 26

the company is steadily expanding its office network and moving into new regions. Mr Lambrou says it may pursue acquisitions as consolidation among brokers continues, and as Aon places high importance on having a presence close to clients. “It is an approach we have had for a long time and we do see it as a genuine form of differentiation with our larger competitors who have taken an approach to service those customers out of capital cities,” Mr Lambrou says. “The feedback we get is that proximity to clients is very important.” The Steadfast and Austbrokers groups are also on the lookout for acquisitions, while in December global broker Marsh launched an Australia-wide division aimed at the SME market. Marsh also says it plans to extend its footprint in suburban and regional centres. Aon, which is represented through more than 30 offices in Australia, has recently announced expansion into the Victorian regional city of Geelong, Nowra in southern New South Wales and Springwood, south of Brisbane. A number of other locations are on the radar. In New Zealand the company operates from more than 70 offices. Aon has not set a target number for its expansion and says the plans centre around an ongoing process of identifying suitable geographies that offer opportunities. Mr Lambrou, a Manchester United football fan who describes himself as a “sports nut”, will be based in Sydney in his new role and expects to travel frequently as he reacquaints himself with the local market. But the move to Australia is more like returning home. “One of the things I am hoping to bring to Australia is some of those deep networks I have in the insurance community overseas to help with furthering our approach to innovation and continuing to make insurance, and what we do, more relevant to our customers,” he says. “It is an attractive marketplace. I was fortunate to spend 16 or 17 very happy years here in Australia, so reconnecting with colleagues, some great friends and some * wonderful clients is fantastic.” insuranceNEWS

February/March 2014

The tail doesn’t wag the dog: Pacific Region Chairman Steve Nevett with Lambros Lambrou

INMAG FEB 14_page layouts 13/02/14 9:59 AM Page 27

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INMAG FEB 14_page layouts 13/02/14 9:59 AM Page 28

Marsh goes for growth The giant broker is building up its local SME broking capabilities – and bringing in sister company Mercer to build new markets, too



Insurance News Publisher Terry McMullan and Managing Editor Jan McCallum sat down in December with the leaders of Marsh Australia to discuss the company’s plan to build a new broker arm, Marsh Advantage Insurance, which is aimed at the SME market. The Marsh team at the meeting comprised Marsh Australia Chief Executive and Head Pacific Region John Clayton, Marsh Pty Ltd Executive Director Scott Leney, Marsh Advantage Insurance Executive Director Travis Kemp and Lorna Molam, Marsh Pacific Operations Manager and Head of Marsh & McLennan Agency, the company’s insurance placement platform. The interview lasted more than an hour and along the way revealed that Marsh is also building a new human resources service company that will bring together the broker’s transactional capabilities with the consulting skills and specialised knowledge of sister company Mercer. The following is edited for length and clarity. February/March 2014

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The Marsh interview team: from left, Travis Kemp, Lorna Molam, Scott Leney and John Clayton

Marsh is best known for working at the top end of the broker market. What has led to you moving into the SME space? John Clayton: We’d always had a view that we wanted to push further and deeper into the SME client segment. It developed from a business that we set a bit over 10 years ago that focuses on SMEs. We started with the placement element of it, then put on a sales and distribution piece, which is what we call Marsh Advantage. We also had quite a successful affinity business and a little private client area as well. It got to the stage of saying we really want to accelerate the growth in this particular area, so how do we go about doing it? We ultimately decided we wanted to do a combination of accelerating organic growth and try and do a bit of acquisition along the way as well. We wanted to create in a new entity a business that would build up a national brokerage, focusing on the SME client but also encompassing what we do in terms of our retail life advisers, our private clients and our affinity business. insuranceNEWS

Why put it in a separate company? John Clayton: I actually wanted the market, the clients and potential colleagues, whether they be employees or authorised reps, to see that we were really serious about building a business dedicated to this client segment and building up this national brokerage. As individuals or acquired targets come into the organisation they’re not going into this monolith called Marsh where they might get lost within a corporate culture and environment. There’s a value proposition around this particular entity which is really twofold. One piece is around what we want to do to attract authorised reps and colleagues, and the other part of the value proposition is what we do around building product for the clients. Around 2000 we developed a suite of midmarket facilities and SME facilities. And then of course there’s our traditional business, which is mainly what we’re known for, working with large and complex major February/March 2014


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“We are market leaders and we want to continue to grow that core business, but it’s hard for us to grow significantly in that space when we’ve already got high market share.”

national and multinational clients, and having very much a consultative risk approach. Encompassing our brokerage business is our risk consulting business, our professional risk business and a number of other pieces as well. In this restructure what we’ve done is elected to appoint three new leaders – Scott to run the Marsh Pty Ltd business, Travis to run the new entity Marsh Advantage Insurance Pty Ltd, and Lorna responsible for Marsh & McLennan Agency Pty Ltd. They are all separate legal entities. They are sister companies, not subsidiaries of one another, and that’s deliberate – we designed it that way. They will all have their own executive committees and they will operate in a fashion which just focuses on what they need to do around that client base that they represent. So that’s the background.

that’s very much the domain of the direct carriers – although the concept of an e-broker doesn’t escape me. But we do have an arrangement where we can facilitate microSME clients, although it’s not a core focus.

And what makes you think there’s demand in the SME segment for what you offer?

Travis Kemp: We’ve probably got to consider broadly what our historical client service consultant or authorised rep base has been. It’ll depend on the market segments that we look in. And when I talk market segments I’m talking more in terms of the geographical expansion that we’re considering. One thing is key in relation to SME growth – this is very much a relationship-based business. John mentioned the micro-SME stuff that finds its way to us because it’s based around relationships. That’s a segment where they’re not actually looking for a commoditised offering, but they do put a value in terms of the advice and the relationship and the security that an insurance intermediary can bring to the table. We’re identifying where we see opportunities to grow quite rapidly. However, we’re very mindful that this has got to be done on a foundation of compliance. We’re not going to be reckless in terms of our growth. We’re very mindful of maintaining the Marsh brand and delivering a quality of service that those who have dealt with us historically are accustomed to.

John Clayton: Our SME business is the fastest-growing part of our business. Historically, we’ve had really nice growth in that space. It’s typically been 10% year on year. It’s a high margin business for us. So we look at the growth, we look at the margin and we have a very, very small market share. If you put all those ingredients together and say, well, why wouldn’t we invest in growing that part of the business?

A good counter to the large client business? John Clayton: I’d call us overweight in terms of our large client space. I’m really, really proud of what we do in that space. If you look at Marsh’s representation in that big end of town, we represent 35 of the top 50 companies and at the last count 57 of the top 100. We are market leaders and we want to continue to grow that core business, but it’s hard for us to grow significantly in that space when we’ve already got high market share. In the Marsh business we think we can grow in all areas. In growing with the big end of town, in many ways our fortunes lie with those of our clients. But we need to focus on doing more things.

There’s a great deal more competition in the SME space for brokers. Do you have what the marketing people call a unique proposition? John Clayton: Well, what I think is different about us is the depth of what sits behind what we have to offer a client. We look at this segment and say there is a micro-SME component, and that’s not our sweet spot – that’s not where we’re targeting. And anyway, at this point 30


So your core focus will be more on the higher end of the SME space? John Clayton: It’s above that micro-SME piece in what I would call the ME part of the SME piece which is where the focus is, as opposed to what is the true corporate middle market Australia, which actually goes hand in hand with what we do in the large client space. And yes, it is a competitive environment. But we’re getting really great growth out of it.

Travis, what kind of authorised reps are you looking for? I know you want to double your workforce in that area.

You’ve got the Marsh brand sitting on top of it all, and I’m wondering if the Marsh brand carries weight in the SME space. Did you consider another name? Travis Kemp: Yes, in terms of the initial thought process. John Clayton: We bounced that around a heck of a lot, and there’s some logic in what you say. You could run a multi-brand strategy, but we ultimately came down to the fact that we overwhelmingly saw value in that Marsh brand. “Advantage” really comes from the fact that we already had a little business we called Marsh Advantage. February/March 2014


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“It’s the whole Marsh approach which is important to us... it’s us having an ability to take the best of both worlds in terms of this creation of a broker with a truly SME focus.”

Travis Kemp: We see that that Marsh name and branding as absolute in terms of respecting historically what we’re about. If we’re able to bring the qualities that Marsh brings to the table – things like placement leverage and industry specialisation, our specialities like our financial professional lines, our trade credit teams, our risk consulting capability… It’s those things that bring a holistic solution to our clients. It’s the whole Marsh approach which is important to us. So it’s us having an ability to take the best of both worlds in terms of this creation of a broker with a truly SME focus, but certainly understanding and appreciating the value that an organisation like Marsh can bring to the table.

How many ARs are you looking for? Travis Kemp: We’ve currently got 63 authorised reps nationally. We’d like to expand that network by 30% in 2014.

What are you actually looking for in an AR? Travis Kemp: If you look at the prime targets of where we’ve looked historically, and now into the future, understanding the SME marketplace is integral; accessibility to a pipeline of opportunity, again in terms of a background of performance and a background of true client service delivery; and an ability to maintain and continue relationships, both from a client perspective and also in terms of insurer relationships.

And is there room for leverage between the skills that all three businesses have in terms of the range of expertise available, or do you see yourselves operating completely separately in that regard? John Clayton: No. There’s a clear bridge here. While the particular businesses operate around client segments, where there’s expertise that resides within the organisation they will cross borders to take that capability to where the client need is. For example, our risk consulting business resides in the area Scott has responsibility for because most of the work they do is for large and midmarket clients. But there’s a number of SME clients who might want to avail themselves of those sorts of skills. So we’ll cross over as need be. The collaboration and certainly with the culture that we’ve tried to engender within this organisation allows that to happen pretty seamlessly. At the same time, I see the Marsh & McLennan Agency business as integral to our success in the continued production and development of insurance solutions for our client base. So as we expand into 32


greenfield locations where Marsh hasn’t existed historically, the needs of our client base will evolve also. Lorna Molam: I think it’s really important that we align not only with the Travis’ business but also with Scott’s. Over the 14 months I’ve had responsibility for MMA I’ve spent a lot of time realigning the business, and I’ve invested quite heavily on the right resources to drive growth in MMA. So we’ve now got dedicated resources leading the SME facility and also our midmarket facility to support the growth that will come from Travis’ business. We’re working quite closely with Travis and his leadership team to develop specific solutions that you’d find our client service consultants will potentially need in specific areas.

Scott, can a company with its services focused on the top end of town really hope to stretch those services to give you a competitive advantage in a highly competitive sector like SME? Scott Leney: The thing about the Marsh business is it hasn’t changed. All we’ve done here is launch an exciting new company that’s going to focus on the SME market. Our client base, particularly at the large end of town, is one we fight very, very hard to keep and we fall over ourselves trying to make sure that we can add value in new ways. It starts with obtaining a very deep understanding of our client’s business and their industry segment and using a whole bunch of risk management expertise and analytics to be able to inform program design, get the placement done and then use all of our servicing resources to do the post-placement stuff, including claims advocacy. That’s really where the rubber meets the road and where our client relationships are really tested. So there really hasn’t been a lot that’s changed in terms of how we deliver the various arms of Marsh to our client base. We’re a big organisation. What our clients expect is that we just deliver to them as a unified Marsh team. John Clayton: There is another fairly significant play that we have going. We’re in the process of creating another business internally called Mercer Marsh Benefits. It is all about employee health and benefits, bringing together the consulting skills and knowledge that resides within Mercer and the highly skilled transactional capabilities that reside within Marsh. We’ll be launching that early in the New Year. All the work has been done. February/March 2014

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“Just about every part of Marsh wherever you go on the globe has SME tagged as a growth opportunity, but the reality is not many countries are very well advanced in it.”

We have appointed the new leader, Sarah Brown, who’s worked in the UK for Mercer for the last 10 years. She’s a Melburnian coming home. We do see this as quite an opportunity in 2014 and beyond, particularly with what’s happening in the whole salary continuance group, life market and even superannuation programs. Mercer is very dominant in that space. So we do see that’s a pretty exciting development for us. Scott Leney: It’ll give us all of the capabilities to basically advise clients at the starting point around human capital risks and benefits design. They’re the two principal areas. And then moving through into the placement transaction side that John spoke about. And then program administration, which is really important – the efficiency with which you can administer those programs. John Clayton: Ultimately it’s about claims. Claims have to be managed pretty sensitively, because these are employees and this is a company-sponsored insurance program you’ve put in place. And so it’s the claims advocacy piece at the end as well. We weren’t able to do all of those things just as Marsh before but we can under Mercer Marsh Benefits. So as we put this venture together it will be the largest complete health and benefits business of its type in Australia. Scott Leney: And keeping on that “best of both worlds” concept, it’s bringing that HR consulting capability which is truly recognised in the HR community as Mercer, together with the risk and insurance capabilities of a Marsh. John Clayton: So as a joint group it can bring some pretty powerful solutions. We currently have a number of life advisers that sit within that group. It’s not dissimilar to what Scott’s been talking about – we’ll be that holistic in our solutions around risk and insurance for SMEs and there’s going to be a blend of general and life solutions. So it’s absolutely in line with the expansion of our total authorised representative model. Life advisers play a big part in that also.

What’s the market crying out for in terms of new products and innovation? Travis Kemp: I think what clients are crying out for is not for offthe-shelf products. Clients are looking for insurers in partnership with their brokers to spend time truly understanding what unique risks they’re facing, and then to use their capital to find new ways to offer risk transfer solutions. John Clayton: They’re not necessarily just products, either – they could be consulting services. 34


Do you see any dynamic change happening in the SME market as a result of Marsh and other large brokers moving into it? John Clayton: I don’t see any evidence of the likes of Willis or JLT pushing into that space. In reality, Aon has been in that space for a long, long time. Our strategy is brand new to the extent that we’re actually giving it far more focus and we’re doing some structural things around it. But you only have to see the competitors in that space – like Robert Kelly’s Steadfast Group, or Austbrokers – to know that’s a very competitive place to be.

When you’re looking at Marsh Advantage, what sort of proportion of the Australian business do you see it contributing in, say, a year or two years’ time? John Clayton: Well, I’d love it to be 50/50, but it’s not going to get there that quickly. But that’s the aim, and it’s going to take some time obviously.

Is that in terms of revenue? John Clayton: Yes.

What does it represent at the moment? John Clayton: Probably about 25%, 30% max. Travis Kemp: 30%.

So what would its revenue now be then? Can you give me some sort of figure? John Clayton: Oh, somewhere between 50 and 60 million dollars. Just about every part of Marsh wherever you go on the globe has SME tagged as a growth opportunity, but the reality is not many countries are very well advanced in it. And so what we’ve done here in the last dozen years or so is being examined. We’re seen as a country where we’ve got some traction; we’ve built a small business operation and we’ve got growth plans. But we need to do that in other countries as well. While everyone has that aspiration, we’re pretty dominant in that large client space, so we need to look for opportunities for growth. So you’ve just got to keep thinking about ways we can be smarter and grow in market segments which you haven’t been in before. And just try and innovate new products, new offerings, all that kind * of stuff. February/March 2014

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Monster: Super Typhoon Haiyan sweeps across the Philippines in November, killing as many as 8000 people



Last year saw record floods around the world and the most destructive windstorm ever recorded


YES, 2013 WAS A MORE BENIGN YEAR for catastrophes than some recent years – at least in insurance terms. But it was far from a good year, featuring record floods in Europe and what is now regarded as the largest windstorm in recorded history. Reinsurance broker Aon Benfield says global natural disasters in 2013 combined to cause economic losses of $US192 billion – just 4% below the 10-year average of $US200 billion. The losses were generated by 296 separate events, compared to the 10-year average of 259. In terms of insured losses, the catastrophes cost $US45 billion, 22% below the average of $US58 billion and the lowest total since 2009. Munich Re says more than 20,000 people died in natural catastrophes last year – significantly below the 106,000 average of the past decade. And in a reversal of the situation in 2012, when the largest events occurred in insuranceNEWS

February/March 2014

the United States, Aon Benfield says the largest global events of 2013 were heavily concentrated in Europe and Asia. Notable events during the year in these regions included major flooding in Central Europe, Indonesia, the Philippines, China and Australia. The January floods in coastal Queensland, particularly Bundaberg, and parts of New South Wales, caused economic losses of $US1.5 billion and insured losses of $1 billion. Crippling floods also hit the midwestern Canadian province of Alberta, where heavy rain in June combined with snowmelt to cause the costliest natural catastrophe Canada has yet experienced. The economic loss amounted to $US5.7 billion, and the insured loss was about $US1.6 billion. But by far the worst event of 2013 was Super Typhoon Haiyan, which made landfall in the Philippines on November 8. Estimates of the death toll vary between 6000 and 8000. Haiyan had a storm radius of more than 600km and its peak speed was reliably recorded at 315kmh, making it the strongest windstorm ever recorded. Munich Re says the eye of the storm, just outside of which the wind speeds are highest, measured up to 25km in diameter. A flood wave of more than six metres devastated exposed coastal towns and cities. Flood represented 35% of all global economic losses during the year, while severe drought also contributed to major losses in Brazil, China, New Zealand and the US. The costliest natural catastrophe of the year in terms of overall economic losses was flooding in southern and eastern Germany and neighbouring states in early June. Overall losses totalled $US15.2 billion, with insured losses of $US3 billion. Record rainfall caused flood levels that broke 500-year-old records. There were also lessons in the German losses about the value of mitigation. Hamburg experienced a storm surge during Winter Storm Xaver in December which led to the River Elbe rising to more than six metres above normal – the second-



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better, but still grim highest level recorded since measurements began in the 16th century and significantly higher than in the flood disaster of 1962 in which 347 people died. Munich Re says Hamburg has invested more than €2 billion in mitigation measures since then, and the July storm surge caused no major losses. “Altogether, the flood control measures have enabled Hamburg to avoid losses in the order of €20 billion since the flood of 1962,” the reinsurer says. Precautionary measures also proved their worth in several other weather-related natural catastrophes in Europe. Losses from Windstorm Christian in November and Winter Storm Xaver in December were comparatively low, even though both swept over the United Kingdom, the Netherlands, Belgium, northern Germany and Denmark with wind speeds sometimes exceeding 150kmh. Munich Re says the most expensive single event for the insurance industry in

2013 was a squall line with hailstorms that hit some regions in northern and southwestern Germany in July. The hailstorms damaged numerous cars and buildings causing an economic loss of around $US5.2 billion and insured losses of $US$4.1 billion. The most serious natural catastrophe in the US in the past year was brought about by a squall line with a series of very severe tornadoes in Oklahoma on May 21. A category 5 tornado – the highest category, with wind speeds of more than 300kmh, destroyed or damaged about 10,000 homes in the town of Moore. The economic loss was $US3.1 billion, with $US1.8 billion insured. Meanwhile, hurricanes in the North Atlantic were at their lowest level since 1982. No hurricane reached the US mainland, extending the record streak to eight consecutive years. A total of 13 potential hurricanes

formed in the tropical North Atlantic, but only two achieved minimal hurricane force and none were named. Compare that with the long-term hurricane average of eight hurricanes for the warm phase in the North Atlantic. which Munich Re says “has persisted since the mid-1990s and is material for current risk management”. That compares with the 2013 typhoon season in the Pacific, which was above average in terms of activity with 31 named storms. Munich Re says that based on a natural cycle, “our analyses predict the beginning of a phase with higher typhoon activity for the coming years”. While most of the industry’s assessments of reports avoid the issue of global warming, Aon Benfield’s report notes that “2013 ended as the fourth-warmest year recorded since global land and ocean tem* perature records began in 1880”.

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Mutual benefits: Ironshore’s David Rogers (left) and Katherine Simmonds with Assetinsure’s Gregor Pfitzer

Ironshore and Assetinsure find plenty to love about each other By Terry McMullan THE ACQUISITION OF LOCAL SPECIALIST insurer Assetinsure by US-based Ironshore has more of the spirit of a wedding about it than a takeover. Both companies have expressed delight at the way the deal has worked out, with both seeing big benefits coming their way. For Assetinsure, it’s a chance to grow more rapidly with the backing of a larger parent with a healthy credit rating, while Ironshore is delighted with the way the two companies’ specialist products are complementary. Under the deal announced on February 4, Assetinsure will continue under its existing management and brand. Ironshore Australia Chief Executive David Rogers has stepped up to become chief executive of a new company, Ironshore Australia Holdings, while former executive director Katherine Simmonds has been named Managing Director of the operating company, Ironshore Australia. A lawyer with expertise in mergers and acquisitions insurance, she and Assetinsure Chief Executive Gregor Pfitzer will report to Mr Rogers. Ironshore staff are moving into Assetinsure’s Sydney offices in Pitt Street. The offices once housed the now defunct German reinsurer Gerling Global Re, whose Australian operations were bought by Assetinsure in 2003 and turned into an insurance company. For Mr Rogers, it’s the culmination of several years of hard work establishing Ironshore in Australia and several months of negotiations with the Assetinsure board and management. 38

Assetinsure had been known to be keen to form a relationship with a larger insurer in the Australian market. Privately owned, its lack of a credit rating was thought to have cramped its growth ambitions and restricted some broker relationships. The Ironshore group is rated A (Excellent) by AM Best. The Australian specialist insurer might have felt restricted, but it has been no market slouch. Its 2012 results show a net profit of $4.86 million in 2012 – a rise of 11.7% on the previous year – and gross written premium from direct insurance or inward reinsurance at $56.5 million, up from $50.7 million in 2011. Mr Rogers says the deal brings together two companies in “a very good cultural fit”. It’s also an exceptionally good business fit. Assetinsure provides a range of specialty portfolios including surety, in which it claims the top position in the local market; aviation, where it is believed to be second-largest; as well as the uber-niche product of credit enhancement. Ironshore Australia is already the local market leader in merers and acquisitions, and also offers political risk, structured credit, fine arts and specie and project cargo. About 75% of its business in 2012 was in the lucrative M&A risk area, and the elevation of Ms Simmonds to the chief executive’s spot spotlights the importance of that business to the company. She moved to Ironshore Australia in January 2012 from AIG, where she had forged an enviable reputation heading up its M&A practice for Australia and New Zealand. Ms Simmonds was previously an M&A lawyer at Minter Ellison and also worked as a management consultant in the local and London markets. Mr Pfitzer told Insurance News the sale to a strongly rated parent will help Assetinsure “take the business to the next level”. insuranceNEWS

February/March 2014

“It’s a significant boost to our business because Ironshore carries a strong credit rating, which will make it a lot easier for us to deal across the broker market.” Mr Rogers, a US citizen married to an Australian, says the surety business in particular is of great interest to Ironshore. Last March the company formed a strategic alliance with US carrier Lexon, which is a major writer of surety bonds in the US market. Ironshore was set up in Bermuda in 2006 on a $US1 billion investment from a syndicate of five American private equity firms. Today six private equity firms own 85% of the company. It is underwritten by Lloyd’s syndicate Pembroke, which it owns. The company could have been expected to concentrate its global expansion in Asia, where competition is less and growth more certain. But Mr Rogers says Australia is still very attractive and competitive. “The rule of law here is good, complemented by your regulatory regimes, which work well. You also have a strong banking and finance sector, and your proximity to Asia is also valuable. “In the areas we focus on, this is a good place to grow, and there are plenty of opportunities. “Yes, in general it’s a mature market, but the specialised areas we work in mean we have room to grow. We want to be first in the market with our products and we want to expand our specialties.” He is similarly bullish about opportunities in the New Zealand market, saying the property and M&A possibilities are positive. “Ironshore already has a presence in Asia, and I’m sure we will be expanding there as well.” The sum involved in the acquisition has not been disclosed, and the deal is subject to approval by the Australian Prudential * Regulation Authority.

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Scenario f

SIXTY YEARS AGO, ON MARCH 1 1954, ADELAIDE SHUDDERED AND rocked to a medium-severity quake centred just 12km south of the city. The quake struck at 3.40 in the morning an hour when most of the city was asleep. Suddenly, out of the darkness came a rumble that rapidly developed into a roar. Within seconds the city’s calm was shattered as buildings shuddered, chimneys toppled and walls collapsed. Electricity failed, plunging the city into even greater and more terrifying darkness. While overloaded instruments failed to accurately register the force of the earthquake, it’s generally estimated to have been in the range of 5.5 to 5.6 – far smaller than the magnitude 7.1 and 6.3 earthquakes which devastated Christchurch in 2010 and 2011. Nevertheless, the quake left a swathe of damage across the city. Some of the city’s historic buildings, including Adelaide’s post office tower, were damaged. But there were no fatalities and only 16 people were injured, three seriously. 40


The total cost of damage was estimated at around £17 million (about $500 million in today’s terms) but most of the city’s homes weren’t insured against earthquake. Only £3 million was paid out by insurers for 30,303 claims. This earthquake was Australia’s most destructive, until it was eclipsed by the magnitude 5.6 Newcastle earthquake in 1989, which killed 16 people and injured 160, costing the insurance industry about $3.4 billion in today’s dollars. An average of 80 earthquakes of magnitude 3 or more occur in Australia each year. Earthquakes above magnitude 5.5 occur on average every two years. About every five years there is a potentially disastrous earthquake of magnitude 6 or more. Australia’s largest recorded earthquake was in 1941 at the remote Meeberrie station in the Murchison district of Western Australia, which had an estimated magnitude of 7.2. A magnitude 6.8 earthquake 130km east of Perth at Meckering in February/March 2014

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News Ltd

o for disaster

1968 caused extensive damage to buildings – it caused ground rupturing 40km long – and was felt over most of the state’s south. Again, thankfully, the event occurred in a sparsely populated area. Despite the Western Australian events, Adelaide is regarded by insurers and seismologists as Australia’s earthquake capital. While it has not suffered another quake as strong as the 1954 event, the city has the highest earthquake risk of any Australian capital city. It has experienced more medium-sized earthquakes in the past 50 years than any other state capital. So how long until the next Big One hits Adelaide? It’s a question that arises in South Australian media from time to time when minor tremors shake the city. There are two main fault lines around Adelaide. The Para line reaches Adelaide from the Gawler area to the north, while the EdenBurnside fault is essentially the Adelaide Hills face zone. The hills have been formed by the fault, where the two sides have squeezed together. insuranceNEWS

Adelaide does have one thing on its side – it is built on heavy clay, which reduces the likelihood of an earthquake being amplified. Newcastle, by contrast, is built on softer, sandy soil which helped to amplify the shock waves in the 1989 event. While no one can (yet) accurately predict when or where a quake will strike, disaster modelling is well advanced and the likely damage and costs to the insurance industry can be estimated with a high degree of certainty. Apoorv Dabral, a senior engineer at catastrophe modelling firm AIR Worldwide, has built a scenario around an event very close to the 1954 Adelaide earthquake. Based in Boston, Massachusetts, Dr Dabral is an expert on natural perils. The following pages reveal AIR Worldwide’s assessment of the factors that have to be taken into account when examining Adelaide’s earthquake exposures. The research answers many of the questions that Adelaide residents will be asking as they commemorate the 1954 quake’s 60th anniversary. February/March 2014


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The next Adelaide

EARTHQUAKE Little has changed since the last Big One in 1954 – except the city has tripled in size. The insurance losses from a similar quake today would cost insurers as much as $14.5 billion By Apoorv Dabral


southern Australia, its epicentre located less than 25km from downtown Adelaide. The rupture takes place along the Eden-Burnside fault at a depth of just 4.7km, causing intense and often violent ground-shaking throughout much of the city. Damage is widespread. Residential buildings and older commercial structures are most impacted, incurring ceiling, wall, and verandah collapses, damaged facades and extensive cracking.

CRESTA is industry shorthand for catastrophe risk evaluation and standardising target accumulations. It was developed by German reinsurers and has become a globally uniform system for the accumulation risk control of natural hazards, particularly earthquakes, storms and floods. The risk zones are essentially based on observed and expected seismic activity, as well as on other natural disasters such as droughts, floods and storms. The distribution of insured values within a region or country is measured using the CRESTA system to enable easier assessment of risks. Today the system’s standards are widely accepted throughout the global insurance industry, and are regarded as the essential basis for reinsurance negotiation and portfolio analysis.

Large industrial facilities, including auto and high-tech manufacturing plants, experience a loss of power and other utilities. If such an event were to happen today, insured losses would amount to $14.5 billion. Insurable losses would reach $17.4 billion. Australia lies in the eastern portion of the Indian-Australian plate, an intraplate region far from any plate boundary. The cause of intraplate earthquakes are not entirely understood, but Adelaide has suffered more medium-size events in the past 50 years than any other city in Australia. Most exposures in Australia are in its major cities and suburbs. Because few intense earthquakes occurred in more densely populated areas until the second half of the 20th century, not much attention was paid to establishing or following building codes and construction standards until relatively recently. In South Australia, most single-family homes are timber frame or non-reinforced masonry structures – construction types very vulnerable to ground shaking. Cavity double brick construction became increasingly common in the last century. This type of construction was the type most extensively damaged in the 1989 Newcastle earthquake. This is the distribution of exposures in the state of South Australia by construction types and lines of business:

Single-Family Homes Apartments



Agriculture 0%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Wood



February/March 2014



Light Metal


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“Loss concentrations are both widely residential and contain some of Adelaide’s most important modern economic enterprises.”

In the residential line of business, 96% of single-family homes and 79% of apartments consist of some type of non-reinforced construction. More than 90% of commercial structures, which generally have fared better in earthquakes, employ concrete or steel frame construction. Adelaide is situated between the coast of the Gulf of St Vincent and, to the east, the Mount Lofty Ranges. The geography of these low mountains affects the intensity of ground shaking in their vicinity.

The Mount Lofty Ranges are hard rock, while to both their east and west the land is largely soil, which amplifies ground motion. The irregular contours of losses to the east, shown below, indicate the jagged outline of the mountains as the land stretches out into the mixed soil of the South Australian plains. It also provides a comparison between the pattern of exposures in the Adelaide area (left) and the pattern of potential losses (right) as

Epicentre and peak ground acceleration for an earthquake near Adelaide

Insured loss by CRESTA zones


February/March 2014


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indicated by catastrophe risk evaluation and standardising target accumulations (CRESTA) zones. (See explanatory panel) The areas that show loss concentrations are both widely residential and contain some of Adelaide’s most important modern economic enterprises. Adelaide is home to more than 40% of Australia’s high-tech electronics industry, which accounts for about 14% of all manufacturing jobs in the city; a major contractor is the Australian defence establishment. The total estimated insured losses for the scenario, as stated earlier, come to $14.5 billion. By line of business, these losses break down to:

Even in the worst-affected areas, loss ratios would not be expected to exceed 30%. Some insight into the large losses that the model scenario produces can be gained from what happened during the 1954 earthquake. The scenario epicentre is only about 25km away from the 1954 epicenter, and the magnitude of the two quakes is about the same (magnitude 5.4 in 1954, magnitude 5.7 for the scenario). Although Adelaide’s population has increased nearly threefold since 1954, except for the most modern structures much of Adelaide’s exposure remains similar in vulnerability to that in 1954. In 1954, claims were filed for 22% of all buildings in the city.

Being prepared:

To help ensure that a catastrophe model produces the most realistic loss estimates, keep in mind that: • A building’s response to earthquake-induced ground motion is highly dependent on both the building’s precise location relative to the earthquake’s epicentre and the characteristics of the soil on which it rests. Accordingly, collect accurate, detailed location information for the properties that make up your portfolio. Relying solely on coarse resolution address data can lead to significant over or under-estimations of risk. • Building attributes play a central role in establishing a particular structure’s vulnerability in response to seismic ground motion. Collect and input detailed data when you define your exposures. This means accurately capturing all the primary building characteristics of the exposures: construction type, occupancy, building age, height – and a true replacement value. • Be aware of non-modelled sources of insured loss. The scenario presented here has not examined such aspects as losses attributable to possible landslides, fires following the earthquake, or the impact of any possible tsunami. (In this scenario, a tsunami is not likely). • Finally, consider your loss ratio for properties in the impacted CRESTA zones. That is, how do your estimated losses compare to the total insured value of the specific local area in which the losses were incurred? Your losses might at first appear to be high, but typically they reflect a loss ratio of less than 30%, a proportion consistent with an infrequent but plausible catastrophic event. – Apoorv Dabral



The City of Newcastle

Best practices for modelling

To be able to respond effectively when disaster strikes, it is important to prepare for a wide range of scenarios. The scenario outlined here is just one of many plausible high-loss earthquake scenarios that could occur in Australia. If the estimated losses seem high for a 5.7 magnitude event, they reflect the actual vulnerability and exposure characteristics of the affected area. In fact, the scenario’s loss represents an annual exceedance probability of about 1% for Australia (roughly a 100-year return period loss) – which is not an extreme “tail” event. To help risk managers assess and understand the full range of potential losses, catastrophe models simulate thousands of years of events. The AIR Worldwide Adelaide scenario described here is just one of them. While no model can predict what the next megadisaster will be for Australia, this very uncertainty makes it all the more important for companies to use catastrophe models to prepare for such events. The careful analysis of model results can help risk managers prepare for many contingencies – thus ensuring that scenarios like the * one presented here will not be entirely unexpected.

Cleaning up after the 1989 Newcastle quake: double brick construction was common in both cities February/March 2014

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Moving with the times

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There’s no standing still for Sandra Purser and the team at Planned Cover By Jan McCallum


February/March 2014

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HOW DO YOU STAY AHEAD OF THE pack when you operate in a sector where relentless competition is the everyday norm? By continually innovating and being passionate about your work, says Planned Cover Managing Director and Chief Executive Sandra Purser. “I’ve never had a day of boredom – ever,” she says of the company where she has worked for more than 20 years. This perpetual motion includes changing the company name to Planned Cover from Planned Professional Risk Services, and launching a strategy of offering more product lines and expanding beyond the traditional clientele of construction industry businesses needing professional indemnity and commercial covers. Ms Purser joined the Australian Institute of Architects-owned company from Westpac Insurance as an account executive, and says she was fortunate to be mentored by the previous chief executive, Robert Fairley, as well as the late Frank Earl, a leading light in the development of professional indemnity insurance in Australia. Both wanted to encourage young people in the industry and Mr Earl was a company board member until his death in 2010. It was he who encouraged the company to go to the London market for capacity in 2000 and would no doubt not be surprised to find these days it combines underwriting, broking, claims and risk management and is rebranding and investigating new delivery channels. The growth strategy has led to the new name, launched by the Institute of Architects at the National Architecture Awards at the Sydney Opera House on November 7. Although the Melbourne-based company was formed to handle the insurance needs of architects, over the years it has expanded to encompass the construction industry and is preferred broker for the Australian Institute of Quantity Surveyors and Consult Australia, the industry organisation for consultants such as engineers,

project managers and planners. Ms Purser is taking Planned Cover into new territory, pitching for the business of other associations that she says can benefit from the risk management platform developed within the company. She became chief executive in 2006 when Mr Fairley retired. Having been hired for a sales position, Ms Purser first moved into the position of branch manager for Victoria and Tasmania in 1992 and recalls it was a great time for learning the issues around managing a growing business. She became national operations manager in 1996 as the company developed its construction business and expanded outside Victoria, overseeing the performance and growth of other branches and co-ordinating and developing niche products. The success of that expansion was a pointer to further opportunities serving professional clients and Ms Purser was appointed chief executive when the board was looking for a leader who would take the company into a new phase of growth. She says her new role meant switching from an operational to a strategic perspective but says the company has a culture that encourages innovation. That philosophy has led to a program of risk management for clients that is key to Planned Cover differentiating itself from others in the highly competitive professional indemnity (PI) market, and was a factor in the company being named small broker of the year under the holding company title of IBL, at the Australian and New Zealand Institute of Insurance and Finance Australian Insurance Industry Awards last year. Planned Cover runs programs externally or goes to clients’ premises. It’s a big investment for a small company but it does get clients engaged in risk management and every year thousands of them attend some of the more than 300 seminars it mounts in major cities and regional centres.

“PI is a big spend for business owners and they want to be educated so they are across the issues and they know how to manage them,” Ms Purser says. Some of the courses have industry accreditation for professional development. The company goes to the offices of large clients and also holds group seminars, breaking the isolation for owners of sole and smaller practices who always enjoy meeting industry peers. The latter group does not have the legal counsel and compliance infrastructure of larger practices and the seminars are important in deepening their understanding of the issues. The seminars have been expanded to claims management and emerging issues in the clients’ industry and Planned Cover has also brought in business development experts to discuss managing a successful practice. It is a serious commitment, and one that makes individual companies and the profession collectively a better risk in the insurance market. Ms Purser says as a claims manager, Planned Cover has a vested interest in reducing claims and educating about risk. “With the seminar series, people see we are making a difference,” she tells Insurance News. The seminars grew out of this philosophy and so did the decision to become more directly involved in the insurance market, to transition from transactionalbased broking into tailored facilities. As the company grew, so did the professional indemnity market, and within Planned Cover discussion arose about whether the company could use its knowledge within to manage claims more effectively. “When we placed the business to the market, there was no opportunity

“There has been great satisfaction in watching not only the company grow but the staff within, not only when they are here but when they leave and are successful in the industry.”


February/March 2014


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Making a difference: Sandra Purser receives the ANZIIF Small Broker of the Year award from QBE General Manager International Brokers Jason Clarke


to become involved in product development and claims management,” Ms Purser says. “Rather than having responsibility to a particular insurer, we felt we could manage that more effectively internally because we understood what the profession did. We could mitigate losses and manage them more appropriately.” The three partners in the process – insurer, broker and client – would see a better outcome from Planned Cover’s risk management and how it managed claims. The company got binding authority for the architects’ business from an Australian insurer in the 1990s and the success of the binder prompted it to consider copying the model for other clients. “The plan was simple, but getting capacity in 2000 wasn’t easy,” recalls Ms Purser. “Frank had the relationships and he introduced us.” Mr Earl, an Austbrokers director and later president of the National Insurance Brokers Association, offered invaluable introductions to his professional lines connections at Lloyd’s. Many of the people Ms Purser met then are now senior managers in Lloyd’s syndicates. The company is a member of the Underwriting Agencies Council, but Ms Purser says some in the industry see some “mystique” to the company because it does not wholesale a product. It does still broke some business into the market and will make decisions on whether a risk should be offered externally or will fit one of the company’s facilities. “It is not one-size-fits-all,” she says. Planned Cover also provides clients with a contract review service, where its risk managers comb through 1700 contracts a year to identify any impact on the business’ PI program, warranties or indemnities. Clients are alerted to exposures that might not be covered and given information they can use to negotiate their risk down. Contracts can range from 10 to hundreds of pages. It is a huge task but Ms Purser says clients value the advice and train their own staff to spot potential issues. “It is very time-consuming but it is an important resource.” The contract reviews and seminars have also given Planned Cover’s staff deep knowledge of their clients’ professional activities, the risks they face and the protection they will need. “There are so many ways you can help them but you need to know what to look for,” she says. Planned Cover employs 40 staff and Ms Purser is one industry executive who does not complain about a talent shortage, saying job advertisements always attract outstanding candidates. The company employs risk management staff with legal qualifications and with backgrounds in construction, law firms or insurers. Job candidates are attracted by the prospect of more freedom than in a legal practice where they would be filling out timesheets of billable hours, and she says the focus on education and professional development draws people who are enthusiastic and committed to the industry. She says a key to retaining staff in a small company is to give people accountability and insuranceNEWS

February/March 2014

allow them to innovate and think independently. Frank Earl became a friend as well as a mentor to Ms Purser and his legacy is the enthusiasm of the many people he mentored who are now in senior industry roles. She says his passion for education and achievement touched hundreds of people making their way in the industry. Her advice to young insurance professionals is to “take responsibility for your education and training and enjoy the learning experience”. When hiring, she looks for candidates with passion and a positive attitude and advises young professionals to take up the many formal and information networking opportunities that did not exist when she entered the industry and to look for a mentor they might aspire to. Planned Cover began a graduate recruitment program more than 10 years ago and has seen some of the recruits become senior underwriters here and in London, or working with international brokers. “There has been great satisfaction in watching not only the company grow but the staff within, not only when they are here but when they leave and are successful in the industry,” Ms Purser says. What’s in the future? At the launch of its new name, Planned Cover unveiled initiatives to expand its service, and a week later delivered a webinar to engineers. Staff have begun visiting other professional associations and have spoken at their industry events. Associations are always looking for new ways to serve their members and Ms Purser says there is strong interest in the company’s risk management seminars and how these can be used for professional development. As the business matures, Ms Purser is looking at how to diversify, in both emerging markets and in services provided to existing clients. She says it makes sense to move into life insurance and income protection to protect clients’ personal assets as well as their business. Association executives have also expressed concern about members buying life and income protection covers without the benefit of professional advice, leading to the formation of a life insurance division within Planned Cover. She is reviewing wholesaling opportunities and how the company can leverage its shareholding in a large Chinese insurance broker that is linked with the Architectural Society of China, a deal signed in 2004. PI cover is in its infancy in China but will have to grow as the country opens its markets. “There is some business opportunity there,” Ms Purser says. It is unusual these days to find a chief executive who has had such a long career with the same company, but for Ms Purser, it has meant building strong relationships with insurers and watching clients’ businesses grow over that time. Those partnerships and relationships are providing Planned Cover with a platform for growth, and for Ms Purser demonstrates how innovation enables the company to stand out * in the large, crowded PI market.

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Room with a view



February/March 2014

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Zurich wants its Australian customers to use its award-winning global risk analysis tool

A revolution waiting to happen: the Zurich Risk Room predicted the uprising in Egypt that changed the country’s political landscape


By John Deex


February/March 2014

THE ZURICH RISK ROOM IS NOTHING new. Development started on the tool – which gives insight into the impact of a multitude of risks on individual countries and regions – in 2007. What is new is Zurich’s drive to get customers using it. The Risk Room was originally developed by Zurich in partnership with the World Economic Forum. The basic idea was to take the risks included in the forum’s Global Risks Report and measure them across individual countries. This gave a platform to show how each country was affected by each risk, as well as the ability to compare countries. “We built into the tool an interconnectivity matrix looking at how risks are correlated to one another so that we can also model future changes,” Zurich-based Proposition Manager Daniel Radulovic told Insurance News. “So we could say well, what happens if inflation increases in a particular country? How would that impact the country overall, once the inflation risk trickles through all of the other risks that it’s connected to?” Initially the tool incorporated 37 risks. Today it has 88. And while it was designed at the start purely as an internal tool for the use of Zurich in its global network, that has changed dramatically. In 2012 Zurich decided to give its corporate customers access to the platform, figuring that they would be better placed to make sound strategic decisions if they had access to factual and holistic country risk analyses. “We also needed to ensure customers knew what they were doing once they could access it, so we had to build an online training module,” Mr Radulovic says. “That was something we completed in the middle of [last year]. “And now that we have that, we are really pushing it out to our customers. The Risk Room material is being used in Australia by “quite a significant uptake” of around 20 clients, while Zurich worldwide has more than 100 companies using the tool. “Our goal is to get as many of our 1400 relationship customers using the Risk Room as soon as possible,” he says. Users can “pick and choose” from the 88 risks and create risk sets relevant to a particular company, industry or project. 53

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“We use it to differentiate us from our competition. No one else out there – insurer, broker or consultant – has anything like this.”

Prior to the Risk Room, the most common alternative for companies was country credit ratings. “This was a very generic way of measuring country risk. It primarily looks at a country’s ability and willingness to repay sovereign debt. So it’s got a lot of components in there, but it’s not industry-specific. “Using something like the Risk Room allows customers in the food and beverage industry, for example, to look at exposures to rising food prices. But customers in manufacturing would be more interested in looking at the exposure to rising oil prices. “So it really allows customers to focus on all of the risks that are relevant to them. They can filter out all the non-relevant risks and have a very customised view of the overall country risk that they would be faced with in particular countries. “That is the most unique thing about the Risk Room – how it allows customers to customise the risk view.” The huge amounts of information used to build the Risk Room’s data – collated from around 40 credible sources that are publicly available – is what sets the service apart, Mr Radulovic says. “We don’t use internal data because we want the tool to be as objective as possible. We don’t want to have any potential bias in our country risk scoring. “That’s why we use data sources such as the International Monetary Fund, the World Trade Organisation, the World Bank and the United Nations. “We bring all the data together into one location. That’s the unique thing about the tool – you get access to all these data sources in one consolidated location.” Another strength is the way the data is visualised. “It was designed from a visualisation point of view for the ‘C-suite’ and for the director level of corporations. We realised that for this audience we needed something that was holistic, that takes into account a lot of different information but does it in a very succinct, very easy-to-understand way so that they can make decisions without having to dig through spreadsheets and charts. “The intuitive graphic interface is what has really won us the most acclaim for the tool, and we have won a number of awards for it.” There are many different ways the Risk Room tool can be used. 54

“One of our customers, an international manager of hotel properties, used the tool to identify which countries they wanted to expand into next,” Mr Radulovic says. “And we have just started working with another customer who is looking at advice for their pension fund on the eligibility of emerging market equities. “We were able to filter out certain risks within the tool that looked at the potential for market returns versus various legal and regulatory risks. “Doing that gave them a first-round look at which emerging markets might have potential for investment from their point of view. “We have also had one technology company use the tool for analysing its supply chain portfolio from a country point of view. They looked at how many suppliers they had in a particular country and what was the total contingent business interruption value by country, to see where they had the highest exposures. “Then when they were sourcing new components they could see where they already had a very high accumulation of risk. They could then potentially diversify looking for components from other countries and other regions.” Zurich also uses the tool extensively in its own decision-making. “It’s important to know that the tool initially was not designed and developed to be a customer tool; it was actually intended for our own internal use when we were looking at our market strategy, to be able to identify the risks that were associated with certain markets that we were interested in. “We had another team that was looking at the opportunities, the market signs, the growth rate and penetration rates. But we wanted to identify where we could have the best potential reward for the least amount of risk. “Combining those two factors helped us prioritise our investments when looking at emerging markets. “When we showed it to a few customers they all wanted to get access to it, and we made a decision then to make it part of our offering.” Zurich does not charge its customers for access to the Risk Room data. “We never had a business model in mind to profit from it in the traditional sense. Where we see the value of a tool like insuranceNEWS

February/March 2014

this is within our relationship model, where we look to partner with customers to really understand their business, to understand their strategy and through this service them better. “This is a tool that helps us engage with customers on a level that is beyond just insurance. This is a tool that helps us engage with the ‘C-suite’, and the boardroom, and really helps us to understand the customers much better.” Mr Radulovic says one of corporate customers’ primary gripes about the insurance industry is that while it is good at collecting and using data, “it is not very good at sharing it”. The feedback has so far been overwhelmingly positive. “We use it to differentiate us from our competition,” Mr Radulovic says. “No one else out there – insurer, broker or consultant – has anything like this. “When customers do see it for the first time it usually results in very positive feedback. Even if they don’t initially know how to use it themselves they are very eager to get access to it. “Of course there are brokers that offer political country heat maps and there are consultants out there that will do customised risk analysis based on similar parameters that we look at. But no one really has a tool like this that they can offer to a customer. “When you initially see the Risk Room data you can sense the power it has. It would be hard for someone who works for a multi-national organisation to not find a way to be able to utilise it.” He says Zurich has invested significant amounts of money in the Risk Room. “Just to give you an idea, the amount of money that we spend on just the data collection on an annual basis is about $US150,000,” Mr Radulovic says. “That is the ongoing investment alone. Over the years we have spent millions to develop this tool and we have a pretty healthy ongoing development and enhancement budget. “We realise that in order to maintain the quality and the innovation aspect of the tool that we need to continue investing in it to continue improving it. “I would say every year we come up with some new enhancement that takes the tool * to another level.”

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“The one for me that is a bit of an emerging risk – the one whose impact we are not really sure of – is water shortages.” – Daniel Radulovic, Zurich Risk Room

The power to see where a risk will rise MR RADULOVIC SAYS THE RISK Room’s power comes not so much from identifying an emerging risk as “taking an emerging risk once it starts to emerge and then trying to find where in the world it could pop up”. For example, the data provided information that allowed Zurich to understand the factors that were feeding the so-called Arab Spring that began in 2010 and has swept through Tunisia, Algeria, Oman, Libya, Yemen, Egypt, Morocco and Syria. “In the early stages we tried to identify what the risks were that led up to it,” Mr Radulovic told Insurance News. “It was fairly easy once we started to look at these countries that really it was caused by economic disparity and political volatility. “By using those measures and applying them to the rest of the world we could see future potential disruptions. “At the time that we did this it was Egypt and Libya that were the hotspots. It was prior to any disruption in Syria, but we were able to spot Syria as a much higher hazard than Egypt or Libya. Syria has been smouldering for over two years now. “Other areas of note that came up were Russia, Brazil and Venezuela, which are very far from the Arab world,” he says. “These risks were not inherent to the Arab world. Just calling it the Arab Spring was not necessarily doing it justice, because companies could think they were safe from disruption. “In fact we did see protests in Moscow later that same year and we have seen quite debilitating protests in Brazil [last year]. Similar indicators can be used to identify risks related to climate change.


“We can see over time how countries’ exposures to these risks change,” Mr Radulovic says. “The one for me that is a bit of an emerging risk – the one whose impact we are not really sure of – is water shortages.” He says water shortages can have an impact in many different ways. “A lot of production processes are heavily water-dependent, for example. It can have social implications if people are not able to get access to clean water sources. It has an impact on agriculture. “There are so many different tangents to this particular risk, and we are seeing that certain countries are having dwindling freshwater supplies.” He says some countries have an abundance of clean water, while further downstream the water flow is far less. Does the Risk Room ever get it wrong? Rarely, according to Mr Radulovic. “The types of risk we look at are very long-term business, economic and geopolitical environment risks. “If you filter and you focus on the right risks they can have a pretty good indicator of things that are coming down the road. “Prior to the Arab Spring it’s no surprise that you could pick up that political risk was very high in Egypt. “A lot of people dismissed those risks because they felt that [then-president Hosni] Mubarak had been in power for the past three decades and he would be in power until he was dead. It didn’t diminish the fact that there was very high political risk in Egypt. “Sometimes people tend to ignore things that are staring them right in the face. “When you look at the data it is very


February/March 2014

rare to find surprises,” Mr Radulovic says. “A lot of events could have been foreseen based on the data. Going back six, 12, 18 months prior, you can see some of these things coming down the road. “It’s just knowing what to look for and understanding what the data is telling you. “We do have data going back to January 2007, so you can actually see risk trends over time. If you see a particular indicator getting worse over time it gives you an indication of where it’s going to go in the future.” So what major risks does the AsiaPacific region face? Mr Radulovic points to several, but top-of-mind is an economic slowdown in China. “The one thing about China is that it doesn’t even need to be a significant hard-landing to be significant,” he says. “In the data that we look at, even a controlled slowdown of the Chinese economy and switching from a manufacturing to a services-oriented economy could have fairly dramatic implications for commodity-exporting countries such as Australia.” And that’s why the Risk Room is such a great tool for multinational companies, he says. “We live in a very interconnected world, and even if you’re not looking to expand abroad, there are things that could happen – for instance in China – that could impact on businesses here in Australia. “So understanding where the interconnectivity is across the globe is something that’s very important and often overlooked, especially by companies that are primarily focused on domestic markets.”

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Chaos theory RIMS has moved into the region as the risk management discipline defines its role in a fastchanging world By John Deex


RISK AND INSURANCE Management Society (RIMS) President John Phelps says the risk industry is in a state of evolutionary chaos. What better time, then, for the world’s largest risk industry association to launch an Australasian chapter? “It’s kind of like replacing a tyre on a car that’s travelling 60 miles an hour,” says Mr Phelps as he outlines to Insurance News the challenges currently facing risk managers worldwide. New risks are exploding at an unprecedented rate, he says, and the industry is in a state of upheaval as it moves from a traditional insurance-focused approach to an all-encompassing strategic discipline. insuranceNEWS

The 2013 president of the US-based RIMS was in Melbourne in December for the group’s Risk Forum, where a new Australasian chapter was officially launched. Mr Phelps knows the risk industry inside out. He’s worked in it for his entire career and never wanted to do anything else. “I was greatly influenced by my grandfather, who was in the insurance business,” he says. “So since high school I wanted to be in the insurance and risk business. I didn’t know exactly what, but I felt that that was where my career should be and never did change. “It’s always been focused on that.” February/March 2014

For the past 24 years he has worked for US health insurer Blue Cross and Blue Shield in Florida most recently as Director of Business Risk Solutions. During this time he’s seen a great deal of change, now more than ever as the industry undergoes the “massive transition” needed to bring it into the strategic sphere. Given the current challenges, it seems the new Australasian chapter could not be better timed. Mr Phelps is certain it will benefit all parties. “We haven’t really put any constraints on specific targets, but we expect that RIMS will be very successful in Australasia because we offer the services,

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“RIMS materials are created by people in the trenches who are experiencing cutting edge bestpractice programs. Where else can you get that?”

About RIMS

Calm before the hoards: the annual RIMS conference in the US attracts more than 10,000 delegates from around the world

the networking and the support that risk managers in the region need,” he says. “[Australia] is a developed country that is dealing with the same sorts of risk that we deal with in the United States. “It’s roughly at the same level of maturity of risk management along that spectrum, so it is a perfect fit for both entities to come together and leverage what we have – the expertise and resources in Australia in the risk management ranks and the services that can be provided by RIMS. “Because of that we think it’s going to be very successful. We look forward already to having a conference [this] year that will be bigger, and I think

as people in Australia and New Zealand become more aware of RIMS and its services and what it can offer on a global basis the interest can only grow.“ Mr Phelps says Australasian risk managers can help shape the future of the discipline through their involvement in RIMS. “That’s a pretty thrilling opportunity, for someone to get involved and have a voice in that conversation.” He says access to RIMS resources will allow individuals to create greater value in their organisations. “That’s what we are about. It part of our mission to provide the resources and the training so that they can add value in their companies. insuranceNEWS

The Risk and Insurance Management Society is a New York-based global not-for-profit organisation dedicated to advancing the practice of risk management. It represents more than 3500 industrial, service, non-profit, charitable and government entities throughout the world. The 64-year-old organisation has more than 11,000 members in more than 60 countries.

“That’s the ultimate endgame, to create that value within organisations. And they will get those resources here. “Where else can you find the resources that were built and created by practising enterprise risk managers? It’s easy to find white papers created by consultants that maybe never had a risk management job in a company. “But RIMS materials are created by people in the trenches who are experiencing cutting edge best-practice programs. Where else can you get that?” But Mr Phelps is also keen to emphasise that the benefits are not all one-way. “[The new chapter] brings February/March 2014

a resource of thinking and perspective that we can’t get any other way – the Asia-Pacific perspective, what’s important to risk managers in this area. “Obviously it also allows us to grow, which permits greater and richer networking and educational offerings. We are excited about bringing this perspective from Australia and New Zealand into RIMS and making them part of who we are.” Mr Phelps is very complimentary about Australasia chapter President Colin Knox and his team [see panel next page]. “They submitted an offer, we sensed their passion about this and the time was right,” he tells Insurance News. “They are very expert people within their 59

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RIMS is the only way to go: Australasia President Colin Knox (left) Offering the services and support that risk managers need: 2013 RIMS President John Phelps (right)

Bring the risk management message home THE TEAM LEADING THE NEW AUSTRALASIAN CHAPTER OF RIMS is headed by local president Colin Knox. He says the founding members believe there is an opportunity to improve the services available to risk and insurance managers employed by corporations and government in the region. “Our vision is to be recognised as the leading risk management member organisation in Australasia,” he says. “RIMS is able to deliver services and opportunities to members that simply have not been available in this region and which would take years to establish in isolation.” The RIMS move into Australasia is likely to pit the global organisation against the local Risk Management Institution of Australasia (RMIA), where Mr Knox has held various board and committee roles. But he says RIMS is the only way to go. “It has established, strong professional networks, education and professional development programs and technical resources that can be of immediate value to members and are unmatched by other associations,” he told Insurance News. “The depth of these resources and the long experience that RIMS has in delivering them through established systems is what both drives RIMS and sets it far apart from other associations and institutes.” Mr Knox aims to establish RIMS in the region as a professional organisation that can assist risk managers working in public and private organisations to have access to global networks of their peers, strong technical support for their roles, an ability to influence capability in the community and internationally recognised risk management professional development and educational pathways and qualifications. He says RIMS can provide access to “first-class global resources and networking as well as risk management thought leadership and educational and professional development pathways”. The established and internationally recognised systems, programs and qualifications that RIMS already has in place would be used, “modified to Australasian requirements where necessary”. The chapter also aims to deliver “effective advocacy and influencing capability” that will allow risk and insurance managers to have a voice in the development of relevant regulations and standards that impact their employers. Mr Knox, who began his insurance career in 1974, is Risk & Assurance Director for Treasury Wine Estates. He is responsible for the company’s enterprise risk management, crisis and business continuity management, occupational health and safety, injury management and global insurance programs. He points to “significant initiatives” provided by RIMS, such as the Spencer Foundation which offers funded internships and other educational assistance for students.



fields and are dedicated to growing this chapter. “I also like their commitment to doing something for the discipline that’s been good to them. If you don’t have that in a chapter, if people are just looking to get things out of their relationship with RIMS, it’s not going to be successful for the long term. “Here they are very much focused on giving back. It’s a great team we have got here. We are just thrilled to be working with them and excited to see what it will become.” There are no vast differences between risk management in Australia and the US, Mr Phelps says. “As we continue to mature the discipline, looking at new standards that may be developed in the future, it’s incredible to be able to have Australia at the table. “Risk management is a recognised discipline here. In many nations it’s not. “There are similar concerns. I have talked to many local risk managers as part of this conference and the things that they need, the things that they are struggling with – the change in culture required, for example – it’s the same here as it is in the United States. “Practically speaking we are in a similar place and we can help each other.” Education is very much a focus for RIMS, and critical to its future development. “We plan to be offering a lot of webinars that are delivered electronically,” Mr Phelps says. “We also hope to get to the point where this chapter has matured so that we have instructors in this area who can take our syllabus for a professional development program and offer it here. “The chapter has just formed, so it’s early days right now, but that’s part of the future. We hope to be delivering those services locally.” February/March 2014

Mr Phelps believes that while insurance will always play a part in risk management, it is crucial that the discipline develops further. “Insurance has been, is, and always will be an important part of an overall risk management program for a company. “The difference, though, between insurance as a focus for risk management and a discipline as a focus for risk management is profound. “When you focus on insurance as risk management it is a cost, you are always on the expense side on the financials for a company. You are not going to get past that. As a cost you are subject to the same restrictions, oversight, as any other cost. “On the other side of the spectrum where it is seen as a discipline to add value, you are on the income side. You are helping the company to take risk, to acquire rewards. “On the cost side there is a greater possibility that you could be outsourced; on the creating value side, there isn’t. “Who’s going to throw away the opportunity to create value, create an environment where you can take more risk and get more rewards? You want more of that, not less of it.” Mr Phelps sees risk managers’ expertise being essential in strategy development and execution. “That’s where the value has exploded for a company using the risk management discipline.” He concedes risk management can often be the most difficult to explain and sell within a company, but adds: “At the same time it has the greatest value that could possibly be created in a company.” Companies that have mastered risk management enjoy the rewards from a reduction of uncertainty. “They can take more risk – they have reaped the rewards big time. “That is definitely the future. I think there will prob-

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ably always be somebody buying the insurance in our organisations, handling loss control, workers’ compensation issues and problems. Whether it is an employee of that company or outsourced, the future will decide, but the opportunity for risk practitioners is to move up that continuum. “The often puzzling piece of this discussion is that companies must take risk to succeed, so it’s natural that they must have a discipline around how you take those risks. It shouldn’t be just shooting from the hip. “There is a discipline around forming strategy, there is a discipline around management, there are disciplines around the use of capital. Why not have a discipline around taking risk in your organisation? Why is that missing if we have to take risks to succeed? It doesn’t make sense. “Without that discipline we rely on the experience, the attitude and the opinions of some very senior leaders. Maybe they’re right, maybe they’re not.” Mr Phelps says the RIMS culture is based around being able to adapt to the many different cultures of its members. “We want to understand the culture and the rhythm of business today so that we can provide the tools, the resources, the training, the education, the networking that will support any of those cultures. “We have a number of our members that [work for] municipalities and governments. Their culture is vastly different from someone who’s in manufacturing. “And as the largest risk management trade organisation in the world, our job is to be able to provide the support for both. It is more about us understanding the cultures of our members than it is a cul62


February/March 2014

ture that is RIMS.” He says people coming into the business now still have to tackle familiar risks, “risks to property and liability and all of that”. But “there are many other risks that haven’t even been conceived yet that they are going to have to deal with. And it’s happening faster than it ever did in my 24 years working in the company I’m working in now. “RIMS as an organisation needs to be able to support those people so they will have the tools and the equipment to be able to address those risks – and we don’t even know what they are right now. That’s the challenge. Mr Phelps uses the rapid development in communications technology as an example. He says the speed with which new risks are developing is “the new normal”. Companies will also need to address a “generational gap”. While there are concerns about the loss of knowledge as Baby Boomer risk managers retire, the younger generations replacing them “bring a new process and environment and perspective that people of my age don’t have. It’s exciting to be able to take advantage of that.” Mr Phelps dismisses concerns about rapid change in the risk industry and in business in general as little more than a challenge that has to be understood and dealt with. “Yes, we are in a state of flux as a discipline,” he says. “There is a little bit of growing pains as a result of that. “But it’s exciting to be part of what this discipline becomes in one of the most uncertain times. It’s like heaven for a risk manager to be in an environment of change and constant challenge. That’s what we * live for.”

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Sharing the load The principle of general average has been around for as long as pirates. Here’s how it works By Wendy Pugh

NOTHING ABOUT PIRACY IS GOOD, DESPITE THE best efforts of Long John Silver and Captains Sparrow, Hook, Blood and Pugwash. Actors from Errol Flynn to Johnny Depp have portrayed piracy as a career big on heroics and romance, but nothing could be further from the truth. “Piracy is one of the original perils of the sea, going back into the dark ages, that insurers have always responded to,” says Allianz Global Corporate & Specialty Pacific Regional Manager for Marine, Ron Johnson. The practice of piracy has existed since boats have carried goods, rising in profile when European sailing ships explored the world and expanded empires. And various schemes to protect the owners of ships and their cargoes date from the ancient civilisations of Greece and Rome. Today the popular images of eye patches, treasure chests and the Jolly Roger have given way to news footage of high-speed boats of ragged combatants armed with AK47s and grenades. In the past decade traditional piracy, where ships are quickly plundered for valuables, has been replaced by the seizure of vessels and crews to extort ransoms. First popularised by fishermen from lawless Somalia, the violent seizure of ships and their crews is spreading. The International Maritime Bureau’s (IMB) annual global piracy report shows more than 300 people were taken hostage at sea last year and 21 were injured, nearly all with guns or knives. A total of 12 vessels were hijacked, 202 were boarded and 22 were fired on. A further 28 reported attempted attacks. Nigerian pirates off the West African coast were particularly violent, killing one crew member and kidnapping 36 people to hold onshore for ransom. Still, piracy attacks in 2013 were the lowest in six years and 40% below levels in 2011, partly due to improved strategies to combat the surge in incidents in the Gulf of Aden. For insurance purposes, cargo is generally covered for piracy under marine policy clauses that specify cover for all risk of physical loss or damage, even though the word piracy itself is not used explicitly. A discussion at the recent Zurich Australian Insurance Global Marine Forum raised the key issues that brokers should understand when dealing with marine cargo. One of the most complex – if most logical in concept – is the principle of general average. A key aspect of maritime law is that even if someone’s cargo is safe, they may still have to share the bill for actions taken to save the ship from a pirate attack or other danger under the principle of general average. “If the cargo is insured, you are not just insured for the cargo value, you are also insured for that general average contribution,” Mr Johnson says. The loss-sharing concept is rooted in Byzantine era Rhodian sea law. If cargo was thrown overboard to save a stranded ship, it would be unfair for the cost to be borne 64

only by the person whose wares were flung into the sea to help refloat the vessel. Cargo loss then was greatest during storms, but from the seventh century large amounts of goods were also lost to piracy. The general average principle today comes into effect for an extraordinary sacrifice or expenditure intentionally made or incurred for the common safety in the face of a peril. Examples where it takes effect include running aground, fires and piracy. Cargo-owners unfamiliar with the practice can leave themselves accidentally exposed for more than they bargained for if they decide not to insure their goods. “The exporter or importer sitting out there that’s insuring cargo would have probably very little idea of what the concept of general average is, and also have not much of an idea about what the implications would be for a vessel detained in the Gulf of Aden and what the costs are likely to be to get it released,” Mr Johnson says. Those involved from an insurance perspective when vessels are attacked include ship-owners and operators, cargo-owners, average adjusters, brokers, insurance companies and lawyers.

“Expenses in a piracy and hostage situation could include a ransom payment, negotiation fees, lawyers’ fees, bank charges and the adjuster’s fee..” The Zurich Australian Insurance Global Marine Forum noted that negotiations for the safety of the ship, cargo and crew start when hull and machinery insurers are notified. Procedures may involve appointing an experienced negotiator with an ex-military background. Hull and machinery insurers put up the initial cost of any ransom, with that expense later distributed among the ship and cargo-owners. It’s difficult to predict how long piracy negotiations will take, and experience shows that it could be up to 18 months. The ship-owners appoint an average adjuster, who studies the manifest so cargo owners can be notified and the process started for sharing losses and expenses according to the principle of general average. Cargo not sacrificed in any incident won’t be released at destination until the owners put up a cash bond or the


February/March 2014

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Do you realise the general average implications? Tom Hanks meets some Somali pirates. Image from the film Captain Phillips courtesy of Sony Pictures Releasing

insurers provide a general average guarantee to ensure obligations will be met. For piracy, the adjuster assesses the value of the saved property, including the ship and cargo, calculates funds spent and losses incurred to recover from the event and proportionately distributes costs. Zurich Claims Technical Lead Garry Chalkley, a veteran of marine claims, says an insurer’s involvement usually begins from the moment they receive a call from a broker. “Contact will be made by the insurance broker on behalf of their customer advising they have a cargo on the seized vessel, after they have been contacted by the shipping line,” he says. “We can then expect to receive a letter from the average adjuster representing the owners of the vessel advising of the casualty – in this case piracy – and what steps are required. “The general average guarantee would then need to be completed by the appropriate people.” Expenses in a piracy and hostage situation could include a ransom payment, negotiation fees, lawyers’ fees, bank charges and the adjuster’s fee. Large fleet operators travelling the Gulf of Aden route linking Asia and Europe have now adopted latest best management practices to avoid piracy. Naval actions, on-board private armed security and greater political stability in Somali have also cut the number of attacks. Somali-based pirates accounted for just 15 incidents last year, down from 237 in 2011, but concern has increased off West Africa as Nigerian pirates expand their

territory toward the Ivory Coast and Gabon. In Indonesian anchorages and waters, the IMB reports a high number of “low-level opportunistic thefts, not to be compared with the more serious incidents off Africa”. These accounted for more than 50% of all vessels boarded in 2013, and armed robbery increased for a fourth consecutive year. Piracy had improved in the Strait of Malacca but remains a greater problem in the South China Sea, Mr Johnson says. “That is where you are seeing the model where they are boarding a vessel hoping to get what they can out of a ship’s safe and maybe passports and any cash and valuables they may have,” he says IMB Director Pottengal Mukundan warns it’s important not to become complacent in the wake of overall improving figures. “Although it is a crime at sea, the roots of piracy are ashore,” Mr Mukundan said in a recent webchat. “It is difficult to predict what will happen this coming year, let alone five years from now because it all depends on geopolitical factors ashore in the coastal states.” Hollywood’s latest pirate movie, Captain Phillips, is as close to the reality of piracy as Hollywood is likely to get. The movie is based on a real 2009 hijacking of a cargo ship and has raised the profile of the modern-day piracy issue. But it’s unlikely to usurp the traditional genre. The next installment in the adventures of Disney’s Pirates of the Caribbean character Captain Jack Sparrow is already * in the works.


February/March 2014


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The devil really is in the detail Recent Insurance Contracts Act amendments raise some big issues for insurers By Tim Griffiths, Solicitor, and Jeremy Marel, a paralegal, at HWL Ebsworth Lawyers

A NUMBER OF RECENT AMENDMENTS to the Insurance Contracts Act 1984 will have an immediate impact on claims disputes heard by the Financial Ombudsman Service (FOS). The amendments include provisions under which third-party beneficiaries will enjoy an elevated status. The more complex requirements to maintain the duty of disclosure for eligible contracts may even cause some insurers to dispense with reliance on the remedy for non-disclosure on standard policies. However, it is the change to section 13, providing for the duty of utmost good faith, which may seem the most innocuous yet be the most far-reaching of the recent amendments. The section 13 amendments raise some serious questions for insurance companies to consider. An implied term of utmost good faith has its origins in the common law, and has formed part of the Insurance Contracts Act since 1984. However, section 13(2) says a breach 66

of the implied term is now also a breach of the Act. Insurers may be excused for thinking, at a glance, that this is no cause for concern – until they move on to section 14A, which goes further. It provides that, despite the Corporations Act and its regulations, the Australian Securities and Investments Commission’s (ASIC) powers to vary, suspend, or cancel an insurer's Australian financial services licence, or to ban people, will apply to a breach of a duty of utmost good faith “in the handling or settlement of a claim or potential claim”. Moreover, by virtue of section 13(2), this duty of utmost good faith is now clearly owed to third-party beneficiaries, although only after the policy is actually entered into. Prior to June 28 last year – the effective date for the changes to section 13 and section 14A – claims departments were FSR-free zones, because under Regulation 7.1.33 of the Corporations Regulations, the giving of advice incidental to the handling of claims or potential claims is not a financial service. insuranceNEWS

February/March 2014

Indeed, the regulation gives examples to make it clear these are not providing a financial service. The examples are: • Negotiations on settlement amounts; • Interpretation of relevant policy provisions; • Estimates of loss or damage; • Estimates of value or appropriate repair; • Recommendations on mitigation of loss; • Recommendations in the course of handling a claim, including increases in limits and different cover options; and • Claims strategy, such as the making of claims under alternative policies. After June 2013, the above examples continue to remain non-financial services. But if the claims-handling is conducted in such a way as to breach the duty of utmost good faith, there is now a statutory breach. These amendments accelerate the apparent “cultural change” already underway in claims departments. It has often been easy to imagine the archetypal claims manager – usually male, blinkered and confrontational, and armed with a frown and a fountain pen. Hopefully,

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“We predict that we will soon see statements of claim which add that the insurer ‘has committed a statutory breach of the Insurance Contracts Acts.” this dinosaur is long extinct, because there is certainly no place for it in the new ASIC world order. So when would conduct in a claims department require notification to ASIC? Under section 912D of the Corporations Act, an Australian financial services licensee must notify any significant breach of a financial services law to ASIC as soon as practicable, and in any event within 10 business days. The Insurance Contracts Act is, of course, a financial services law, and failure to report a significant breach within 10 business days is an offence attracting a maximum penalty for a company of $42,500. It is important, therefore, to ask when an insurer’s claims department would breach its duty of utmost good faith and thus commit a breach of the Insurance Contracts Act. The following scenarios raise questions as to whether a breach of the duty of utmost good faith has taken place: • A claims manager declines to admit indemnity because they suspect fraud but lack the evidence to prove it. • The insurer declines a claim under one section of a policy but does not advise the insured to re-present the claim under another section of the policy. • An insurer selects an expert assessor or valuer who persistently undervalues claims. • A senior claims manager declines a claim and maintains this declinature until a FOS or judicial determination is obtained. Perhaps, having lost at first instance, the insurer appeals the matter. At what point does the insurer’s refusal to pay a claim become a breach of the duty of utmost good faith? • A delay of several months in obtaining a police report relevant to a claim results in an insurer not promptly admitting indemnity. The police report example is not without precedent. In the 1990 case of Moss v Sun Alliance, the court held that inadvertent delay in obtaining a police report over several months did not excuse the insurer's failure to make a prompt admission of liability for an otherwise valid claim. The court accordingly awarded damages for breach of the duty of utmost good faith. At present a plaintiff will typically plead in a statement of claim which does not come within the FOS terms of reference that the insurer has wrongfully refused to indemnify under a policy of insurance. 68

We predict that we will soon see statements of claim which add that the insurer “has committed a statutory breach of the Insurance Contracts Act”. This situation raises some serious questions for insurers’ corporate counsel. If they receive a statement of claim which pleads a serious breach, must the insurer report this to ASIC even though it is no more than an allegation? What if the matter then proceeds to a hearing, and the insurer draws a judge who makes comments unfavourable of the insurer in their judgement? On the other hand, what if you settle a large claim or group of claims due to concerns expressed by ASIC? What will your reinsurers say? The High Court has previously emphasised that the duty of utmost good faith requires that the insurer does not act capriciously, dishonestly, or otherwise unreasonably. Nonetheless, it is only significant breaches that must be reported to ASIC. What, then, is a significant breach? Clearly there is no easy answer. Factors include the frequency of similar breaches; the impact on the insurer’s provision of services; the adequacy of the insurer’s compliance arrangements; and the size of the loss involved. The first step is to have protocols in place so that the breaches are brought to the attention of the appropriate officer. A useful preparation would be to identify hypothetical scenarios that could arise in a claims department, and then to agree with management which scenarios require notification. This would provide a yardstick which would allow for calm, consistent, and prompt decision-making when an actual breach occurs. The new section 11F of the Insurance Contracts Act affords ASIC express power to intervene in court proceedings relating to matters under the Insurance Contracts Act. In 2002, ASIC intervened by leave of the court in Hams v CGU, and submitted that the Wayne Tank decision was bad law. This decision resulted from a 1974 UK court case, and holds that where damage or loss has two concurrent causes and one is excluded from coverage, the exclusion will apply, absolving the insurer of liability. In this regard, important test cases in bushfire and flood claims are very likely to * attract interest from ASIC. insuranceNEWS

February/March 2014

Is FOS really an ombudsman? The industry’s disputes adjudicator is also a de facto auditor for ASIC The original understanding of the word “ombudsman” was that they were a representative of the citizenry, protecting the citizens from government. This is a far cry from the organisation now known as the Financial Ombudsman Service (FOS). FOS is a company limited by guarantee. It is a major service provider to almost all Australian insurers, charging them a fee for adjudicating disputed claims. But this is not all that FOS does. It is also required to report all systemic issues and all serious misconduct to the Australian Securities and Investments Commission (ASIC). It is also required to select and record data on ASIC’s behalf. Moreover, it is currently nominated in the Insurance Council of Australia’s General Insurance Code of Practice as the relevant body for monitoring the code. The great majority of code breach notifications (85%) are made by FOS staff and the FOS code compliance review. The information FOS obtains on potential code breaches, systemic issues and other misconduct is derived from carrying out its external dispute resolution function. This usually requires a complete copy of the insurance claim file. FOS does not maintain a “Chinese wall” between its adjudicative function and its ASIC reporting role. In effect, it is a de facto auditor for ASIC. Even matters which are completely unrelated to the dispute are likely to generate “show cause” questions. Examples which may attract the attention of FOS may include failure to provide a copy of the policy to insureds; failure to give proper cancellation notices; and failure to follow financial hardship protocols. No doubt FOS still sees examples of internal emails that say “I’ve had enough of the insured” or “That’s the way we’ve always interpreted this exclusion”. The latter response may lead to a request by FOS for all similar declinatures over the prior 12 months. It is crucial, therefore, that insurers fully appreciate the dual role of FOS when they make a decision to maintain declinature of a claim through the FOS process. It is important also for insurers to be aware that FOS publishes the data it collects on claims dispute outcomes for each insurer, in respect of each class of business. The data is available in comparison tables on the FOS website.

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The rise and rise of cyber insurance It will be a standard business cover within five years, says a new study By John Deex CYBER INSURANCE WILL become a standard business insurance purchase within the next five years, according to a study compiled by AIG and the University of Canberra’s Centre for Internet Safety. The report concludes that customers, suppliers, boards and investors will insist organisations they do business with have appropriate cover. This will be driven by a technological transformation that is reshaping the way business is conducted. Australian businesses received an estimated $237 billion of online orders in 2011/12, up 25% on the previous year. The report says this increase will continue. And while the trend brings benefits to large and small businesses alike, it also brings risks. “With millions of consumers transacting with businesses online each year, it is an organisation’s obligation to put mechanisms in place to stop the loss of personally identifying information of its customers,” the report says. Nigel Phair, Director of the Centre for Internet Safety and cybercrime analyst, tells Insurance News he is certain the day is coming when cyber insurance is as natural to a business as insurance to cover physical assets. “It is on its way,” he said. “But it is a cultural change. We are not there yet and I couldn’t put a date on it.” The changing legislative environment is another driver


pushing cyber insurance to the fore. Australia’s Privacy Amendment (Privacy Alerts) Bill 2013 has been designed to amend the Privacy Act 1988 in order to introduce mandatory data breach notification provisions. Once the new legislation is passed organisations will be fined for data breaches and forced to notify the Commonwealth Privacy Commissioner and affected consumers when breaches occur. In addition, from March 12 new Australian Privacy Principles will apply, allowing the Privacy Commissioner to seek civil penalties in serious or repeated breaches of privacy. The report says privacy laws in New Zealand are also being reviewed and will likely follow a similar path to Australia. “Ultimately, new data breach legislation in Australia and New Zealand is a long overdue measure for ensuring any organisation’s readiness when addressing cyber risk.” The impact of a data breach can be huge, with serious financial consequences via liability to third parties, fines and expenses. There are less tangible impacts too, such as reputational damage and disruption caused by regulatory investigation. The report says there is no one way to respond to a data breach.


“Each breach will need to be dealt with on a case-by-case basis, undertaking an assessment of the risks involved, and using that risk assessment as the basis for deciding what actions to take in the circumstances. “Organisations should develop and regularly test an incident response plan which will list actions that are proportionate to the significance of a breach, as well as identifying whether it was a systemic breach or an isolated event.” Insurance policies need to adapt to this changing environment, and some organisations have discovered coverage gaps. The Sony PlayStation case is currently before US courts “as a result of a traditional liability policy not responding to a cyber attack”. Tailor-made cyber insurance can provide comprehensive cover for liability and expenses incurred through unauthorised use of data or software. Electronic data is not always considered a tangible asset and is just one area where cyber insurance is designed to fill the gap. Cyber insurance is designed to help organisations get back on their feet after a cyber attack or data breach, the report says. “A cyber insurance policy should cover immediate expenses such as crisis management, hiring a public relations firm to manage a data breach incident, forensic analysis,

repairing and restoring computer systems and the loss of business income resulting from the incident.” The report says cyber risk needs to be part of a broader enterprise risk strategy. Organisations need to assess their exposures and then decide which risks they want to transfer by way of insurance. Mr Phair, a former Australian Federal Police detective superintendent who headed investigations from the Australian High Tech Crime Centre and has written two books on the subject of cybercrime, says SME businesses need insurance against cybercrime just as much as big businesses. “There is always this feeling that it will happen to someone else,” he tells Insurance News. “But it affects the medium end of town as well.” He says businesses are often not “fully aware of how critical to business survivability their IT systems are”. They are also not necessarily aware of when they are hacked. Mr Phair says cybercrime will only continue to grow. “There are profits to be had so [criminals] are flocking to it.” He says no matter how strong a company’s systems are, “you can never rule out human error”. “It is no different to the physical environment. Someone can always forget to * lock the door.”

February/March 2014

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Axis all set for privacy changes:

When things get uncool: Vero moves to counter heatwave breakdowns

Broader wording covers potential pitfalls AXIS SPECIALTY AUSTRALIA HAS responded to new exposures in the technological environment by launching enhanced wording for its Information Technology Liability product. The broader wording covers potential liabilities under the new Australian privacy legislation, which comes into effect on March 12. Under the regime, the Privacy Commissioner has greater powers and can impose civil penalties of up to $1.7 million for serious or repeated privacy breaches. Axis Specialty Australia Chief Executive and Country Manager David Smith says the company has a responsibility to its customers to upgrade coverage. “Axis is a global insurer with a long track record of providing IT liability solutions,” he says. “Our specialised IT underwriters are hand-picked for their technical knowledge and commitment to high service levels.” Senior Underwriter, IT and Multimedia Liability, Klaus Lejon says claims and litigation costs are increasing in Australia and there is “significant inconsistency in the market about the breadth of cover being offered”. “Some emerging areas of litigation are within intellectual property, heavily weighted towards patent right infringements, contractual liability disputes and amounts paid demands, which often form part of plaintiffs’ claims.” He says the new Axis IT liability policy offers a broad scope of cover including the new privacy requirements; extended continuous cover; defence costs in addition to the limit of liability; patent and trade secrets cover; no exclusions for amounts paid/return of fees; and duty to defend cover. Mr Lejon told Insurance News many companies don’t have the right mitigation in place and are still exposed. “Up until now the Privacy Commissioner has been a bit of a toothless tiger and companies have not been taking it too seriously. “But suddenly he can impose penalties of up to $1.7 million. This is the paradigm shift in the industry. I believe he will come out and try to prove a few examples.” Axis has capacity of $20 million for professional indemnity and public and product liability. Its main focus is large and medium-sized IT and communication providers, but it can accommodate small IT businesses via its online platform, * Brokerlink. 72

BUSHFIRES ARE USUALLY THE insurance industry’s main area of concern when the midsummer mercury starts moving into the high 30s and low 40s. But Vero Insurance has found other things to worry about when the temperature rises. Suncorp Executive General Manager Commercial Claims Matt Pearson says the heatwaves of summer have brought with them a spike in machinery breakdown claims. And high up on the list of machinery that fails to keep pace with the heat are machines designed to keep things cool – refrigeration and air-conditioning units. “February and March are traditionally the peak months, but this year’s January heatwaves led to a large number of machinery breakdown claims,” Mr Pearson says. “Many retail and hospitality businesses rely heavily on this equipment, so our

focus has been very much on getting these claims settled as quickly as possible.” Late last year Vero extended its “onetouch claims process to the engineering division, resulting in many machinery breakdown claims being finalised in record time. The one-touch process is used for simple low-value claims, with many being settled with a single phone call. “Rather than taking two or three weeks to complete, a claim can be finalised and the payment process initiated within 15 minutes,” Mr Pearson says. “Having rolled this out in September, we are already processing around 30% of our small business engineering claims using the one-touch process. “Customers and brokers expect quick, hassle-free service, and that’s what one* touch claims management delivers.

Pollution cover fills a gap: Lawsons brings Argo product to Australia LAWSONS UNDERWRITING HAS negotiated a deal to offer Argo International’s new pollution products to the Australian market. Argo recently launched its pollution legal liability and contractors pollution liability, which includes asbestos abatement coverage. Lawsons Underwriting Managing Director Kevin Corkery says the new products “fill a clear gap in the market”. “We are pleased to have the opportunity to enhance our offering and provide a greater degree of security for our clients.” Argo International General Liability insuranceNEWS

February/March 2014

Underwriter James Cassidy says his company has a long-standing relationship with Lawsons. “Their combination of local market knowledge and underwriting expertise makes them an ideal partner for our new product in the Australian region.” Argo International offers worldwide property, specialty and non-US liability insurance through its operating companies at Lloyd’s. Argo International was formed when Argo Group acquired Lloyd’s Syndicate 1200 from Heritage Underwriting in 2008. *

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“We have an absolutely wonderful relationship with Lumley Finance as a result of their focus on achieving extraordinary results for their customers – they genuinely care about us.” John Dunk, John Dunk Insurance



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UAC Chairman Heath Amber: brokers are also seeking mainstream solutions

Loving the business The Underwriting Agencies Council’s new chairman is right where he always wanted to be By Terry McMullan HEATH AMBER IS ONE OF A SELECT group of insurance professionals. He knew when he was a kid that he wanted to work in insurance when he grew up, and he never really wavered from that decision. He concedes that’s probably because his insurance broker father Allan always came home energised from the office. Whatever the reason, at the age of 36 Amber Jnr says he’s never had a reason to regret his early career choice. As the new Chairman of the Underwriting Agencies Council (UAC), he says he’s intent on helping to foster the same enthusiasm for insurance that he has always experienced. Mr Amber is the Managing Director of farm and crop insurance underwriting agency Millennium, part of the MGA group. His father is one of the founders of the diversified national broker, which has had Austbrokers as its major shareholder since 1996. Adelaide-based MGA is unusual for the 74

fact that the sons of founders John George, Allan Amber and Brian McInerney are directors of the company, working alongside their fathers. “I remember at a young age realising that broking was hard work, but very rewarding,” Mr Amber tells Insurance News. “There’s a great deal of satisfaction to be had in working with clients who recognise the value of the advice they’re getting. I still feel that. “You’re dealing with interesting people on interesting projects – that’s everything I love. Why wouldn’t you want to work somewhere where the work is so interesting and absorbing?” Mr Amber has been working in insurance since 1998, and in 2002 he went to London to work for a Lloyd’s broker which handled the Millennium account. It was logical that when he returned to Australia in 2008 he would work within the MGA group, first as a broker in its Sydney office. insuranceNEWS

February/March 2014

But he retained his interest in the underwriting agency side of the business, and after marrying fellow Adelaidean Victoria Angove he moved back to the city and took up the reins at Millennium full-time. “I wanted to establish it at a different level,” he says. “Millennium has been around since 1998, and it’s been a Lloyd’s coverholder since 2002. It’s a significant player in the regional insurance sector, and there’s a lot more potential growth out there.” Apart from farm and crop cover, Millennium also offers a wide range of personal and business lines, and is a vital part of the MGA operation, providing alternative products to the widespread MGA force of broker and authorised representatives. Mr Amber got involved in UAC in 2008 after meeting then-chairman Martin McAvenna, who is today General Manager of A&I Member Services. “He motivated me to spend time working with others for

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the advancement of the underwriting agency sector. “In the five or more years I‘ve been involved with UAC the journey has certainly been an interesting one. We’ve seen the strength of underwriting agencies grow as the ‘third force’ in insurance, and we’ve had a terrific and very positive impact in the broker market.” He says the impending sale of Lumley Insurance (coincidentally Millennium’s primary underwriter) to IAG will provide “yet another illustration of how underwriting agencies can step into the gaps that develop in the market”. “Lumley will be a loss to the market, but underwriting agencies will bring their entrepreneurial skills to the fore and ensure any holes are filled effectively. “Brokers are also turning more to underwriting agencies for mainstream solutions – not just the hard-to-place business that used to dominate.” A bigger and more important underwriting agency sector comes with greater responsibility, and Mr Amber says UAC recognises the need to keep beefing up the council’s professional development activities and other support services for members. “The agency sector is going to keep on growing – even the big insurers see their value – and we’re working hard to keep up with the developing demands. We need bigger and better education programs, and we’re actively working on that. “But when you compare UAC to where it was a few years ago, you’ll recognise that it has made some enormous strides, with a full-time secretariat under [General Manager] William Legge and the continuing development of support services for members.” Mr Amber says just as the broker market is changing, the underwriting agencies are also seeing new opportunities emerge. He says Lloyd’s and other large organisations are no longer the only sources of security as investment capital continues to seek a home around the insurance sphere. “There’s a lot still to play out, and underwriting agencies are likely to experience new pressures as well as opportunities,” he says. “Capital, capacity, the need to really represent the interests of your security – it’s not easy and we all need to stay nimble.” Mr Amber is looking forward to a very busy couple of years as he moves around the country representing UAC’s interests to key audiences. That’s not going to be easy when running Millennium also comes with some big demands on his time. And then there are the family interests. “With two young children and a very busy wife [Ms Amber is an executive director at Angove’s Family Winemakers, where she manages the group’s diverse export business] I like to do my bit with drop-offs and pick-ups. “I guess it’s going to take a lot of * careful organisation.”


February/March 2014


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NTI goes behind the scenes at the MCG More than 110 intermediaries, repairers and lawyers joined NTI Victoria staff for a tour of the Melbourne Cricket Ground in December. They were guided through the change rooms and onto the ground for a players’ view of what it’s like to be at the centre of 100,000 screaming sports fans. NTI hosted the function to thank business partners for their support during last year. Chief Executive Tony Clark told his guests 2013 had been a particularly successful year for the company, with wins at the Australian Insurance Awards and being named best in class and second overall in the NIBA Broker Market Survey. Guests also visited the famous Long Room before repairing to the Frank Grey Smith bar in the members’ area for a cocktail party.


February/March 2014


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peopleNEWS Advantage, Marsh Marsh’s new business to serve the growing business segment, Marsh Advantage Insurance, was launched with suitable fanfare in Melbourne in December. About 100 clients, underwriters and other industry professionals turned up to the global broker’s Melbourne Docklands office to meet key Marsh staff. Marsh Pacific Region Head and Australia Chief Executive John Clayton told the gathering that over 95% of businesses in Australia are SMEs and Marsh wants to meet their risk and insurance needs as these businesses grow and evolve. Marsh Advantage Executive Director Travis Kemp is heading the new business as it expands into regional and suburban centres, and told the launch he is recruiting authorised representatives.



February/March 2014

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peopleNEWS Life imitates art Catlin used the black comedy The Wolf of Wall Street to spur discussion of current issues in financial services liability when it hosted seminars for brokers in Sydney and Melbourne during December. Martin Scorsese’s film starring Leonardo DiCaprio concerns securities fraud and corruption, prompting Catlin Financial and Professional Risks Senior Underwriter Michael Herron and Senior Claims Counsel Julijana Sumner to consider how the issues raised in the movie might play out in an Australian context. Regulators’ pursuit of individuals was a hot topic as attendees discussed how the US Securities and Exchange Commission and UK Financial Conduct Authority are increasingly “targeting heads on sticks”. The roles of plaintiff lawyers and litigation funders and the implications for defendants and insurers ensured some lively discussion.



February/March 2014

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All in the family as Whitbread turns 35 It was time to look forward as well as back when Whitbread Insurance Brokers invited colleagues, suppliers and clients to celebrate its 35th anniversary in November. Siblings Angela, Claire and John Paul Whitbread, who work together in the business, hosted an elegant celebration at Melbourne’s Crown Entertainment Complex and spoke of the vision of their late father John, who founded the business in 1978. Managing Director Angela Whitbread told guests that insurance “is not just about protecting the ‘now’ – it’s about encouraging our clients to see what’s possible and plan for what they will need in the future”. She also outlined the work of the Whitbread Foundation, which supports health and poverty reduction programs here and abroad.



February/March 2014

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All other enquiries contact: gary_marshall@ausuw.com



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eQuip participants celebrate QBE’s eQuip program graduates and the class of 2014 celebrated around Australia late last year. The eQuip program was set up in 2007 and provides training for brokers and broking staff in areas such as leadership, sales and relationship management and insurance acumen. Graduates are presented with their certificate of completion at the annual dinners, which are also an opportunity to welcome the new participants and their principals to the eQuip program. The Museum of Contemporary Art was the venue for the Sydney dinner, while the art world also provided the setting for the Perth festivities, with participants dining at Linton & Kay Galleries. Victoria’s dinner was at the Woolshed Pub in Melbourne’s Docklands, Queensland participants gathered at the Brisbane Polo Club and the Adelaide celebrations were enjoyed at restaurant From Orient.



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February/March 2014


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McLardy McShane reaches out There are always inspiring stories at the McLardy McShane Reach Christmas lunch and December’s event was no exception. AFL legend and reformed gambling addict David Schwarz spoke of the highs and lows associated with sport and addiction, while tsunami survivor Trisha Silvers told of establishing the Broadbridge Education Centre on the Thai island of Phi Phi in memory of her husband Troy, who died in the 2004 catastrophe. Past participants from RAMP, the Reach Foundation’s program to engage young people in residential care, spoke of the great impact the program has had, with one saying the program allowed him to “feel loved and cared about for the first time by someone who wasn’t paid to do so”. More than 550 guests, many of them brokers and other insurance professionals, attended the lunch. Of the $80,000 raised at the lunch, $20,000 will be donated to the Broadbridge Centre. It was the fifth McLardy McShane Reach Christmas lunch. The event has become a major fundraiser for Reach, which works with more than 50,000 young people each year.



February/March 2014

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peopleNEWS A glimpse of winter as Sportscover celebrates Sportscover’s Christmas lunches always provide an opportunity to rub shoulders with some of the country’s top sportspeople, and the Sochi Winter Olympics were front of mind at the December events. Ski and Snowboard Chief Executive Michael Kennedy, whose organisation is the only sporting group other than Swimming Australia to have won gold medals at the previous three Olympics, was joined by snowboarder Stephanie Hickey, a five-time Australian champion, to give the Melbourne lunch attendees a heads-up on how the Australian team is likely to perform. Hockeyroos goalkeeper Rachael Lynch told the lunch that joining the national team has meant travelling with friends and competing against the best players in the world. Water polo player Johnno Cotterill, who competed at the London Olympics, told the Sydney audience about the highs and lows of high-level competition, and revealed that his pre-competition ritual is to score the last shot in the warm-up.



February/March 2014

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maglog » STEEPED AS WE ARE IN THE BELIEF that nothing in the insurance world existed before Lloyd’s, it is all too easy to forget that at 350 or so years of age the worthy London market is in fact a bit of a child. (I was going to say “babe”, but realised suddenly that the institution now has a female chief executive and some of you may have thought I was being archly vulgar.) Enough of the British capital, the socalled home of insurance. or at least as we in the colonies know it. Let us move east across Europe to the elegant city of Milan in northern Italy, where on the Via Alberico Albricci resides the Fondazione Mansutti Library. If you’re an insurance buff, you must visit the fondazione, which houses a treasure trove of insurance history. Created by a Milanese lawyer who just loved collecting stuff on insurance, the foundation’s library houses an amazing collection of documents starting around the early 14th century, when Florentine merchants were wont to record their marine insurance contracts. There are a lot of books about insurance, most of which you would expect to be about as interesting as a book about accountants. But the Fondazione Mansutti has recorded the development of the insurance industry in a book that just shines with extraordinary woodcuts from the faces of important documents to the most entertaining stories about insurance. It’s actually a catalogue of the library’s most treasured documents, which range from the grand books that standardised the rules of marine insurance to mundane little texts on the minutiae of insurance thought. The fondazione’s Documents on the History of Insurance is a collection of documents and historical anecdotes about the most interesting people. It also introduces us to the multitudes of churchmen whose thoughts on subjects like ethics and annuities engaged them all their lives and built the foundations for modern insurance practice. The old documents really come to life through a narrative edited by Marina Bonomelli, a Milanese academic with a finely tuned sense of the occasionally macabre. It’s very easy to read. Brokers will be delighted to know their forebears were getting involved in 90

Sam Pentecost Contributor

insurance transactions in Genoa as early as 1395. Their role was to get the two parties singing from the same songsheet, so to speak, because they had to swear to the truthfulness of the insuree and the insurer. And they were on the same social scale as bankers. Hmmm… In Milan that might be a good thing. The English text is witty and engaging, and the illustrations beautifully clear and always worth examining. You don’t see many naked cherubs flapping around the edges of a 21st century insurance contract, but this publication is packed with the fat little things. It’s 380 very absorbing pages, and comes with a DVD promising graphic exploration of the establishment. The book also contains some interesting historical stuff about insurance, like a broker being mentioned in the first settlement for an accident that happened at sea, involving a cargo of Spanish wool being carried from Majorca to Pisa in 1396, and insured for the magnificent sum of 1800 gold florins. By the way, in those days the broker was responsible for paying the claim. Here’s some other bits of history to ponder. 1662: John Graunt completed his actuarial tables to calculate life insurance premiums, based on an analysis of the death rate and its incidence according to age and gender. 1681: After the Great Fire of London, during which 13,200 homes were destroyed, huge sums were spent rebuilding the city out of stone rather than wood. Nicholas Barbon probably realised the buildings wouldn’t be so susceptible to the occasional fire, and formed the Fire Office, the first British fire insurance company. Now, here’s the deal. The Fondazione Mansutti sent us the book to review. Which I just did. I tried to look up the price of this masterpiece, but the website is in Italian. My Swahili is better than my Italian. I shall continue to enquire, but in the meantime I will give the book to the 50th insurance professional who emails admin@insurancenews.com.au and gives me two good reasons why they deserve to have this wonderful work of insurance history mailed to them. Over to you. * insuranceNEWS

February/March 2014

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10 FT



aturday morning, 8.15am. What do you do when one of your longest serving customers has a rolled B-double spilling 40 tonnes of liquid tallow into a creek that runs into the Brisbane River? When you’re Rob Wass, Manager of NTI Accident Assist, you go out and buy an inflatable boat. “Having worked at NTI for over 27 years, I’d thought I’d seen everything”, Rob said, “but I was wrong. This was a real disaster. With the driver unharmed the focus was on cleaning up the site, and fast.” “The young woman at NTI Accident Assist who took the call was exceptional”, explained Julie Russell from Russell Transport. “Before we knew it, all the necessary emergency services and environmental protection people were on site, along with NTI themselves.” Rob explains further. “We had disposable oil booms in place to stop the tallow spreading into the Brisbane River, but because the tallow had solidified and was breaking up, we needed to find a way to direct it towards the vacuum sucker trucks.” Ken Russell, Julie’s brother and fellow company director, was keen to get in on the action – he too went out and bought a boat. “They were out on the water with poles pulling the solidified tallow towards the sucker trucks”, says Julie. “I guess I shouldn’t have been surprised about the hands-on role NTI took. They’ve always been great, but it was above and beyond what I expected. They managed everything – the clean up, the police, the media – they even arranged for part of the road to be resurfaced.” It’s certainly an event no one will soon forget. And that’s exactly why R.B. Russell Transport has been with NTI for longer than they can remember. Visit truestories.nti.com.au

Insurance products are provided by National Transport Insurance. NTI Limited (ABN 84 000 746 109) (AFSL 237246) is the Manager for National Transport Insurance, an equal-partner joint venture of CGU Insurance Limited (ABN 27 004 478 371) (AFSL 238291) and AAI Limited trading as Vero Insurance (ABN 48 005 297 807) (AFSL 230859). Each insurer is only responsible for its 50% share of the policy.


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Together we provide the advice and expertise your SME customers need SME insurance requirements can be complex. So customers look to you for advice. Whether it’s a trade, professional service or IT speciality – CGU has the expertise to help your SME customers protect and grow their business. More than 2,000 brokers and authorised representatives around Australia partner with CGU. Together we ensure SME customers have the right insurance for their needs.

Visit www.cgu.com.au/sme or speak to your CGU Business Development Manager today.