ADJUSTERS SEEK BETTER BALANCE
OUR 20 MOST INFLUENTIAL
Brokers Leading broker Steve Lockwood on the importance of values Plus: Macquarie Relationship Bankingâ€™s biennial broker benchmarking
December 2011/January 2012
NDIR: A BOLD FLOOD COVER SOLUTION
Contents 6 Newsmakers » 10 A solution for flood insurance? »
Chartis unveils a flexible investment managers policy.
54 Cyber-crime cover »
Only time will tell if the Natural Disaster Insurance Review’s plan will survive the negotiations.
14 Trouble in the pits »
Zurich covers the consequences of privacy and data loss.
54 Growing up in a Dual sense »
Flooded mines highlight some big problems with business interruption insurance.
16 Caught in the crossfire » Last summer’s disasters highlighted the imbalance between loss adjusters’ professionalism and insurers’ costcutting.
20 Three into one goes admirably »
More products for the Australian market, and now expansion into Singapore.
56 Lumley updates its management liability cover » Broker feedback leads to even more features for SME clients.
56 An answer to the Bridgecorp dilemma »
Steve Lockwood is busy giving Wesfarmers’ brokerages some common values.
Ironshore moves fast to counter the influences of NZ court decision.
26 Australia’s brokers 2012 » How they’re performing, their challenges and opportunities, ambitions and expectations.
34 Playing his aces » Giles Ward is one chief executive who got some upside out of a tough 2011.
38 The top 20 most influential people in insurance » The people who lead the industry today, because they influence its direction.
46 FOFA: A reform brokers can’t escape » How legislation designed to control rogue investment companies evolved to trip up insurance intermediaries.
lawNEWS 50 The Bridgecorp decision » Why a New Zealand court decision is rocking Australian business and insurers – and what to do about it.
peopleNEWS 59 60 62 64 65 66 68 70 71 72
Zurich global leaders meet local brokers » Epsilon Underwriting turns 10 » Red carpet event for IBNA in Adelaide » Women in Insurance celebrate 25 years » Excellence recognised, knowledge shared at Lumley’s fleet event » Calliden holds juggling lessons for female brokers » A well-equipped program » Insurance Advisernet delegates learn the fun way » Ghouls and ghosts at AILA’s Halloween party » Frocked-up fun with Zurich in Geelong »
74 maglog »
companyNEWS 52 Finding opportunities in disasters » Excess buydown cover is raising plenty of interest.
52 Designed for differences »
December 2011/January 2012
Cover: Steve Lockwood, Chief Executive, Wesfarmers Broking
Three official inquiries, one target
Staying the distance There’s nothing like a demonstration of confidence to cheer up an unhappy market, and Zurich General Insurance displayed plenty of that in October when it opened its new office building in the Auckland CBD. Insurers’ commitment in the turbulent New Zealand market had been the subject of local speculation lately, but Chief Executive Shane Doyle and Chairman Terry Paradine flew in to spread some cheer. The Christchurch earthquakes “don’t prevent New Zealand being a good place for a capable insurance company to do business”, said Doyle (above right with NZ Country Manager Adrian Rimington, left, and Terry Paradine). Church insurer Ansvar – which has taken a pounding in the earthquakes – announced a few weeks later that it’s pulling out of the market at the end of the year due to the prohibitive cost of reinsurance. Rumours about other insurers quitting grew so strong that Vero NZ Chief Executive Gary Dransfield felt the need to address it during a speech in Auckland to a business group. He says the industry’s future in New Zealand is “very promising”, and insurers are reassessing their businesses “not to withdraw but to build stronger, more sustainable businesses”. However, there are likely to be fewer insurers in the New Zealand market in future no matter what the state of the market, according to ratings agency AM Best. It says that industry consolidation is likely because there are too many insurers for the size of the market, and predicts the dominant Australian insurers will take over smaller companies struggling to comply with a tougher regulatory regime.
If the insurance industry was a person, it would have reason to be feeling paranoid round about now. Because never before has it been subjected to the sort of scrutiny it has endured over the past nine months. The final report of the Natural Disaster Insurance Review was released last month. It calls for, among many other things, universal flood cover for homes, governmentfunded premium discounts for high-risk properties, a flood reinsurance pool and a national flood risk data collection scheme [See article on page 10]. Discussions with insurers are expected within a few months. At about the same time that report arrived, hearings of the Queensland Floods Commission of Inquiry – which spent its last month examining insurers’ performance – wrapped up in Brisbane. More than 700 submissions were received and the final report will be handed to the Queensland Government by February 24. The third official inquiry, being conducted by the House of Representatives Standing Committee on Social Policy and Legal Affairs, has had its remit expanded from just looking into the industry’s handling of last summer’s disasters to examining allegations that premium increases of up to 800% are being quoted on some Far North Queensland strata title properties. Those hearings will begin
The cost of NZ’s quakes How much are the gradually declining Canterbury earthquakes in New Zealand going to cost? Late in October the New Zealand Treasury upgraded its estimate from $NZ15 billion to $NZ20 billion. But a couple of weeks later the Reserve Bank of New Zealand brought out its own estimates, which added on such things as insurers’ claims-handling expenses, business interruption, temporary accommodation and other non-rebuild costs. That brought the estimated cost to $NZ30 billion. The bank noted in its November financial stability report that it will be years before the final cost is known, but its latest estimate includes more detailed assessments by insurers. So far the Earthquake Commission (EQC) has paid out home and contents claims of more than $NZ2.2 billion. The bank report says reinsurers will cover 49% of private insurers’ property-related insurance claims, the EQC’s reinsurers another 17%, private insurers 5%, the EQC Fund 25% and government support 2%. The Government’s guarantee of financial support to crippled Christchurch insurer AMI – which is for sale – contributes 2% of the total. “For those insurers operating in New Zealand as subsidiaries of foreign-owned entities, parental support has been evident,” the report says. “Several insurers have had additional capital injected this year.” The bank says although new cover is harder to get – most businesses and households in Canterbury have been unable to change insurers – it believes insurers and reinsurers will eventually reassess their risks and opportunities in New Zealand and a more active market will return in Canterbury.
New chairman, new realities John Nelson has replaced Lord Peter Levene as Lloyd’s Chairman, and almost immediately weighed in with a speech warning that tough times are upon the venerable market and they won’t be getting better anytime soon. He told a brokers’ dinner in London that while the supply of capital is still strong, the returns are too low. Nelson and Lloyd’s CEO Richard Ward has written to managing agents outlining a plan to reduce spending by £17 million next year and cutting 60 Lloyd’s jobs.
Estimate in US dollars of economic losses experienced in the Asia-Pacific region this 6
Estimate in US dollars of insured losses experienced in the Asia Pacific region this year. insuranceNEWS
Amount in NZ dollars of the NZ Earthquake Commission’s estimate of its uninsured losses from the Christchurch earthquakes. December 2011/January 2012
Fall in motor vehicle theft over the past 10 years in percentage terms.
Who you calling shonky?
Where household premiums are rising
Claims professionals around Australia had plenty to say when consumer advice group Choice presented the entire industry with one of its “shonky” awards, a distinction usually reserved for purveyors of crappy Chinese goods. Referring to “thousands of homeowners left high and dry by insurance companies that rejected their [flood] claims. In some cases, policyholders failed to read their policies carefully. In numerous others, insurers made it all but impossible to know whether they were covered for flood or not – or exactly what a ‘flood’ is.” Insurance Council Chief Executive Rob Whelan fired back, accusing Choice of being shonky for a “reprehensible decision to list an important insurance product, which is helping tens of thousands of householders and businesses recover from natural disasters, alongside specious consumer goods”. Of the 130,000 claims made after the Queensland floods and Cyclone Yasi, only 3% were eventually rejected.
Home and contents insurance policies are rising higher in disaster-prone Queensland than anywhere else, according to research company Canstar. It analysed 74 policies from 38 insurers through more than 16,000 individual quotes, and found the average home and contents premium has increased in the past year by 12% in Queensland, 7.4% in NSW, 5% in Tasmania, 4.9% in SA, 4.7% in WA and 4% in Victoria. Nationally, 62% of policies have had price increases of no more than 10%, but 31% of Queensland policies have increased by more than 20%. In flood-affected areas, a regional postcode has seen increases of up to 41% while premiums have risen up to 36% for a Brisbane postcode. An impressive 92% of policies now cover flooding caused by rainwater runoff, while 52% cover flash and riverine flooding, 29% tidal flooding and 16% seawater flooding.
Here comes La Nina – again
Something to cheer about The New Zealand insurance industry might be dealing with the biggest catastrophe on record as well as a spate of regulatory reforms, but General Insurance Industry Awards winners in Auckland couldn’t stop smiling. The gala event, organised by the Insurance Brokers Association of New Zealand, caught the general mood with a special award to the claims team at NZI for its outstanding per-
formance following the Canterbury earthquakes. It was a big night for NZI. It was named Insurer of the Year and NZI National Corporate Business Manager Matt Chandler-Wall was named Insurance Professional of the Year. Broker of the Year is Greg Greenwood of Rothbury in Christchurch. Other winners: Emerging
Amount in US dollars AIG shareholders are claiming from the US Government for taking an 80% share in the company to save it from collapse.
Professional Broker, Sean Long of Willis; Emerging Professional Insurer, Hayley O’Neill of Lumley; Broking Office, Crombie Lockwood; Claims Professional, Myles Noble of Crombie Lockwood Wellington. Loss Adjuster/Assessor, Gillian Stretch, Cunningham Lindsey; Innovation, Stream Group; Support Services to the Industry, DLA Phillips Fox.
The average premium rise (percentage) achieved by US commercial insurers during the September quarter. insuranceNEWS
Estimated liabilities in NZ dollars of failed New Zealand insurer Western Pacific.
December 2011/January 2012
There’s nothing like the threat of really bad weather to make people think about their insurance. The Bureau of Meteorology (BOM) says this summer could see another La Nina event develop, leading to higher than average rainfall across northern and eastern Australia. Just like last summer. Shortly after the bureau’s report came an announcement from the Queensland Government that it has bought $53.6 billion of reinsurance cover for its property assets. But despite “an exhaustive international search,” the state’s 150,000km of roads will remain uninsured. The Government was criticised after the summer floods for not buying reinsurance to cover heavy losses to infrastructure. The cover will cost Queensland $25-$30 million a year and has a $20 million excess for single events and $50 million for natural disasters.
FROM THE PUBLISHER
The popular rural image of Thailand is one of bucolic beauty, whereas much of the country is home to tens of thousands of foreign-owned factories where global manufacturers take advantage of the country’s cheap workforce and friendly laws. Trouble is, much of Thailand is flood-prone, and this year heavy and widespread rainfall over three months led to the worst floods in 50 years. More than 600 people died and seven major industrial estates housing around 10,000 facilities – about 450 of them owned by Japanese companies – were flooded for weeks during October and November. The result has been global shortages in goods ranging from vehicles to electronic components, and flow-on problems for insurers. The cars pictured, among thousands submerged for weeks in factory holding yards, were built for export.
The United Nations decided ages ago that 2011 would be the Year of Forests, but for the insurance industry the picture at left is a stark reminder that this has really been for us the Year of the Natural Catastrophe. There have been massive floods in many countries, not least Australia; and earthquakes in New Zealand and in Japan, where the tsunami that followed was truly horrific. Now we’ve had another bushfire in Western Australia. It’s therefore almost embarrassing to admit that this has been an interesting year for journalists who cover insurance. The editorial team that produces our weekly online service insuranceNEWS.com.au and this magazine have covered the catastrophes from many angles and viewpoints, and the stories just keep coming along. Our philosophy isn’t to follow the “insurance” stories that find their way into the general media and television, many of which are ignorant and misleading. We’ve stuck to our beat, concentrating on the stories and the issues that really involve the industry and the people who work in it. In the process we’ve gathered a host of contacts across the country and internationally at every level of the industry who are willing to speak to us and share their knowledge and viewpoints. Clarity in reporting comes from curiousity, research and phone calls and rarely from blind reliance on media releases. And as newspapers become more haphazard in their approach to news, the important insurance issues are usually ignored. We know what they’re missing, so industry professionals and even companies across the region have come to rely on us for information that helps them understand what’s going on. As a result our subscription list grows daily. We’re finishing the year with more than 17,800 subscribers for the weekly news bulletin and some 7400 for this magazine. In November insuranceNEWS.com.au passed 2 million pageviews since January 1, and we’ve welcomed more than 130,000 unique visitors during the year, too. Our focus on our subscribers hasn’t waned, and it won’t as we move into 2012. New developments will be launched next year to enhance the value of our services to you. And all will remain free to subscribers. That makes us totally dependent on advertising revenue, of course, so please support the companies that support us! The Insurance News team join me in thanking our subscribers for their continuing support and interest during 2011, and we all wish you a relaxed and happy festive season.
Three major Japanese insurers have already estimated their losses alone will be about $3.46 billion, while AM Best put total insured losses as high as $US20 billion.
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December 2011/January 2012
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A solution for flood insurance? Only time will tell if the Natural Disaster Insurance Review’s plan will survive the negotiations By Terry McMullan
IMAGINE A NATION WHERE FLOOD DAMAGE TO homes is paid for by insurers who have accurate data to price flood risks, while a government agency handles discounted premiums for high-risk properties and pays claims through a reinsurance facility. That’s part of the picture drawn by the report of the Federal Government’s Natural Disaster Insurance Review (NDIR), which suggests a complete solution to Australia’s confused and contentious flood insurance. The plan involves insurers and the Federal Government sharing some risks, with government money being used to make insurance affordable for the estimated 7% of homes in flood risk zones. For flood-affected rural residents in several states, and the citizens of Brisbane, it must sound too good to be true. And it will be six months at least before we know if that’s all it is. It’s the first of four official reports related to the industry and last summer’s floods, and the one most likely to do some good. The NDIR’s final report, released last month, tackles the two major issues surrounding universal flood cover – affordability and availability. The review panel, which was formed in March by Assistant Treasurer Bill Shorten, presented 47 recommendations to the Government, which has greeted the basic plan relatively positively. The panel – Chairman John Trowbridge, Jim Minto, the Managing Director of life insurer TAL, and leading plaintiff lawyer John Berrill – has charted a way through the flood insurance mess and borrowed from some of the best features of foreign flood insurance schemes while adding a few unique touches. Their report makes the point that of the 6.6 million or so houses in Australia and around 1-2 million other types of dwellings, as few as 7% are subject to flood risk. The strategy outlined by the panel in its final report to the Government is underpinned by five essential requirements: 1. All home insurance, home contents insurance and body corporate insurance products need to include flood cover. 2. Discounted insurance premiums are needed for insuranceNEWS
December 2011/January 2012
homes, home contents and home units in areas of medium and high flood risk, so as to render flood insurance affordable. 3. National co-ordination of flood risk measurement and mitigation is needed, in order to improve flood risk management for the benefit of the community generally and to ensure the continuing development of a competitive market for flood insurance. 4. A mechanism is needed to fund the discounts that are to be offered for affordability purposes. 5. Insurers will need access to a government-sponsored reinsurance facility if they are to deliver flood insurance discounts without compromising their own commercial positions. As the panellists note, when designing a set of arrangements to meet these five requirements it was important “not to create perverse outcomes that encourage further residential development in areas subject to flood risk”. Their 47 recommendations rely on the Govern-ment accepting four which they regard as “pivotal”. • They want the Government to “sponsor” an agency to oversee the national co-ordination of flood risk management and operate a system of premium discounts and a flood risk reinsurance facility, supported by a government funding guarantee; • To ensure availability, all home insurance, home contents and home unit insurance policies would automatically include flood cover; • To ensure affordability, a system of premium discounts would have to be introduced so policyholders in flood risk areas would be eligible for discounts against the full cost of flood insurance; and • The Government would guarantee the payment of claims by covering any funding shortfall in the reinsurance facility. While it has not yet committed to the agency concept, and has put discussion of the “pivotal” submissions on hold until next year, the Government has already responded to the immediate need for consistent national flood data. It has agreed to spend $12 million between next year and 2016 to improve the availability and consistency of
flood risk information across Australia. The Government has also made clear its own preference for an amended proposal that all insurers must offer flood cover as part of home building and home contents insurance policies, while giving consumers the opportunity to “opt out” of that cover. Mr Shorten, who released the NDIR report with Attorney-General Robert McClelland, says the devastating floods in Queensland, New South Wales and Victoria last summer “showed how vital it is to get flood and other disaster insurance right”. “The review’s recommendations are a good place to start in mitigating the risk of disasters and making sure everyone has the appropriate insurance arrangements to set them on the path towards recovery after disaster strikes”, he said. Some 27 of the recommendations relate to mandatory flood insurance and the flood reinsurance pool plan. The Government has committed to consult next year on these recommendations with “relevant stakeholders” like the insurance industry, and “will consider [them] further in light of these consultations”. Six recommendations relate to the handling of claims and dispute resolution and ask the insurance industry to review the General Insurance Code of Practice, which has always made allowances for insurers dealing with major catastrophes. The panel also wants all insurers to be signatories to the code. The Government has asked the industry to examine these recommendations and advise its response by the end of February. Five recommendations relate to improving consumer awareness, including endorsing the standard definition of flood and agreeing to the inclusion of a “key facts sheet” on home and contents policies. The remaining nine relate to ad hoc issues such as education and the need for banks to remind mortgagees of the need to insure. Most of the submissions are not going to change the flood insurance situation quickly – and certainly not in time to be of any use in the 2011/12 wet season. For example, the easiest proposal is formalisation
of the standard definition of flood, which the insurance industry agreed to in June. It will be introduced into regulation before the end of the year, and then it will be open for discussion. Mr Shorten says many families and individuals affected by the 2010 and 2011 floods “were not even aware their insurance did not cover flood”. “All policies that offer flood insurance will be required to contain the standard definition and this will end the confusion.”
Above: High-rise but stranded: Riverside apartment blocks took plenty of punishment during the Brisbane flood. Now the focus has turned to Far North Queensland, where premiums for such buildings are reportedly becoming unaffordable
A troublesome mix for insurers Home units, cyclones and affordability raise another inquiry The Natural Disaster Insurance Review (NDIR) report expresses regrets that it did not have the means or the time to fully investigate the cause of “some very large premium increases” following Cyclone Yasi in Far North Queensland. It says rises of 300% or more have been experienced, “especially for home units”. “Such extreme price increases can occur for several reasons but, irrespective of the reasons, they are presenting immediate affordability problems and can also cause continuing problems.” The report treats home units in the same way as a detached house or any other type of dwelling, and the Government has been swift to react to the report’s comments as well as to allegations from Far North Queensland MPs that the situation has reached the point of an “insurance failure”. Two weeks after the review was released, the Government directed the House of Representatives inquiry into the insurance response to disasters to investigate the issue, starting with public hearings in centres between Mackay and Port Douglas in January. The inquiry by the Standing Committee on Social Policy and Legal Affairs will hear submissions from MPs that premium increases of up to 800% are being quoted following the exodus of some major insurers from the market. The new terms of reference direct the committee to inquire into strata insurance cost increases over the past five years, insurers’ ability to price risk and the accuracy of the data they use, as well as the extent to which there is a failure in the insurance market. The NDIR panel recommends that the agency it wants established to co-ordinate flood issues should also offer cover to insurers for cyclone risk on the same basis as for flood risk, but without affordability discounts. It also recommends an investigation to ascertain whether there is a basis for granting affordability discounts for cyclone risk, along the lines of the recommended flood insurance discounts, for homes and home units in northern Australia.
December 2011/January 2012
The definition is: “Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of: A. any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or B. any reservoir, canal, or dam.” Mr Trowbridge told Insurance News the issues of affordability and availability have to be tackled simultaneously because while it’s simple enough to require flood cover as a standard inclusion in policies, “that wouldn’t address the question of affordability”. The panel says premium discounts “are a prerequisite for homeowners to be able to afford to purchase flood cover, which in turn makes it possible to deliver on the conclusion that unequivocal insurance coverage for flood is central to addressing the community need”. Under the panel’s plan for high-risk properties, insurers would retain and price a portion of the risk, with the remainder ceded to the reinsurance facility at a discounted reinsurance premium. Policyholders receiving full discounts would pay for that portion of the risk retained by the insurer, and nothing for the remainder of the risk up to $500,000. Once the risk exceeds that figure, policyholders would have to pay the full cost of the portion of risk exceeding $500,000. Homes at “high” and “extreme” risk of flood would be provided with discounts initially, but would be regularly assessed for mitigation work. Flood premium discounts and the reinsurance facility wouldn’t be provided to small businesses – at least initially. But all insurers offering small business insurance would be obliged to include flood cover on an opt-out basis – instead of an opt-in/opt-out basis as at present – in all of their small business package policies. The reinsurance facility would have two primary functions: to deliver discounts to flood-risk insureds, and to provide flood reinsurance capacity to the insurance market. The facility would have an excess of loss arrangement whereby insurers would retain and price a “first loss” portion of each policy on a commercial basis. It would also have a “facultative/obligatory” reinsurance treaty that would allow insurers to cede individual properties to the pool if they wish – but the pool would be obliged to accept them.
December 2011/January 2012
The proposed agency would charge insurers a small administrative fee for each policy ceded to the reinsurance facility. The panel says home building insurance policies providing sum insured cover should be modified by the end of 2014 so they include replacement value cover in the event of total loss of the home. Mr Trowbridge referred to the panel’s work over six months of consultations, submissions, speeches and closed-door discussions and told Insurance News that the NDIR report would be a “once in a generation” opportunity to solve a problem that has affected communities across Australia for too many years. The last such examination of the industry’s response to flood was compiled in 1974. Two years later the Fraser Government agreed to introduce a natural disaster insurance scheme and established a working party of officials to formulate it. The working party recommended that insurers form a pool to offer natural disaster cover for households and small business, while the Government would offer the pool reinsurance for catastrophe risks up to a defined limit to private insurers and cover earthquake, flood, tropical cyclones, landslide and storm surge. Insurers didn’t like the Government’s model, and it was finally junked in 1979 by then Treasurer John Howard, who said it would be “inappropriate on budgetary, technical and insurance grounds”. A consultation paper is available at www.ndir.gov.au and submissions can be made until March 30. This is the best opportunity in 32 years to finally solve the problem, and just as in 1976, insurers’ support * will be crucial to its acceptance.
The parties are still arguing over losses resulting from the Queensland floods of 2007/08
AS SOON AS PHOTOGRAPHS EMERGED of vast coal pits filled to the brim in last summer’s Queensland floods, the industry began debating business interruption insurance and how it might apply to the mining business. The numbers are huge but the losses are not easily quantifiable because of the peculiarities of mining and international commodity markets. When a mine floods, there may be little of the physical damage needed to trigger a business interruption claim. Although production has to stop or is reduced, the resource remains in the ground, ready for work to resume. Australia’s role as a prominent mineral commodity exporter also means that if production here is disrupted, the international price of the commodity is likely to rise. This can potentially compensate miners for lost production, particularly those which can export from stockpiles or make up supplies from their mines in other parts of the country or elsewhere in the world. Ironically, while the subject of flooded mines and insurance is important in the offices of Queensland coal miners, their brokers and insurers, it isn’t the floods of 2010/11 which are dominating the discussion. The parties are still arguing 14
over losses resulting from the floods of 2007/08. Willis Global Mining Practice Leader Steve Higginson says it is too early to tell the outcome from last summer’s floods, as there is still no agreement on the number of events between November and January. The Queensland floods and Christchurch earthquakes have shown how it can be difficult to apportion loss from a series of events, and the miners are still not settled on whether there were six separate events or only two or three. Determining the number will affect retention per loss and, where miners are using captives, at what point the loss flows on to reinsurers. It will also affect their aggregate retention. Some of the world’s largest miners operate in Queensland, including BHP, Rio Tinto, Anglo American and Xstrata. The state is just one part of global operations that might encompass South America, Africa and Asia, and if a company has suffered losses from elsewhere its Queensland losses could go straight to the reinsurance market. The Queensland Resources Council was forecasting a record year for coal exports in 2010/11. Chief Executive Michael Roche says insuranceNEWS
December 2011/January 2012
the state was “well on track” to export 200 million tonnes from its 57 mines. Flooding meant the state exported 163 million tonnes, down 21 million on the previous year, and the council estimates the financial loss at around $7 billion. Andrew Dunn, a partner in international law firm Holman Fenwick Willan, says during a visit to the London market earlier this year he found there was plenty of discussion about the suitability of insurance products which respond per event, when it is difficult to identify and determine the number of events. Mr Dunn, who specialises in insurance and reinsurance, says the extreme natural disasters of last summer have brought the issue to the fore, because losses occurred over a protracted period. The business interruption model has been difficult to apply over three to four months of rainfall and the insurance market has become interested in looking at alternatives, he says. Some underwriters believe that business interruption cover based on pre-agreed value, or a formula to determine the value, is a more sustainable product and less likely to generate disputes. Mr Dunn says this cover could be triggered by pre-agreed events, such as an amount of
Water everywhere: the Baralaba coal mine in January (left). In June (above), there was still water in the main pit
Trouble in the pits rainfall in a given period within a defined geographic area. But he warns that the current models “have been in use for some time and are not going to change overnight”. The loss of profits or loss of income basis of business interruption cover also became an issue for insurers which covered miners in Queensland when commodity prices rose as a result of disrupted supply. “We spoke to a few insurers in London who have pulled out of the mining business because, while they were happy to protect mines’ fixed costs and expenses incurred in the period of interruption, they did not feel comfortable about indemnifying for loss of production,” he told Insurance News. Mr Higginson says some miners may not make claims, but the claims that are made will be substantial and are likely to take considerable time. “This is not going to be a ‘nothing’ issue,” he says. “I understand that some of the big mining groups which have exposures are looking at fairly complex claims processes.” Mr Higginson believes two of the major
Flooded mines highlight some big problems with business interruption insurance By Jan McCallum
mining groups will not be claiming for major business interruption losses and two others are still working through the issue. “Some of the medium-sized players – certainly ones we directly deal with – are not making claims because there has been no physical damage.” Miners can move much of their equipment out of harm’s way, so physical damage might be limited to the impact on roads. The miners have also become more adept at managing excess water following the 2007/08 floods, sometimes by designating a “sacrifice” pit and pumping water into that while they keep another clear for mining. They can also move production to higher ground. Most of Queensland’s mines are open cut rather than underground, so some companies have been able to mine from a series of tiers, or benches, and move up while the bottom of the pit acts as a sump. Mr Higginson says flood management and mitigation have improved vastly. This meant that although companies declared force majeure for last summer’s events, they were able to remove it much earlier than in 2007/08. By July the industry was still only at 80% capacity, however, and according to the
December 2011/January 2012
Queensland Resources Council it will enter the wet season this month with enough water still on mine sites to fill Sydney Harbour. Under environmental legislation, water is presumed to be contaminated as soon as it falls on or otherwise enters a mine site. There can be issues of salinity or base metal contamination, so the miners can’t simply pump floodwater into a convenient river system. Mr Roche says that as a result, coal companies have invested heavily in preparations for this summer, building more water storage, pipelines, pumps and water treatment plant. And when they get the insurance questions resulting from the floods of 2007/08 sorted out, they’ll start to look at the issues around the floods of last summer. Hopefully the coming rainy season won’t keep the miners – and the insurance industry – * playing a perennial game of catch-up.
Caught in the crossfire Last summer’s disasters highlighted the imbalance between loss adjusters’ professionalism and insurers’ cost-cutting By Michelle Hannen
Local knowledge needed: US adjuster Steve Zibilich and his imperial measure ruler are part of a global pool of adjusters
OF ALL THE MUD THROWN at the insurance industry over the course of this year as a result of its handling of last summer’s natural disasters, it will be interesting to see how much of it will stick. One fairly low profile but highly targeted group is the loss adjusting community. Graham Perrett, Chairman of the House of Representatives Standing Committee on Social Policy and Legal Affairs’ inquiry into the operation of the insurance industry in disaster events, told a hearing of the inquiry that the credibility of loss adjusters has “taken a few hits” as a result of the disasters. Mr Perrett says the inquiry had heard evidence from various policyholders upset about the power loss adjusters have to approve or deny a claim, and confused about the credentials and authority adjusters had to make such decisions. In many cases policyholders were simply aggrieved to find that their policy did not provide cover for the type of damage they had sustained – which is no fault of the loss adjuster – but the inquiry has unearthed broader issues around the public’s understanding about who loss adjusters are, what training they receive, the professional standards they work to and how much authority they have. 16
“I get the impression that there is a range of people called assessors, from the former carpenter through to the insurance person,” Mr Perrett said at the inquiry. “I am not saying they did not have skills but could we elevate the credentials of an assessor so that there is more perceived public respect for that role?” Some of the more legitimate issues that have contributed to the integrity of adjusters being examined include the use during the disasters of foreign adjusters with little or no knowledge of local practices or conditions. Some were from as far away as the UK, Canada, the US and South Africa. There were also issues with loss adjusters making appointments to visit sites for assessment and not turning up. Questioned by the House of Representatives inquiry, insurance representatives did their best to defend the adjusting fraternity, highlighting the sheer number and magnitude of loss events in Australia and New Zealand which put extreme pressure on adjusters and stretched the industry’s resources. Wesfarmers Insurance Managing Director and Insurance Council of Australia President Rob Scott told the inquiry loss adjusters and assessors were put under significant pressure. insuranceNEWS
“There were just not enough able, qualified bodies around to handle the very significant volume of work that was required,” he said. “My view, from Wesfarmers, is that part of the problem was just due to resource constraints and a degree of inexperience with local conditions. “The resources were just really tested given the sheer volume.” QBE Australia Chief Executive Colin Fagen agreed that the issue came down to the magnitude of the events. “Our experience was nothing to do with expertise. It was pure supply and demand – the amount of work coming through. “If there are pockets of expertise within an assessment firm, they just cannot get around to all the areas where they should be sending the right specialists.” Loss adjusting luminary and LMI Group Managing Director Allan Manning says that “to think you can wave a magic wand and handle that unprecedented number of claims is just a joke”. He says loss adjusters “got five years of work in five days”, but agrees there are some lessons that can be taken from the experience. Dr Manning believes adjusting companies and in-house adjusting divisions need to have an emergency disaster response plan in December 2011/January 2012
place for such situations, and following the disasters those response plans now need to be fine-tuned. LMI was one company that brought in foreign adjusters, but Dr Manning says they only imported expertise from New Zealand, which he regards as a “seventh state” of Australia due to the similarities in law and insurance contracts. In addition, LMI’s foreign adjusters were given GPS systems to help them reach their appointments, their work schedules were designed to ensure they remained in and could become familiar with a single geographic area, and daily end-ofday briefings were conducted by the company to address any issues they encountered. Dr Manning says this was in contrast to the use of foreign adjusters by some other firms from as far away as the US, where policy terms are completely different. Those adjusters were expected to find their way all over Queensland to “12 to 14 jobs a day with no training” using “out-of-date sat nav devices”. In many cases foreign adjusters were then called on to travel to Japan after the Tohoku earthquake and tsunami struck, often without completing the reports on their Australian cases. He is also critical of the decision taken by some firms to send
some of their more experienced adjusters to Japan, when there were still local claims outstanding. He says this was particularly pronounced in relation to expert adjusters, such as business interruption specialists, who are already in short supply in Australia. “That shouldn’t have happened,” he says. “We didn’t have the spare capacity.” Some of the issues that have arisen out of the disasters are indicative of larger problems within the loss adjusting sector, Dr Manning says. Many of these problems stem from insurers’ shift several years ago to tendered panels for their loss adjusting work. Dr Manning says the result has been a service that in many cases is bought and sold on price alone, resulting in sub-standard service and diminishing expertise. “You can’t attract good people to an industry if you don’t pay them,” he says. The situation is further exacerbated by the age profile of adjusters, with many of the most experienced at, or nearing, retirement age. The fight to put a professional face on the loss adjusting industry is not new. The adjusting space has
become increasingly crowded by alternative service providers such as claims management firms, building contractors and even solicitors. And membership of an industry body, such as the Australasian Institute of Chartered Loss Adjusters (AICLA), is not mandatory. AICLA members are subject to a framework of qualifications and
a message to the insurance industry and regulators that “tradesmen and others without adequate claims training should not be substituted for trained loss adjusters”. Ian Lavin, the current AICLA President and South Pacific Regional Manager for major loss adjusting firm McLarens Young International, says AICLA “is con-
“Some of the issues that have arisen out of the disasters are indicative of larger problems within the loss adjusting sector.” bound by a code of conduct designed to ensure a high standard of knowledge, efficiency and integrity in dealings with the industry and the public. In 2007, AICLA lifted its minimum standards for associate and chartered loss adjuster status, and it has recently done so again. Back in 2007, then-AICLA president Andrew Thomas said the institute wanted to send
stantly trying to increase professional standards” across the adjusting sector. To that end it’s developing a “base entry” training program in recognition of the widening range of providers performing adjusting services. For years AICLA has been making unsuccessful submissions to reviews of the General Insurance Code of Practice calling for minimum training and qualification standards for people performing claims assessing functions. AICLA Administration Officer Tony Libke says AICLA also approached the Australian Securities and Investments Commission (ASIC) earlier this year calling for the regulator to enforce minimum requirements for individuals to use the title “loss adjuster”. But ASIC has indicated the issue is “not on their radar”. Mr Lavin says that during the disasters AICLA received a “number of general complaints regarding non-AICLA member loss adjusters”. “Complaints actually received in relation to our members were almost non-existent,” he says. “It was apparent in numerous instances that there was little nexus between [some assessors’] adopted title and their knowledge of the general insurance industry. “This is a major problem for us, given that we have no proprietary rights over the title ‘loss adjuster’. The actions of a scurrilous few can have a serious tarnishing effect on loss adjusting in general.” Along with the rest of the industry, Mr Lavin concedes that both the volume of claims earlier this year and the concurrent events December 2011/January 2012
in Australia and New Zealand used up all the usual backup resources of the loss adjusting sector and made normal business models obsolete. And he describes the need to import loss adjusters from other countries to assess claims in a timely manner as a “no-win situation”. “The challenge when resources are imported where there is nil or limited knowledge of the market is to ensure appropriate induction and supervision,” he says. “Unfortunately there is often limited allowance in the timeframes or cost models for this to be reasonably adequate.” Following the catastrophes, AICLA convened a meeting of senior industry personnel including loss adjusters, insurers and reinsurers to discuss issues arising from the events, with a further review meeting to be held soon. “One of the discussion points will be resourcing issues, particularly any associated with the importation of offshore adjusters,” he adds. As closer inspection has revealed, there are wider issues affecting the performance and professionalism of loss adjusters than simply being overwhelmed by an unprecedented proliferation of disasters. Mr Lavin says a “dumbing down” of the loss adjusting process has followed the drive from insurers to push fees down. But he admits that loss adjusters “have traditionally not been good at demonstrating the value they provide – hence the full value of engaging a qualified loss adjuster is often not appreciated and we end up with focus on a fee rather than the overall outcome”. While there is no simple answer to the bigger picture problems facing the adjusting profession, whether the mud directed at their performance last summer will stick remains * to be seen.
Three into one goes admirably Steve Lockwood is busy giving Wesfarmers’ brokerages some common values By Terry McMullan COMPETITION FROM OTHER SALES CHANNELS, consolidation, generational change… you name the challenge and Steve Lockwood will tell you why it’s an opportunity. As one of his senior managers told Insurance News prior to this interview, the Chief Executive of Wesfarmers Broking “isn’t so much a theorist as a deep thinker who does stuff; he’s always got a unique angle”. Working mainly from a modest office in Crombie Lockwood’s Auckland headquarters, Mr Lockwood oversees a broking mini-empire that Wesfarmers obviously regards highly. In New Zealand there’s Crombie Lockwood, the broking company that Mr Lockwood and his business partners sold to Wesfarmers in 2007. In Australia he’s overseeing an ambitious overhaul of major broker OAMPS, and there’s much to like about the steady growth of the OAMPS UK operation, which is now numbered among that country’s 50 largest brokerages. Answering to Wesfarmers Insurance Managing Director Rob Scott, Mr Lockwood is being acknowledged by those around him as the right man in the right place. Insiders say Mr Scott recognises that the redoubtable New Zealander only needs to be told what’s wanted, not how to achieve it. Take the example of OAMPS, which Wesfarmers bought in 2006. Some Australian brokers have grumbled that with former Crombie Lockwood executive Keith McIvor running the company since mid-2009, OAMPS 20
has become the Australian branch of Crombie Lockwood rather than Crombie Lockwood the New Zealand branch of an Australian company. Mr Lockwood strongly disagrees. “OAMPS is similar in many ways to Crombie Lockwood, but different,” he says. “The thing with OAMPS is it came together as a rolling-up of small brokers, which was the right thing to do at the time. Their only real ambition was to get scale, then list the company. OAMPS has a great identity, a great staff and network and is a significant player. It is growing faster than its competitors and has nothing in the way of it becoming Australia’s most successful broking company. Crombie Lockwood learns from OAMPS and OAMPS learns from Crombie Lockwood. That is as it should be. “Over the last three years we’ve spent time making OAMPS look and feel a lot more like a Wesfarmers company. That has given us a very strong launching platform and we are getting a lot of interest from our competitors’ staff who see OAMPS as an exciting alternative.” In reality, he’s making all three broking operations feel more like they’re part of Wesfarmers. Mr Lockwood is introducing an identical set of “propositions” based around what he refers to as Wesfarmers Insurance’s charter and values. The underlying aspiration of this charter is for each operation to be the most admired broking company in the country they operate in. That
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Steve Lockwood Chief Executive, Wesfarmers Broking Born in Timaru but raised in the North Island city of Palmerston North, Steve Lockwood started his insurance career with State Insurance before moving to Napier to work for Marsh. That’s where he met Napier broker Colin Crombie, who at that time had one office and three staff. In 1983 Mr Lockwood offered to set up a Palmerston North office for Crombie. Three years later he became a partner and in 1990 the company changed
doesn’t detract from the need for growth and profit expectations but provides an excellent ambition to stretch for. “But if you’re wanting to be the most admired company you’ve got to firstly determine the audience you want to be admired by,” he says. The five key propositions, which are still being developed, are based around staff, clients, insurers, vendors (people selling their brokerages) and regulators. “Staff and clients are always key to this business but in Australia I see an opportunity to forge really meaningful partnerships with insurers. There seems to be a lot of distrust between Australian insurers and brokers and it’s very important to me that we can put meaning into our insurer relationships. To do so is ultimately to the benefit of our clients. The industry is a bit cynical about this but I think we will get there; we have evidence in New Zealand that it is achievable. “We’re working on how we can have the best proposition for vendors because we want to continue to acquire, but in a far more discerning way,” he says. “And then we also want to be the pin-up model for the regulators because they’re part of the process; you can’t ignore them so you might as well get on board with them. “We’re working on what our points of difference are; what can we create as meaningful points of difference? And how can we be the most attractive option for those various audiences?” While he’s obviously absorbed by the challenge of the exercise, Mr Lockwood insists it’s a “pretty commonsense” thing to do – but he agrees it mustn’t be seen as one of those management-directed projects that staff brush off as “flavour of the month”. “I don’t want this to be a thing that comes on with a hiss and a roar and then is forgotten about,” he says. “So it’s more a culture around those propositions and a determination to continually improve in those areas. I don’t think you ever finish that.” The transition to Wesfarmers obviously hasn’t changed Mr Lockwood’s reputation for being a tough boss who places enormous value on talented staff and a strong service culture. “[Crombie Lockwood] has always had a very small turnover of staff,” he tells Insurance News. “We try to create an environment which people want to be attached to and want to work in. You can’t feign having a genuine respect and interest in your people. It doesn’t matter how many times you write it down – if you’re not living it they know. “So we’ve been able to attract what I consider to be the best people, and keep them, and get interest from the younger population to come in.” Mr Lockwood may be giving something of Crombie Lockwood’s culture to the Wesfarmers Insurance operation with his five propositions, but he also sees the advantages of moving on from a privately owned entity with limited 22
its name to Crombie Lockwood. The company was acquired by Wesfarmers in 2007. Today it is believed to be the largest brokerage in New Zealand, with more than 400 staff. It continues to acquire companies, too. Its most recent acquisition was Christchurch-based FMR Risk in April, which is providing Crombie Lockwood with enhanced strength in the New Zealand corporate market.
capital to being part of a large and rich conglomerate. “We went through a transition from being a big little company to a little big company by way of a restructure in 2004, where we bought a myriad of small branch companies into a single company,” he says. “But we didn’t have any experience of how large companies operated. Wesfarmers brought to the table that experience of how to operate as a large company. “Within the insurance division there’s 3600 people, so there’s a lot more opportunity for our people. Part of the staff proposition is that we can provide opportunities on a bigger scale. “For me, working for Wesfarmers has been a bit like going to university. I’m enjoying it because I’m learning about the corporate world. The Wesfarmers model combines the best attributes of the corporate world disciplines and those of private enterprise entrepreneurship.” Mr Lockwood says the Wesfarmers broking operation can increasingly compete with the big foreign brokers because it has the scale and the capital backing to acquire strategic companies that boost its capabilities; but it isn’t so globally huge that it’s cumbersome. He sees the Australasian brand having a strong story to attract potential clients, and to offer Australia’s larger and corporate clients a fresh alternative to the historical options. While regulation has only recently become an area of great interest to New Zealand brokers, Mr Lockwood has been in a good position to observe the impact of new legislation compared with Australia’s longer experience with compliance. “We are probably operating more to an Australian style of regulation now in New Zealand, and I do see it as a threat to some of the smaller brokers because it’s just another layer of complexity and cost,” he says. “We can see an operational cost difference between Australian broking companies and New Zealand broking companies, and some of that is just the cost of compliance and the cost of the process required to achieve compliance. “I think the regulators need to be a little bit careful that they’re not killing a market of choice. You’ve got to allow consumers to buy the way they want to buy. “If you start to try and protect them too much around the cost of the product they’re buying I don’t know if you’re really doing them a whole lot of good.” He is concerned that the role of brokers and the quality and need for the advice they offer isn’t well understood – an issue that affects both attitudes to regulation and distribution. Regulation has “stolen a lot of expertise out of the [Australian personal lines] market – it’s almost become impossible for brokers to economically handle that business, so that will ultimately impact on the quality of advice avail-
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able”. As for competition from other distribution channels, it’s the same story – the broking industry “isn’t very good at explaining what it does”. “Commoditised delivery will suit some people, and it may be that all it’s going to mean for brokers is that we need to explain in a little more detail what it is we offer. “If the other option is some internet commoditised solution then you have to differentiate to your consumer audience what service you’re offering for your price differential. “Of course, a consumer doesn’t really think about that until something like a Christchurch earthquake happens. And then who do you call? And are they there when you call them? And are they visiting the next day? And can you get hold of the same person next time? “In my experience, if you’ve got a good relationship with a client, and you build that relationship, then that is desirable to a con-
He nominates the lack of available talent around the world as a threat to brokers’ prime differentiator – high levels of professional service. “You could find the level of service you offer threatened because you just can’t afford to have those expensive people delivering service to a smaller client,” Mr Lockwood says. “So we’ve got to be careful that we don’t price our people out of a job. It’s going to be a big issue.” Does that mean there will be even more commoditisation of insurance products because delivery by brokers could be unaffordable? Could a salaries gold rush push brokers out of the SME market? Beyond hinting that research exists to confirm such a scenario, Mr Lockwood is keeping his own counsel on that subject. “I’ve always had a view that you can probably do a different broking service delivery that doesn’t involve sticking people in expensive cars
“It’s better to spend a lot of time explaining in detail what we do, when we do it and how we do it, and then offer the price. To offer price as the only solution really is lazy.”
sumer.” Mr Lockwood is strongly critical of brokers emphasising price rather than service – a practice that he says is caused by a belief that price provides business retention. “There’s been a bit of laziness around that. It’s better to spend a lot of time explaining in detail what we do, when we do it and how we do it, and then offer the price. To offer price as the only solution really is lazy.” For the future, Mr Lockwood sees the market continuing to change as business dynamics change, with new risk transfer solutions and new entrants. “I’ve been saying for about the last 10 or 15 years that insurers will begin to look more like brokers and brokers will begin to look more like insurers,” he says. “Many insurers are now offering up direct solutions to what might have otherwise traditionally been a broking market. Many brokers, for a portion of their client base, are looking to provide a managing agency-type arrangement for a portion of their clients. “That’s just a natural evolution of the business. So your clients can probably expect a whole lot more in terms of different delivery models. “But at the end of the day their desire hasn’t changed – they’re still just buying insurance and they want to buy a quality promise.” While he’s positive about the future of broking, Mr Lockwood delivers his vision of tomorrow with a hefty caveat. 24
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on expensive salaries and sending them out to see people,” he says. “You can probably do it with eaddresses. “I’ve always had a view that there needs to be more back-office efficiency between brokers and insurers and that we could be more creative about the way we deliver our services without compromising the advice and service we offer. I have some views on how this might happen and how in the process we can attract some young blood into the industry so that as an industry we create some succession. I am pretty keen to ex* plore that.”
HOW THEY’RE PERFORMING, THEIR CHALLENGES AND OPPORTUNITIES, AMBITIONS AND EXPECTATIONS The profile of Australia’s brokers is changing as younger professionals take over, consolidation makes companies larger and business savvy becomes increasingly important. These are just a few of the findings from Macquarie Relationship Banking’s 2011 Insurance Broking Benchmarking Report. The biannual report was presented to brokers around Australia during November. Some 230 brokers contributed detailed data and insights to the survey team. Macquarie Relationship Banking Division Director Paul Cilia says the results of the 2007 and 2009 benchmarking surveys helped to shape the business strategies of many broking firms, and he expects this one to prove equally valuable. He says 2011 was “a particularly interesting time to take the pulse of the industry, especially when we consider the broader macro-economic backdrop that will impact all of us in some way or another”. The latest report shows broking is still a profitable and dynamic industry sector, and many of the established features of the sector remain. Using the median figures collated from the survey, Macquarie has painted a profile of the “typical” Australian brokerage. Insurance News has also interviewed the principals 26
Number of principals:
Age of principals:
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of three brokers that fit the surveys measures of small, medium and large.
It employs 11 staff, seven of whom are client-facing, with each bringing in revenue of $165,156. The principals bring in $1.13 million in revenue. While the average number of staff per business has remained relatively stable in the past two years – 11 in 2011 and 11.4 in 2009 –
Median revenue per staff member:
Breakdown of revenue per state: The typical Australian brokerage has two male principals who are both 50 years of age, and who each earn a salary of $157,961. The survey finds 63% of principals are aged under 55, dispelling the myth that insurance broking is an “ageing industry”. Independent control of companies is still common despite the continuing drive for consolidation – more than 35% of brokerages having just one principal. insuranceNEWS
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Macquarie notes a “great discrepancy in levels of revenue per staff member across lower, medium and higher revenue businesses”. The median revenue per principal was $1,125,400, compared to $1,047,642 in 2009. Discussions with small to medium sized brokers indicated that $1 million of revenue per principal is a key target that many aim for. The average revenue to salary ratio is 2.9.
Remuneration per principal:
The business has gross written premium of $10.14 million, of which 19% is from domestic policies. Revenue is $1.85 million, of which 32% is spent on salaries. This year’s median result of $1.85 million is slightly below the average revenue of $1.9 million recorded in the 2009 survey, “perhaps reflecting a softening market during that time”. The report says average revenue for an insurance broking business in this year’s survey was $4.57 million. “However, this figure has been influenced by the 9% of businesses that had revenues in excess of $10 million (some of which were significantly higher). “This reflects the Australian market, where a small number of brokerages and in particular the international players have revenues in the tens and hundreds of millions.” The net profit margin after principals’ remuneration is 22%, and the “typical” firm experienced profit growth of 10.5% in the 2010/11 financial year. Some 86% of the surveyed brokers increased their revenue in 2010/11 – 17% by more than 20% and 9% by more than 30%. The report says the high percentage of businesses that increased their revenue is not a surprise, given the increased focus on risk in light of global and local events, a slight hardening of the insurance market and the growing Australian economy. “This was a slight increase on the 2009 survey, which reported revenue growth by 84% of businesses, continuing a growth trend that has been seen over a number of years.” Smaller firms were significantly more likely to have achieved “super” growth of more than 30% compared to their larger counterparts. Macquarie says those brokers who grew their revenue in the past financial year “have done so through their own endeavours”. The top two contributing factors to this growth were listed as increased sales and marketing activity, and new products and services. “Firms that declined in revenue typically blamed external factors outside their control,” the report says. Brokers also listed increasing their fees as one of the top three ways to increase profitability.
Source of income:
Most effective factors to improve profitability:
Because 29% of businesses increased broker fees in the past year and 40% said it was a major contributing factor to profitability, many more brokers may look to increase broker fees in the next 12 months. The report says brokerages appear to be managing to withstand the competition from direct insurers for personal lines business. Commissions make up the largest source of income across firms of all sizes. Larger firms get 61% of their income from commissions, while smaller firms rely on them for 69% of their income. The report says revenue from sources other than commissions and fees is shown to increase with size. Larger brokerages can sell other financial services and negotiate better underwriting profit shares. The results are very similar to the findings in the 2009 survey, suggesting the heightened focus on remuneration through the Future of Financial Advice reforms has not impacted brokers. Lower-revenue firms and those with lower net profit margins have demonstrated a greater reliance on commissions. “This can be interpreted in a number of ways,” the report says. “Either the client base of these firms tends to be a lower value, or these brokers are not charging sufficiently for the services they deliver.” Revenue from sources other than commissions/fees is shown to increase with size, suggesting that larger brokerages are taking advantage of scale, particularly in the sale of other financial services and in the negotiation of underwriting profit shares. Scale also delivers the ability to cover costs while taking time to generate revenue from new areas. While it should be more challenging for larger brokerages to achieve higher year-on-year percentage growth, they are holding their own against their medium and lower-revenue counterparts. Higher-revenue businesses are also more likely to focus on acquisi-
Plans for new staff and what type
The Macquarie Insurance Broking Benchmarking Report places participating brokerages in three categories: Small (revenue $1 million), medium ($1-4 million), and large (above $4 million). Due to the number of very large businesses participating in the survey, results have been reported by average of all businesses and also by median. This helps to provide a more reliable benchmark for most brokerages. 28
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Mike Burgess Chief Executive, Scott & Broad/Clark Pacific, Sydney Scott & Broad can trace its origins back to 1919. It purchased Clark Pacific in January 2007 and offers a wide range of value-added services to clients. Size: Doubling the size of your brokerage doesn’t automatically mean doubling profit. We’re all looking at our back-office systems and our overheads. The focus for 2012 is to become more profitable, not just bigger. Revenue: Revenues are moving up because commissions are attached to higher premiums. But the real driver is hard times. If we go back five years when everything was booming, insurance was down at the bottom of people’s to-do list. In hard times, insurance is rising towards the top – people are buying more insurance not less. Expenses: The biggest expense to any brokerage is always wages. The ratio to income needs to be contained to below 50% of income. Profitability: Brokers who have created different revenue streams are growing their business quite nicely. Small brokers who haven’t bothered to diversify revenue streams will find it hard to grow revenue. Brokers who have diversified into other income streams, such as risk management and workers’ compensation management, can expect better profit margins. We’re doing better than last year for all those reasons. You have to take the initiative for your own profitability rather than rely on set commission levels dictated by insurers. For example, if the insurance company says you can only have 5% commission rather than the 10% you got last year, you need to adjust your margins to meet budget. Some brokers still don’t react and keep fees and commissions the same – even though expenses are going up. They let their profit margins be dictated by the level of commission they’re allowed by an insurer.
our business both through acquisitions and mergers.
I’m confident we’ll have steady growth next year. Clients are looking for more services not just insurance so we’ve hired more staff and we will continue to hire more, both in sales and back office.
Valuations: You use both measurements – revenue and profit. People don’t just walk in and say we’ll pay you three times revenue if your profit margin is only 5%. People don’t want to pay for a mess and a heap of expense that goes with it.
Mergers and acquisitions: If you have a profitable brokerage there will always be a buyer for your business. We are always looking for opportunities to expand
Technology: It’s number one because it’s the key to reducing back-office costs. We’re looking at online placement platforms for everything – quote, bill, etc, insuranceNEWS
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via the internet – a seamless package from insurer to clients. This approach will be the focus for the next few years. Social media can be used but it has to be very targeted. The answer to reduce costs is technology, technology and more technology. Succession planning: Always important. You need to have a five-year plan, a 10year plan and a disaster plan. Our succession plan might be triggered tomorrow if I’m hit by a bus. 29
Chris Dalton Managing Director, Insurance Broking Australia, Gold Coast Four years ago Chris Dalton sold his old brokerage, which he’d had since 1988. Now he concentrates on exceptional service and enjoying the laidback Gold Coast lifestyle.
Size: If you look at the top end of the scale – legal, accountancy, banks, all the professional areas – you will only do well if you’ve got the top quartile of clients who are more lucrative. We’ve got the small-end clients – retailers, factories and traders, not top-end manufacturers or ASX200 companies. There’s been a grouping together of smaller brokers in clusters like Steadfast, just to try to be able to reduce processes and costs and also have a stronger association with insurance companies – to have more clout not just with products but with income as well.
If you’re with Steadfast you might get an extra one or two percent in commission. It might not sound much, but when you’re smaller it can add up. Revenue: Commissions are still the biggest source of revenue and some brokers are charging higher broker fees. I look at some of their charges and think, “If I got a fee as high as that I’d be embarrassed”. Some of them are quite substantial for the work that’s been done. But that’s a sign of the times. Expenses: Insurance staff are some of the best paid workers in Australia for what they do, and compared with what banking and legal administration staff get paid. That’s a cost everyone has to wear. In regional areas, for brokers like us the clients are mums and dads, start-ups or slowly going broke. You’ve got to work smarter, not harder. I won’t be hiring more staff. Profitability: Same-same. Nothing huge. We are just ticking along. But next year I’m going to be more focused on the broking business and less on property and other investments. But we are still growing all the time, and 75% of our new business comes from other brokers. People don’t realise what they are not getting until they talk to someone like us. As soon as they strike a new broker who says I’m going to come around and have a chat, they’re amazed. Straightaway, you’re through the door and you haven’t even given them a quote. It’s because no one has come to see them for years. Mergers and acquisitions: I’ve had a couple of approaches from other brokers. Four or five small brokers on the Gold Coast have sold out to large brokers and another seven or eight have started up, like me. They’re like mushrooms. It’s a pretty healthy market. Technology: Everyone is looking at new innovative platforms. It depends on who is fastest and sharpest. It’s going to be quite interesting to see what happens when broking systems use cloud technology rather than the dinosaurs under the desk. Social media takes up a huge amount of time for no real result. I prefer to jump on my bike and ride to the beach. I’ve got better things to do.
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Paul Harvey Chief Executive, Strathearn Insurance Brokers, Brisbane
Founded in Perth in 1993 by three highly experienced insurance professionals, Strathearn is one of Australia’s largest boutique specialist broking firms with offices in four states. Size: It’s all about specialisation. Our clients benefit from our collective experience across industries and products in both local and foreign jurisdictions. We service clients locally, nationally and internationally with a team of more than 60 brokers and support staff. Revenue: Our revenue is steady with the market sectors we participate within, including mining, construction and engineering. We add value to our clients and strive to find alternate and innovative solutions to enhance insurance portfolios or solve problems as they arise for new projects or changes in market conditions. Our approach is always to be flexible, adaptive, efficient and innovative. Our clients are looking for more than insurance. We offer contractual, litigation and engineering advice. We have six fulltime lawyers and a civil engineer on staff, and our specialty areas are in demand. Expenses: People are the biggest cost to any business. Our strategy is pretty simple,
the business has been built on the ability of our people to support and advise our clients who need and want more than traditional insurance broking services.
we are opportunists and if there is a likeminded business to us on the market we would certainly want a seat at any table if there’s any discussions to be had.
It’s a tough, rewarding and career-building industry, but the industry struggles to attract solid young people. There’s no apprenticeship, and while there is education there’s no real insurance degree. People just fall into this industry.
Valuations: Every business you look at is different and every business has their own methodology and perception of valuation.
Profitability: It’s steady. Our expectations are being met at all levels of the business. The industries we participate within are quite busy. When our clients are busy, and they are at present, we are incredibly busy. Mergers and acquisitions: In recent years Strathearn sold 49% of the business into Austbrokers. Having a partner like Austbrokers adds real value to our business, and an ASX-listed partner adds grunt to our presentations to potential clients. We’re not a seller. I would certainly say that insuranceNEWS
December 2011/January 2012
Succession planning: Our succession planning started with Austbrokers acquiring 49% of the business. We are continually strategising and planning our succession. We have a very strong management team of four aged between 36-42. We also have the advantage of being mentored by our founding partners. Technology: The broker systems in the marketplace are a little antiquated. As a business, we are looking forward to something new and something innovative. I’m surprised that a large IT company from the top end of town hasn’t taken advantage of this gap in the market. A lot of broking systems are more accounting systems, and I don’t think there’s a rock-solid broking 31
tion, which may also contribute to their solid year-on-year growth.
Have you been approached to sell or merge?
Some other points raised by the survey: • The number of businesses employing authorised representatives − nearly a third – is unchanged from the previous survey. • Almost half of all brokerages nationally are intending to hire additional staff, with more than 50% focused on recruiting client-servicing brokers and support staff who contribute directly to revenue generation. • More than 75% of all businesses find it difficult to recruit new staff, with the majority citing the main hindrance is finding people with the right skills and qualifications. Regional brokerages are three times more likely to face challenges in finding staff due to their location, and 73% of Western Australian brokerages cited salary expectations as a major hindrance. • High-revenue firms are much more likely (38%) to have a defined bonus structure that applies to all staff, compared with an industry average of only 26%. Who’s buying, who’s selling, and what’s a brokerage worth? The report says 53% of the surveyed brokerages nominated themselves as willing buyers, while only 6% are willing sellers. “The data reaffirms the consolidation trends… smaller and less profitable brokerages are more likely to sell and larger brokers have more appetite to acquire.” Macquarie says that while most brokers value a business using a multiple of revenue – the average is 2.3 times – larger brokerages are more likely to take a profit-based approach. Nearly 20% of the surveyed brokerages purchased businesses in the past year, with the actual multiples achieved being substantially below the perceptions of valuation multiples. The average multiple paid was 1.8 times revenue, compared to a perceived value of 2.3 times revenue. The average earnings before interest, tax depreciation and amor-
tisation multiple paid was 5.5 times, compared to a perceived value of 6.0 times. Brokers selling their businesses say clients and staff being looked after are key considerations. However, price is still a crucial initial hurdle that needs to be overcome before the more intangible factors are considered. As previously noted, the average brokerage principal is aged 50, with 63% aged under 55. Macquarie says this dispels the myth that insurance broking is an ageing industry and that a “deluge” of businesses for sale is likely in the short term. “The reality is that the anticipated glut of willing sellers may not materialise, leading to a continued supply and demand imbalance,” the report says. “With less opportunity for acquisition, the increased broking multiples that we’ve seen in recent years may well be sustained and we may see an increase in organic growth strategies.” Industry and business dynamics: The report says 66% of the brokers involved in the survey cited “existing relationships” as the number one factor for insurance placement strategy. Queensland brokers are much more focused on claims payment
December 2011/January 2012
history, with 81% citing this as a core focus compared to the national average. The report suggests this is a consequence of “the sheer volume of claims because of severe weather events they have had to deal with this year”. Lower-revenue firms are more likely to compete on price, with 21% citing it as a differentiator compared to the national average of just 12%. Meanwhile, 62% of high-revenue and 63% of highly profitable brokers compete on brand reputation, compared with a national average of 49%. The factors for success in 2012:
Points worth considering: The report carries commentary by the Macquarie Insurance Broking Team, based on their market knowledge and wider economic research. Some comments: Only 15% of principals are female. Does this match the dynamics of your client base? Would greater diversity create better decisionmaking? Is there a competitive advantage to be gained for brokers with greater gender diversity at principal level? Selling: Brokers must demonstrate their value as an adviser to their clients and be clear about the work involved in placing or renewing risks. Fees: Many brokers don’t charge sufficiently for the value they provide, and are fearful of increasing their fees. The key is to be clear on your value proposition and confident in communicating it. The client mix: The loss of one major client can have a significant impact on your business. Keep an eye on your client concentration. Marketing: It’s important to ensure that marketing spend is executed on carefully considered campaigns, as opposed to spending for spending’s sake.
The Macquarie survey team says brokers should be optimistic about the 2011/12 financial year. “While the global economy has its challenges, the Australian economy continues to grow, which should lead to continued organic growth for brokers.” The report says hardening of premiums has long been anticipated and there are now signs that these are coming through, albeit slowly. Western Australian brokers seem particularly focused on hardening premiums, which is not unexpected given stronger price inflation generally in the West. While optimism is to be expected in these market conditions, it is based largely on external factors which sit outside of the control of a business and cannot be guaranteed. “Brokers should monitor these factors closely to ensure they are ready to adapt and adjust their business accordingly, putting them in the strongest position to be able to grow profit,” the report says. Brokers believe the major factor that could negatively impact their profit is client hardship. “With such reliance on the financial performance of clients, brokers should keep a close eye on the performance of their clients and understand their exposure to their top clients,” the report says. “Brokers should also make sure they mitigate any such exposure risks by continuing to focus on new business. “Performance is often closely linked to mindset. When times are tough, as has been experienced by brokers across Australia during the past 12 months, a positive mindset and hunger for growth can make all the difference.” *
Insurance News thanks Macquarie Relationship Banking for providing access to the 2011 Insurance Broking Benchmarking Report. The full report can be downloaded at www.macquarie.com.au/insurancebrokers
Staff: Do you have the right people in the right roles to effectively grow your business?
December 2011/January 2012
Playing Giles Ward is one chief executive who got some upside out of a tough 2011 By Michelle Hannen N OT MAN Y AU STRA L A S I A N I NS URA NC E C H I EF executives have had a good story to tell during 2011, which has been marked by record global catastrophe losses, much of them stemming from disasters within the Asia-Pacific region. So it is with justified pride that Giles Ward, Country President of Ace Australia and New Zealand, talks about the ratings upgrade that the local branch of his company received from reputation-makers Standard & Poor’s (S&P) in July this year, following the catastrophe losses. Ace Australia’s counterparty credit and financial strength ratings were upgraded from A+ to AA-, bringing the local rating into line with that of its Switzerland-incorporated parent company, Ace Group. “After those cat losses at the end of last year and the beginning of this year, the upgrade validates our team’s efforts and we’re very pleased with it,” Mr Ward tells Insurance News. In making the upgrade, S&P cited a few key factors: that it considers Ace Australia to be a core member of the Ace Group globally; the division’s longevity in the local market, where through predecessor companies it has been operating for more than 50 years; its ability to service multinational clients; and its stand-alone capital adequacy. Such news is always welcome in one of the key parts of the market that Ace Australia and NZ plays – the top end of town. And the message resonated in that target market this year, with the global financial services sector awash with economic turmoil and uncertainty. “Corporate insurance clients are looking for financial security and a consistency of approach in the way that their carriers work with them, and we’ve demonstrated both of those over the years,” Mr Ward says. “Our activities have always been built on long-term relationships, and S&P’s decision underlines the fact that we’ll continue to be there for our clients well into the future, because we’re well capitalised, and also because we’re ‘core’. “Being core isn’t just about size, it’s about strategic importance.” Although the local business was not immune to the losses experienced in Australia and New Zealand in 2010 and 2011, Mr Ward says Ace Group’s attitude to – or appetite for – the local market has not altered. “Our risk attitude hasn’t changed and our risk appetite hasn’t changed in any significant way as a result of these various events. We haven’t really changed our fundamental approach to risk or the way that we are willing to accept business or the methodology by which we price business. “So while [the catastrophes] have impacted on our clients at
some level, that hasn’t meant a seachange in the way we approach risk or the market in general, or our group’s attitude to the market.” He says the Ace approach to its property, casualty, financial lines and accident and health business in that corporate space is very much centred on individual risk underwriting, which makes it difficult for him to speak generally about rates in that part of the market. “Larger risks are really where individual risk underwriting comes to the fore,” he says. “That’s what we practise. We see ourselves very much as an underwriting company that looks at each risk very much on its own merits, based on careful analysis.” Mr Ward says that with many long-term relationships in that sector of the market, taking a short-term view isn’t a realistic option. The client relationship with Ace, its risk management practices and Ace’s risk appetite are all factors in setting the terms, conditions and price. “It’s very difficult to say something generic about what is happening with pricing, because you often find you’re comparing apples with oranges,” he adds. Part of that underwriting process for large risks includes the use of risk engineers and other technical experts in specific fields that help Ace’s underwriters make informed decisions while also providing risk management and mitigation advice to clients. That’s one of the advantages of being a global company, Mr Ward says. If the required expertise isn’t available locally, Ace will usually have an expert in another location who can be brought in to assist. “It’s a service that we see as a key differentiator, and something that our clients very much appreciate. It’s been part of our corporate DNA for some considerable time, and it’s something that we continue to develop and invest in. “I don’t see it ever not being part of the mix, because it goes back to that whole issue of being an underwriting company and being able to assess risk professionally before you can go to the next step of pricing it and providing coverage.” He says that while the local division of Ace is often utilised to fulfil the local segment of a global program for a foreign-based multinational, it also looks after the insurance needs of a large number of Australian-domiciled businesses. In fact, the locals comprise the majority of its corporate book.
December 2011/January 2012
Giles Wardâ€™s career : 1988
Commenced working on international accounts in the UK insurance market
Appointed Technical Director for Guardian Royal Exchange (GRE), Indonesia insuranceNEWS
Appointed Appointed Managing President and Director of GRE Chief Executive Thailand of GRE Malaysia (now part of Axa) December 2011/January 2012
Ace in numbers: Global GWP: $US19 billion Global offices: more than 50 Global employees: more than 16,000 Australia and NZ GWP: more than $600 million Offices in Australia and NZ: 7 Staff in Australia and NZ: more than 400 Ace’s Giles Ward: experience in eight countries has given him a global focus clients appreciate
What pleases him so much about that is the fact that a “growing proportion” of these Australian companies require global programs. “We think there’s more opportunity and we’ve developed more local resources to be able to service that outwards piece, which is becoming more important to our Australian clients,” Mr Ward tells Insurance News. “Clients are increasingly looking for a partner who has expertise across the globe in multiple jurisdictions.” Having worked in eight countries, Mr Ward brings a certain expertise of his own to managing global programs. That’s doubtless a big selling point for Ace’s local clients, but Ace has also addressed the administratively complex nature of global programs by developing an online solution, Ace Worldview, which enables clients and their brokers to view their insurance programs globally. The technology picked up an industry innovation award earlier this year, and its promotion will be a key focus in the coming year. “This is a particular product line that we’ve been out in the market talking about this year and we’ll be really focusing on it in 2012,” Mr Ward says. Since arriving in Australia in 2010 following the promotion of former Australia and NZ head Damien Sullivan to Regional President of Ace Asia Pacific based in Singapore, one task that has kept Mr Ward busy has been overseeing the continued integration of accident and health insurer Combined Insurance into the Ace business. Ace bought Combined’s operations globally in 2008, and the business sells its products – mostly to the self-employed – through 520 authorised representatives in Australia and New Zealand. “The integration of Combined has certainly for me been one of the key priorities in the last year,” he says. “It’s now a division of our business, but we’ve kept it as a separate brand because it has a unique positioning and unique sales or distribution model, which is face-to-face selling of accident and health coverage. “It’s brought us increased channel diversity. Obviously we didn’t have that face-to-face selling model previously, and it fits very well with our strategy to provide superior accident and health products.” Ace also distributes its accident and health products through affinity relationships, and has put new deals in place this year with regional airline Rex and New Zealand rugby team the All Blacks to 36
provide services to customers and fans. “These are the kind of partnerships that we’re able to enact and build on,” Mr Ward says. “It’s driven by an investment in people and in technology. “So we’re able to use web-based technology to build sites or to link to our partner sites in a very effective way and help them market products and services that are relevant to their client base or their affinity base.” On the outlook for 2012, Mr Ward is circumspect. “It’s quite difficult to have an entirely clear view,” he says. “A lot, I suspect, will depend on how the international reinsurance market travels in the next months. “While Australia and New Zealand have been a big loss story in 2011, it’s not the only story by any means, and reinsurance is a global business. So I think it’s a bit difficult to be too predictive as to how things are going to work out.” But on the outlook for Ace Australia and New Zealand he is much less hesitant and far more bullish. “The Asia-Pacific region of Ace is seen as a strategic growth area, because Asia is growing so strongly,” he says. “The strategy for 2012 is to maximise the value of the leading positions we’ve got in property, casualty, and accident and health. “In property-casualty it’s about applying that risk management discipline and underwriting leadership and making sure that we continue to provide leading corporate insurance solutions via the broker market. “On the accident and health side, it’s a continuing process of looking at ways of refining and improving our products to make sure that they continue to be superior and that we continue to offer * market-leading customer service.”
December 2011/January 2012
December 2011/January 2012
most influential people in insurance
THE PEOPLE WHO LEAD THE INDUSTRY TODAY, BECAUSE THEY INFLUENCE ITS DIRECTION The insurance industry is constantly changing, and that change affects the people who run it every bit as much as the people further down the corporate tree. Our third annual “top 20” list illustrates very clearly that life at the top of the tree can be precarious. For example, three changes on this year’s list have been caused by the departure of chief executives – and none of them went willingly. Our annual list was originally intended as a one-off examination of who the industry’s most influential leaders are. It has evolved to also become an annual reminder of how much things can change in 12 months. The people listed here are the “go-to” people of general insurance who influence attitudes and events and shape opinions inside and outside the industry. They’re the professionals who make things happen; they’re influential through the authority of their positions, by their qualities of leadership – and by their willingness to speak without compromising the facts. This list was compiled with the assistance of many people. The editorial team at Insurance News insuranceNEWS
was an obvious primary source, because our journalists deal with industry leaders and issues every day. Their answers can be expected to weigh up everything from people’s accessibility to their knowledge and their professionalism as managers. We also asked a number of industry executives for their input, and plenty of others have supplied their own lists and summaries unprompted. We’d also like to acknowledge the people who called asking how to get their clients on to this list. Like any list, this one is not perfect; it’s compiled from the random opinions of a small pool of (albeit informed) sources. But most of the names on this list were mentioned by the majority of our contributors. The list is limited to just 20 people, and we could – and did – discard the names of twice as many worthy individuals who could justifiably be regarded as influential. Of course, we don’t expect readers to agree with all our selections, but if it helps to raise the level of discussion about the qualities that make people admired, confident and influential – and it certainly did around this office – then we’ll have achieved what we set out to do. December 2011/January 2012
Assistant Treasurer Like him or loathe him – and there are plenty of people in both camps – no one in the insurance industry can afford to ignore Bill Shorten. No wonder; he’s doing more than anyone right now to force the industry to confront long-ignored issues, and keeping us on our toes on other issues as well. As our cover story on Shorten in the April/May edition of Insurance News stated, he “won’t let the [flood insurance] issue go until it’s sorted out, once and for all”. During the flood dramas at the start of the year he was all politician, talking nasty and putting the boot in. Since then he’s been a demanding driver of change, but happy to apply plenty of discussion and negotiation in the mix. As one source put it: “He works hard to understand the problem.” In the process he’s pushed through a workable standard definition of flood, formed the Natural Disaster Insurance Review to put up the ideas and a parliamentary committee inquiry to keep the pressure on. He found $12 million to kick-start the national flood data collection program insurers have been demanding, and now he’s digging around the vexed question of strata title cover in Far North Queensland. Shorten’s Future of Financial Advice (FOFA) reforms this year were aimed at sorting out the sales of life insurance into superannuation, but there was some overlap for general insurance intermediaries. The brokers avoided his ban on commission payments, but there are still plenty of traps hiding within the “best interests” provisions of the FOFA reforms. Often touted as a future prime minister, Shorten has been a convincing performer in the financial services sector during 2011. And somehow we don’t think he’s finished with tinkering around the insurance industry just yet.
Managing Director, Wesfarmers Insurance, and President of the Insurance Council of Australia
Managing Director, IAG
Decisive and well connected through his senior management role within the Wesfarmers conglomerate, Rob Scott does what has to be done. He moved swiftly earlier this year to address the weaknesses that had stymied the Insurance Council’s ability to present a coherent industry view during and after last summer’s floods. He has had to be on the front foot all year with a federal government determined to force reforms on to the industry, and from all accounts he has performed well in the backroom role that presidents inevitably adopt. Business-wise, his collaboration with Wesfarmers sister company Coles is making a big push into the highly competitive direct motor insurance market, but it hasn’t been a positive year for his other insurance arms thanks to the region’s natural disasters. Scott oversees direct and commercial insurance operations as well as brokerages OAMPS in Australia and the UK and Crombie Lockwood in New Zealand. Membership of the Wesfarmers group and its enormous capital base helps not only acquisitions but also swift changes in direction, so expect Scott to be in the thick of the action in the next year.
It’s been a tough year for IAG and its share price has taken a hammering, but Wilkins continues to be highly regarded in business circles for his straight-shooting advocacy of industry issues and his patient overhaul of troubled parts of the IAG empire. The costly UK operation is slowly improving, and IAG has landed a useful joint venture in China to add to its insurance partnership with the State Bank of India. Growth in Asia is the way ahead for IAG, and Wilkins is patiently steering the group towards happier times. The group’s dominant “mums and dads” shareholder base is sometimes a curse but it can be a blessing when it comes to holding back acquisitive rivals.
Chief Executive Australian Operations, QBE
Group Chief Executive, Suncorp It hasn’t taken Patrick Snowball all that long to make the cumbersome Suncorp group rather more nimble. And having got the measure of his diverse range of brands and financial services – everything from a bank to a life insurer and everything between – he decided this year that he’ll stick around beyond 2013 until at least 2015. “I’m really enjoying the job, I’ve got a great team of people, I think we’ve really straightened out and stabilised the business,” he told shareholders at the annual general meeting in October. These days he talks less like a visitor from London and more like someone running a big Australian company that is performing better than it has for some time. He has his own business contacts and his own style, and he’s not afraid to lead from the front on issues such as offshoring jobs. Expect to hear more from him this year as the industry struggles to deal with the reaction to higher premiums.
His opportunity came in July when Frank O’Halloran agreed it was time for the next generation to step up. Fagen is seen as tough and capable. Brokers love the way QBE does things, and Fagen can be relied on to keep the business bubbling along profitably. Growth for QBE in this part of the world is a tough proposition, but Fagen will have his eyes peeled for opportunities – probably bolt-ons.
Robert Kelly Executive Chairman, Steadfast He knows everyone in the industry who’s worth knowing and seemingly everything that’s going on as well. The strongarm boss of the country’s largest independent broker group is building Steadfast into a major force in the industry, with a public listing and the controversial but inevitable “virtual underwriter” platform just two of the projects he’s working on. A passionate, outspoken, muchadmired bulldozer.
Managing Director, Munich Reinsurance Australasia
Chief Executive Commercial Insurance, Suncorp
Reinsurers rule right now, and Munich Re dominates the market – discreetly, of course. Eder has been around the local scene long enough to know which levers to pull, and he did a good job after the disasters making sure opportunists understood why reinsurers weren’t going to abide ex gratia flood payments. His Great Lakes insurance operation isn’t particularly popular with insurers, who agitate about conflicts, but Eder mixes a good business brain with the skills of a diplomat.
Terry Towell Managing Director, Allianz Australia You don’t hear much from Towell in public these days, but that doesn’t mean he isn’t working behind the scenes – and his opinion still carries plenty of weight with his peers and the powerful. Still one of the directionsetters for the industry, he has many years of experience to call on. Towell’s career as a chief executive is slowly nearing its end, and there’s plenty of speculation about the Allianz succession plan and what he’ll do next. This old-school insurance conservative is too valuable and too tough to simply let go.
Chief Executive Personal Insurance, Suncorp Milliner just shades Anthony Day at No 9 because he represents Suncorp on the Insurance Council board, which gives him additional gravitas. A mastermind behind the successful Suncorp recovery strategy, the relatively high profile of such brands as AAMI mean Milliner’s name is well recognised in many circles. Capable and innovative, he’s well liked and very focused.
December 2011/January 2012
Suncorp’s “one company many brands” strategy means Anthony Day and Mark Milliner work closely to ensure the success of their shared services program, which is gradually transforming the way Suncorp works in the back office. A sharp thinker whose marketing experience has stood him in good stead in a relationship-focused part of the industry, Day is focused, personable and a
Shane Doyle Chief Executive, Zurich General Insurance Appointed to the top job in March, Doyle hasn’t been slow in making his mark at Zurich, which now has separate general and life insurance arms. His operation has been thoroughly worked over in the past year as he fine-tuned the operation and put new people in senior positions. Doyle is a persuasive public speaker with an incisive intellect and excellent relationship skills. At the age of 42 he’s one of the new generation of insurance industry leaders who are making their mark.
Allan Manning Managing Director, LMI Group The best spokesman loss adjusters could hope to have, Manning has been a tireless advocate for the wider industry on a range of issues, including campaigning against state taxes on insurance and, more recently, getting involved in the postflood debates. On top of that his company’s services are much in demand, and his books on insurance range from hefty tomes to handy textbooks for industry starters – and there’s even a children’s book explaining insurance. Brokers rely on him for his unequalled analyses of insurance products, and everyone else admires his commitment and
Leon d’Apice Managing Director, Ebix Australia If you want to talk insurance IT – and everyone should be – you’ll eventually find yourself talking to Leon d’Apice. Through global parent Ebix his operation has enormous capacity to introduce proven products that can immediately meet emerging local needs. The urbane boss of not only the industry’s largest transaction platform and most of its broking systems is relaxed about emerging competition because, like it or not, right now he holds the whip hand.
Chief Executive, Financial Services Council
Head of Australia and New Zealand, Swiss Re
No offence intended to the people running the general insurance industry’s various representative associations, but John Brogden has the goods. An experienced politician with a good grasp of the issues, he’s admired for his ability to communicate complex viewpoints and articulate some big visions. Journalists like him for his willingness to make time for them and politicians listen to him. He can’t be ignored because he represents a very powerful constituency – some of whom have interests in general insurance. Look and learn, people.
The Australian-born boss of the second giant European reinsurer has had his hands full in the past year, thanks to a dominant position in the local catastrophe risk market. Senkevics has pushed catastrophe bonds as a solution to Australia’s rising risk exposure, particularly in government infrastructure. Rising property reinsurance rates are expected to cause a stir in January, and Senkevics will likely be one of those who can provide a rational and authoritative narrative on the reasons.
Lach McKeough Chief Executive, Austbrokers Austbrokers has a unique ownership model, and it’s very much Lach McKeough’s baby. Respected as a skilled negotiator and dealmaker, he has built the company from an insurance company’s small broker-buying scheme to a national broking powerhouse that’s continuing to grow. Austbrokers also continues to make healthy returns and has the capability to introduce new services like the iClose system without fuss or rancour. McKeough also keeps the rival IBNA broker group close
Chairman, Hollard Financial Services, Managing Director Hollard Insurance
Chief Executive, Aon Australia
Privately owned but globally focused Hollard is an unstoppable force. Enthoven, son of the company’s South African founder, continues to invest and grow the business in Australia, and his companies now have partnerships with 22 brokers, 12 underwriting agencies, four insurance operations, a direct insurance operation of its own (Real) and a growing portfolio of direct insurance services launched this year and also in development for giant retailer Woolworths. The Hollard operation is now a significant player in the local market and has an impressive global presence as well. It’s only going to get bigger.
Aon is big by any measure. As a broker it’s huge. Nevett has at his fingertips an organisation that can not only place commercial insurance of all kinds but also draw on Aon’s global knowledge bank to provide highly specialised advice for clients. The world of the mega-broker is very different from that of the next tier – relationships with insurers, the variety in deal-making and the size of the clients. Nevett is very experienced in both underwriting and broking, and is regarded as an accomplished networker. He’s also accessible, which makes him a favourite with local business media.
December 2011/January 2012
People to watch
Pacific Region Head and Chief Executive Australia, Marsh
They’re reforming insurance all around the world. Laughlin has responsibility at the regulator for risk insurance, so he will lead the push here. It will be interesting to see how he and the organisation handle an increasingly interventionist federal government, too.
Like Aon, Marsh works in a rarefied world where it seems a bit above the everyday affairs and issues that smaller broking groups grapple with. And while John Clayton can wield considerable influence in the market, Marsh has always been careful to stay engaged with the wider industry. Clayton is without doubt a very busy person, but he makes time for the occasional speaking engagement and isn’t afraid to put a controversial view when the need arises.
Executive Member, Australian Prudential Regulation Authority
Senator Mathias Cormann Federal Opposition financial services spokesman He has grown in the role since his appointment in October last year and has attracted a good industry following. There’s no certainty Cormann would keep the financial services portfolio in the event of the Coalition taking power within the next couple of years, which would be a shame. He’s worked hard to understand the industry.
Chief Executive Global Underwriting Operations, QBE
Chief Executive, Insurance Council of Australia
Tipped as the logical successor to Frank O’Halloran, he’s focused on the global business, but the restructure of the Australia Asia Pacific division and the subsequent departure of Vince McLeneghan demonstrate Neal’s growing influence within the group and his ability to make big changes.
After a chaotic summer of disasters (in so many senses), the Insurance Council is beginning to get back on track, and has recently added a much-needed communications professional to its ranks in the likely event that last summer happens all over again. Whelan had an unenviable task last year putting the industry’s views in the face of a torrent of criticism from the media and a seemingly endless number of official inquiries.
Where are they now? Frank O’Halloran Chief Executive, QBE Group – #1 last year Dropping Frank O’Halloran from No 1 position will doubtless raise a few eyebrows, and we don’t doubt this much-admired businessman could command any audience he wished, if he wanted to. But O’Halloran is focused on QBE’s global pond and building up to an orderly succession – and Australia might be home, but it’s really a small tributary with little potential for dramatic growth these days. O’Halloran only gets the headlines when he announces half-yearly and annual results – which haven’t been as warmly received as they were a few years ago.
Peter Harmer Chief Executive, CGU Insurance An insurer turned reinsurance broker and then commercial broker turned underwriter, Harmer is bringing a new perspective to a company that has struggled a bit to build a more positive market presence. He has an impressive track record, including running mega-broker Aon here in Australia and the UK, and was also chairman of the Lloyd’s Market Association. Appointed to the top CGU job in November last year, he has the experience and capability to go far in IAG.
Vince McLeneghan Chief Executive, QBE Australia Asia Pacific – #14 last year Left the company in July when the division was restored to two separate divisions after 11 months.
Chief Executive, Zurich Financial Services Australia – #16 last year
Chief Executive, Wesfarmers Underwriting – #20 last year
Chairman, Underwriting Agencies Council – #13 last year
Left the company in March after a global restructure split the local operation into general insurance and financial services units.
Left the company in late October when a restructure caused his job to disappear.
December 2011/January 2012
The driving force behind the council’s development into a more cohesive and effective organisation, Coates has stood down from the board pleading pressure of work as chief executive of the expansive Dual Asia
A reform brokers can’t escape How legislation designed to control rogue investment companies evolved to trip up insurance intermediaries By John Wilkinson
FOR THE PAST 20 YEARS GOVERNMENTS have continually tinkered with regulating the financial services sector. The Future of Financial Advice (FOFA) reforms are the latest example of a federal government wanting to change one thing and inadvertently spreading the reform contagion. FOFA is a reaction to some of the excesses of a buoyant economy before the global financial crisis hit in 2008, when people got too enthusiastic chasing the pot of gold at the end of the spruikers’ rainbow and ended up losing everything. General insurance brokers and life insurance advisers have been caught up in the reforms, even though the original aim of FOFA had nothing to do with them. It’s particularly galling for the insurance industry when the core problem was financial advisers selling investment products to people who couldn’t afford them. To understand why insurance has been sucked into FOFA, you need to look back to the Financial Services Reform Act 2001. This introduced a single licence for everybody participating in the financial services 46
industry, including general insurance brokers. It laid down training requirements for licensees and added product disclosure statements and statements of advice. The legislation is part of a push for higher qualifications for financial advisers, because regulators and politicians felt there was a need to raise public confidence in the financial services industry. This desire for higher standards saw many older intermediaries retire because they didn’t want to undertake the extra training required. And it was a good time to sell their books of business; the economy was booming and good prices were achieved. So brokers were pulled unwillingly into the licensing system and a regulatory framework that ensured future legislation based around a financial services licence would inevitably include them. Back in 2004, when the licensing system was grudgingly accepted, the booming economy was creating the problems that led to the FOFA reforms. It was a time when any investment delivered returns; and even if one didn’t, people soon insuranceNEWS
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forgot about it because there was always a new opportunity arising to make money. Demand for higher returns on their capital meant the public ignored the risks as if they were never going to happen. After all, the commodity boom was going to last well into the middle of this century and Australians were going to enjoy a good standard of living for many years to come. So with this rose-hued background causing ever-increasing demand for more financial products, a Western Australian property developer called Westpoint launched a series of mezzanine finance products that were sold through financial advisers to consumers. These products would pay for various developments around the country that Westpoint was building, and the investors would benefit from the sales of these properties. The Australian Securities and Investments Commission (ASIC) expressed some concern about the complexity of some Westpoint products and took legal action against the company to see whether the promissory notes being sold by advisers should have been offered as debentures or financial products under the
“Both the general insurance and life insurance industries have complained about the lack of definitions and requirements of ‘best interests’.”
Corporations Act 2001. In December 2005, winding-up notices were issued against a number of the Westpoint mezzanine finance products as ASIC was concerned there were insufficient funds to pay out investors. The subsequent collapse of Westpoint resulted in about 4000 investors being owed $388 million. Investigations found advisers had been paid generous upfront commissions of 10% or more to sell the products – with little regard for the individual investor’s needs. ASIC pursued a number of financial advice firms and secured repayments for some investors while banning a number of the offending advisers. And that sowed the seeds for the FOFA reforms that were to follow. In December 2008, as global economies dipped lower, Townsville-based Storm Financial found itself unable to run fast enough to stay ahead of the downturn in investment markets, and collapsed. The company had sold share portfolios to clients and urged them to borrow to increase their holdings – a practice known as margin loans or gearing. While the value of the investment portfolios grew, they still exceeded the amounts the clients had borrowed. But once the 2008 global financial crisis occurred, many investors’ portfolios shrank to the point where the banks called in the loans. As the loans were secured against domestic property, investors faced a double hit of losing their savings and their homes. As details of the collapse emerged, investigators found pensioners had been put into margin loans. But despite the public outcry and questions about the quality of the advice delivered to Storm clients, the dealer group wasn’t guilty of being driven by commissions to achieve sales. It had operated a fee structure based on the value of the assets, although there were some volume payments from the banks’ margin lending divisions to Storm. But it still led to a public clamour for further reform of the financial services industry. The Government didn’t waste any time in initiating an inquiry into financial products and services being offered to consumers. The Parliamentary Joint Committee on Corporations and Financial 48
Services, headed by Queensland MP Bernie Ripoll, came up with a number of recommendations to improve the quality of advice given to consumers. The committee report released in November 2009 made 11 recommendations that were to form the basis of any future legislation. They were: • The Corporations Act should be amended to include a fiduciary duty for financial advisers operating under an Australian financial services licence to place their clients’ interests ahead of their own; • Ensure ASIC is appropriately resourced to perform effective risk-based surveillance of the advice provided by licensees and their authorised representatives; • The Corporations Act should be amended to require advisers to disclose prominently in marketing material any restrictions on the advice they are able to provide and any potential conflicts of interest; • The Government should consult with the industry to develop the most appropriate mechanism to cease payments from financial product manufacturers to financial advisers; • The implications of making the cost of financial advice tax deductible for consumers should be considered by the Government; • Section 920A of the Corporations Act should be amended to provide extended powers for ASIC to ban individuals from working in the financial services industry; • ASIC should require agribusiness scheme licensees to demonstrate they have sufficient working capital to meet current obligations as a condition of their licence; • Sections 913B and 915C of the Corporations Act should be amended to allow ASIC to deny an application or suspend or cancel a licence where there is a reasonable belief that the licensee “may not comply” with his or her obligations under the licence;
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• ASIC should immediately begin consultation with the financial services industry on the establishment of an independent, industrybased professional standards board; • The costs and benefits of different models of a statutory last-resort compensation fund for investors should be investigated by the Government; • ASIC should develop and deliver more effective education activities targeted to groups in the community who are likely to be seeking financial advice for the first time. The recommendations won bipartisan support and the industry found little to disagree with. The Corporations Amendment (Future of Financial Advice) Bill 2011 was quietly introduced into the House of Representatives in October. The Senate then sidetracked it by referring it to the Parliamentary Joint Committee on Corporations and Financial Services, where it will languish until the committee reports at the end of February. It has also been sent to the Senate Standing Committee on Economics, which will report in March next year. The Government has also taken up the “fiduciary interest” recommendation from the Ripoll inquiry to form part of the “best interest” clause. At this stage general insurance brokers and life insurance advisers will be included unless they can negotiate an exemption – which seems unlikely. The clause requires licensed intermediaries to act in the best interests of their clients and to place the interests of their clients ahead of their own when providing personal advice to retail clients. Both the general insurance and life insurance industries have complained about the lack of definitions and requirements of “best interests”. The National Insurance Brokers Association (NIBA) says in its submission that the Government “has not conducted a risk insurance market review to determine the nature and extent, if any, of issues or concerns in the area of financial advice relating to risk insurance products”. So at this stage what “best interest” will entail is unknown until the legislation is introduced, although some detail has appeared in the explanatory notes accompanying the draft bills. But there can be – and have been –
many changes between the draft bills and what may be lodged before Parliament. The first FOFA bill has given a bigger budget to ASIC for surveillance, and has also given it powers to ban advisers if it thinks they are not acting within the law. Stopping payments to life insurance intermediaries from product manufacturers has been taken up by FOFA, but in a complicated way. Commissions on investment products are banned, as are life insurance sales within corporate superannuation. General insurance brokers have escaped this clause, being excluded from all commission bans including selling products through superannuation funds – a rare victory. Tax deductions for financial advice have been ignored by the Government. Since the Ripoll report very little has been said on the topic. Also ignored has been the agribusiness recommendation and the creation of a professional standards board. But it could be argued that the various professional associations for financial services intermediaries already have this in place through their own internal standards. The compensation scheme has been looked at, but there seems to be little enthusiasm for creating such a body. The education recommendation has also been ignored at this stage. Not on the list of recommendations was a requirement for advisers to renew their service agreements with clients on an ongoing basis. Known as “opt-in”, the first FOFA bill has i n cluded this for all new clients. It has attracted vigorous opposition from the financial services industry associations and leading advisers, who describe it as a waste of time and a creator of more red tape. The industry argues an “opt-out” proposal would be more workable. Insurance News has been told the Government sees this part of the legislation as non-negotiable, and there have been ques-
tions as to who is behind the move. The finger has been pointed at the unionowned industry superannuation funds which have run a long campaign against advisers being paid commissions. It has also been suggested the Assistant Treasurer Bill Shorten, who comes from a union background and counts superannuation among his ministerial responsibilities, has been willing to agree to their demands. So will FOFA fix up all the problems of the past five years and help the insurance industry – both life and, by default, general – deliver better service? Most critics say the reforms will achieve nothing more than create additional compliance and paperwork. The general and life insurance industries have played no part in the problems of the past five years – the collapses have been created by investment products. But as brokers and life insurance advisers hold an Australian financial services licence, they are inevitably caught up in other people’s misdemeanours. There is also no guarantee this government will run its full term, in which case FOFA could potentially become one of those bills that sink without trace. The Opposition hasn’t said it will sink FOFA, but it has said it will repeal a number of clauses including the controversial “opt-in” provisions. The first two bills are already struggling in Parliament with both being referred to committees that will not report until the first quarter of next year. And there is still a third tranche of the legislation to come with Parliament having risen for the summer. As a result of these delays, the July 1 2012 implementation date for FOFA is looking less likely although Mr Shorten is still sticking to that date. For many people on both sides of life and general insurance divide, that’s just about the only positive aspect of the whole FOFA drama.
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The Why a New Zealand court decision is rocking Australian business and insurers – and what to do about it By Mark Lindfield, Special Counsel at DibbsBarker, and Justin Coss, General Counsel at InterRISK Australia ONE OF THE MAIN FUNCTIONS of a modern directors’ and officers’ liability (D&O) policy is to help directors fund the costs of defending claims brought against them arising from their conduct as directors. However, a recent High Court of New Zealand decision calls into question the ability of insurers to make those payments where the value of the claims foreshadowed against the directors approaches or exceeds the policy limit of indemnity. The decision has implications not only for D&O insurance but also for other liability policies that offer cover for defence costs.
What happened? The Bridgecorp group of finance companies collapsed and were placed into receivership in June 2007, with the company owing investors nearly $NZ500 million. The former directors face numerous criminal and civil claims, including proceedings instituted by the NZ Securities Commission and civil claims from the Bridgecorp receivers. Two insurance policies potentially provided the directors with cover for their defence costs. A statutory liability policy provided cover of $NZ2 million but that limit was exhausted. The second policy, issued by QBE, was a D&O policy with an overall policy limit of $NZ20 million and a limit for advance payment of defence costs of $NZ500,000. The directors called on QBE to fund their further defence costs. But in June 2009 Bridgecorp’s receivers asserted a charge over monies payable under the D&O policy for amounts they intended to claim from the directors. They alleged the charge arose by virtue of section 9 of the Law Reform Act 1936 (NZ), which creates a charge in favour of a claimant over monies that may be 50
payable under any insurance policy held by the person against whom the claim is made. Given the disagreement between Bridgecorp and the directors as to how the policy proceeds should be allocated, QBE refused to pay the directors’ defence costs. The directors asked the High Court to declare that the Act did not prevent QBE from covering their defence costs.
Did the court find in favour of the directors? No. The court found that the purpose of the Law Reform Act was to ensure genuine claimants were not deprived of the benefit of an insolvent person’s insurance where, for example, the insured applied the insurance proceeds to other debts, engaged in extravagant litigation, absconded with the proceeds or even reached a corrupt bargain with the insurer. The court agreed with the receivers that if QBE was to pay the directors’ defence costs in circumstances where the value of the claims made against the directors exceeded the policy limit, there would be a significantly reduced pool of funds with which to satisfy their claims. The court held that this was contrary to the purpose of the Act. Therefore any payment by QBE of the directors’ defence costs would need to be made on a purely gratuitous or ex gratia basis because it would not reduce the funds available under the policy.
Why is this decision important for Australians? The implications of this decision stretch beyond New Zealand’s shores because section 6 of the New South Wales Law Reform (Miscellaneous Provisions) Act 1946 is in almost identical terms to section 9 of the New Zealand Law Reform Act. Similar legislation also exists in the insuranceNEWS
Australian Capital Territory and Northern Territory. In fact, the court referred to the numerous authorities on the Australian legislation in finding support for its decision. As New Zealand High Court Justice Graham Lang noted, his decision produces “some unsatisfactory consequences”, especially since one of the main reasons companies and directors purchase D&O insurance is to provide cover for defence costs in relation to any civil or criminal proceedings instituted against them. The decision calls into question the availability of defence costs cover for Australian and New Zealand insureds in the event that claims are made against them that may exceed the overall limits of their liability policies.
What should insureds be doing in response to this decision? The Bridgecorp decision is under appeal but it is likely to be months before the outcome is known. In the meantime Australian and New Zealand insureds who have liability policies that include defence costs cover, especially directors and officers, should: • Talk to their insurance broker. Anecdotal evidence suggests some brokers remain unaware of the decision, so insureds need to ask their broker if they have considered the impact of Bridgecorp on their insurance; • Review their insurance policies. Does their existing policy provide a separate aggregate limit for defence costs or is there a combined limit for claims and defence costs? What is an appropriate limit for their defence costs? • Consider their options. Their broker can help them identify alternatives such as whether separate policies for defence costs are available, but care needs to be taken to identify and manage any potential gaps in covDecember 2011/January 2012
What is the insurance market doing in response to the decision? Stand-alone limits for defence costs have been available in Australian and the Lloyd’s market for some time. But historically the appetite for these products has not been significant, resulting in some insurers shelving these products. It now seems apparent that insurers who have ceased offering this product are dusting them off as more queries are received from the broking market. There is no doubt that the level of interest in stand-alone defence costs and statutory liability products is increasing. Nevertheless, it still seems surprisingly low. Insureds appear to be waiting for the outcome of the appeal in the Bridgecorp decision before making any decisions to purchase extra cover or to split the cover they already purchase between a pure side A policy for the benefit exclusively of the directors and officers and a separate side B and C policy for the benefit of the company. In the meantime, given that the outcome of the appeal may take some time, it is understood that insurers are working on new products which are designed to address the effect of the Bridgecorp decision and the uncertainty that it creates * in this area.
Excess buydown cover is raising plenty of interest THE SPATE OF NATURAL CATASTROPHES in Australia this year has created a niche product opening for canny specialists. Excess buydown cover is now being offered for flood and cyclone in Australia and one firm is also expanding to cover earthquake excesses in New Zealand.
Designed for differences Chartis unveils a flexible investment managers policy
Finding opportunities in disasters
This has been driven by the massive increase in premiums for these affected areas, especially in North Queensland, the South Island of New Zealand and flood-prone areas of Australia. Indemnitycorp has been offering cyclone buydown cover since March last year and has now added flood excess buydown to its cyclone offering as clients seek to reduce their exposure to flood excess loadings. Also joining the market is Insurance Advisernet Australia subsidiary iaAgency, which is offering to help clients reduce their excess for
THE INVESTMENTS BUSINESS IS fraught with all sorts of unique risks, so the financial lines division at Chartis Australia has developed a “modular concept” for its new investment managers insurance policy to allow brokers to tailor cover. “The new modular format provides our brokers with the flexibility to choose only the cover the client requires,” says Liliana Uhrik, Regional Manager, Financial Lines at Chartis Australia. The investment managers insurance policy is designed to cover investment managers, advisers and investment funds against exposures that traditional professional indemnity or directors’ and officers’ (D&O) policies can’t offer. It provides financial protection against breach of duty, D&O claims and fraud. Ms Uhrik says a traditional professional indemnity or D&O policy won’t cater to the exposures faced by a responsible entity arising from the Managed Investments Act without significant amendments. The module components cover insuranceNEWS
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cyclone, flood and earthquake covers. Indemnitycorp Account Director Shane Aitken says interest is growing in these policies as Australia prepares for another cyclone season. “I am expecting a lot of interest as the season ramps up, especially with the [Bureau of Meteorology] warning of a wet summer,” he told Insurance News. “There is always movement on excesses after disasters and clients are in need of these types of policies.” Natural disasters do occur globally, “so the underwriters of this excess cover are also calculating the risks on a global scale and are willing to cover the amounts clients want to reduce their excesses”. iaAgency General Manager Chris Collins says his company is underwritten by a Lloyd’s syndicate that writes excess buydown business globally. “The syndicate acts for clients worldwide and has the capacity to deal with our Australian clients’ requests,” he said. “If there was a particularly large excess to be covered, the syndicate would go onto the floor and spread the risk.” IaAgency, which gained its Australian financial services licence last month, is looking to write deductibles of $50,000 and above. It has been helping some Queensland tourist resorts to wind back cyclone cover excesses of more than $2 million. Mr Aitkin says the strongest interest for this type of cover is coming from Queensland north of Townsville. “But we are also seeing good interest from the northwest of Western Australia, which is exposed to a number of cyclones each * summer.”
professional civil liability of the investment management and the fund; the management liability of the directors and officers, and the direct financial loss suffered as a result of employee infidelity or third-party crime. She says risks to be covered include violations of investment management contracts, mismanagement or failure to supervise and non-fraudulent misrepresentation. These exposures and risks can change over time, so Chartis has designed its policy to take into consideration changes brought about by regulators, investors, third parties and employees. “The wording has been updated and refreshed to cater to the needs of changing regulatory requirements,” Ms Uhrik says. Chartis’ investment managers insurance complements the company’s D&O Gold product, with the D&O section extensions, exclusions, definitions and general provisions * upgraded to align with it.
Cyber-crime cover Zurich covers the consequences of privacy and data loss ZURICH’S NEW SECURITY AND PRIVACY Protection product is on the market following hot on the heels of its new Commercial Crime policy, Cyber crime is an increasingly common issue. It often makes the headlines when major corporations lose customer records or have information stolen from their databases. And it affects a company in
numerous ways. Customers and stakeholders lose confidence in the company, litigation is likely and the cost of doing business rises. “Recent headlines tell stories of lost or stolen personal information, customer records and credit card details,” Zurich National Underwriting Manager Financial Lines Susan Elias says.
“Multiply this by thousands of records and the costs can be overwhelming. That has many of our customers highly concerned.” Tougher laws are placing increased pressure on companies to manage information with more vigilance. Zurich’s new Security and Privacy Protection policy addresses third-party liability and first-party loss. This includes privacy breach costs, digital asset replacement expenses and business interruption cover following a breach. The third-party liability provisions cover regulatory proceedings and cyber-extortion threats, and there is also an option to add internet media liability coverage. Ms Elias says the product is particularly suited to commercial retail, technology, healthcare, data processing and professional services operators. But she warns any company that holds data – whether it is about clients, suppliers, business partners or employees – is exposed to risk. “You can outsource processes, but you cannot outsource liability,” she says. “Our experts can help clients understand the risks of handling data and the risk of tougher protection laws.” The new policy is available on a standalone basis and has a simplified form that enables brokers to assess cover needs and make recommendations to clients. Other benefits specific to the Zurich policy include affirmative cover for security and pri* vacy legislation and regulations.
Growing up in a Dual sense
part of the company’s drive to “bring the London market to Australia”, according to National Accident and Health Manager Clinton Evans. “We want to provide expertise locally so Australian brokers can deal with local underwriters.” He says Dual’s local underwriting capacity and the expertise to manage complex and specialty risks should be more readily available. The accident and health capability offers bespoke tailored solutions for people in occupations or sports that expose them to greater risk. These include the usual sports such as football, motorsports and diving, but Dual also wants to attract customers working in fields that expose them to high levels of risk such as the media, and those who are self-employed or working in what are considered high-risk occupations. Like mining, for example. “Certain risks like underground mining are perceived as poor risks, but that’s not always the case,” Mr Evans says. “What
applied 20 years ago doesn’t necessarily apply now. “Risk management practices are so much better now and there have been so many occupational health and safety improvements. “So simply relying on perceived risk is no longer acceptable. We must ask questions and look for ways to find risk solutions. “In developing our specialty risks capability we are really just responding to an everchanging risk market. Employee risk evolves, so we must adapt.” Mr Coates says Dual’s expansion into the Asia-Pacific region is on track. He singles out the New Zealand market as a “phenomenal success” for the company. Now his attention is turning to Singapore, where the company wants to set up its next Asia office after Hong Kong. “We expect it to happen early next year,” he says. “Singapore is a heavily regulated market, but all indications are strong that we * can get a licence to operate.”
More products for the Australian market, and now expansion into Singapore DUAL AUSTRALIA HAS INTRODUCED a new accident and health specialty risks capability as part of its diverse Australia and Asia growth strategy. Managing Director Damien Coates says expansion is the catchword, with Dual offering more products in Australia while it grows in the geographical sense in the Asia Pacific business. “Dual Asia Pacific is a success,” he told Insurance News. “We went from zero to $100 million of business in seven years – all from a blank sheet.” The new accident and health product is 54
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An answer to the Bridgecorp dilemma: Ironshore moves fast to counter the influences of NZ court decision
Plenty of takers: Lumley’s management liability is a favourite with cafes and restaurants
Lumley updates its management liability cover Broker feedback leads to even more features for SME clients LUMLEY INSURANCE ISN’T SITTING back to enjoy the market support it’s receiving for the management liability policy designed specifically for SMEs that it launched in April. Instead, it’s making changes and adding new features to the policy. “Our management liability product has been well received since we launched it as part of our Business Package offering,” Chief Executive John Nagle says. “Thanks to the valuable feedback we’ve received from brokers we’ve been able to enhance this increasingly essential form of cover. Mr Nagle says he has been “very pleased” with the take-up of the product, but the company won’t stop making improvements. “As we continue to work with brokers to increase their knowledge of the product and offering, we expect it to get even better.” Recently added features are in Coverage Part 4, which has been renamed “company expenses”. It provides the client with legal cover for third-party claims, while fidelity loss and tax audit costs are now included as extensions. Public relations costs are incorporated across all covers, and claims by regulatory, governmental or authorised professional institutions have been included in the statutory liability section. This covers costs for investigation, defence and fines, and there are no 56
sub-limits for statutory liability. An extra 12 months of cover is now incorporated for retired directors, taking the limit from 72 months to 84 months. The policy provides directors’ and officers’ liability, employment practices liability, statutory liability and company expenses. A Lumley spokesman told Insurance News a variety of businesses have taken up the cover. “We have seen particular movement in engineering, professional offices, cafes and restaurants, retail and transport.” Brokers can choose a comprehensive package with aggregate single or separate limits for each of the four covers ranging between $250,000 and $5 million. Management liability cover can be added during the policy term if there is an existing Lumley business package or it can be included on policy renewal. Lumley’s management liability product can be employed either as a section of the Lumley or Steadfast commercial business package or as a stand-alone policy. All are available through Lumley’s my.place@lumley platform via Sunrise * Exchange.
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IRONSHORE AUSTRALIA HAS announced enhancements to its professional liability policies for defence cost coverage in response to the recent Bridgecorp decision in the High Court of New Zealand. [See article, page 49] Managing Director David Rogers says the new solutions are tailored to provide positive defence cost coverage on policies that are being made available within the New Zealand and Australian markets. The defence coverage will be in addition to the standard professional policy limit of liability. The September 15 High Court judgement means directors could be forced to fund their own defence costs despite having valid directors’ and officers’ cover. The court held that the intention of Section 9 of the Law Reform Act 1936 is to keep the insurance fund intact for the benefit of people with civil claims against those with insurance cover. This decision has implications within Australia as several states and territories have similar provisions in their own legislation. The decision could also impact all costsinclusive policies. “Ironshore’s business growth strategy focuses on creating innovative products in response to market demand,” Mr Rogers says. “The defence cost coverage offers a solution to alleviate the concerns of insurance brokers and their clients based on heightened potential liability risk exposure within the region caused by the High Court’s decision.” Another new product from Ironshore is mergers and acquisitions (M&A) insurance, covering a highly specialised area with products and solutions such as warranty and indemnity insurance for buyers or sellers, tax opinion insurance, and one-off, unique policies created for individual risks. Mr Rogers says Ironshore Australia is structured to leverage the parent company’s global expertise, and will provide M&A cover throughout the Asia Pacific region. “We will be collaborating with regional law firms, accounting and consulting companies, private equity and financial institutions, along with small * business-owners.”
Zurich global leaders meet local brokers Zurich Asia Pacific General Insurance Chief Executive Johnny Chen (left) met plenty of local brokers when he visited Sydney with several other Zurich leaders for his first board meeting in Australia. The company’s local management team threw a barbecue for Mr Chen and other visiting Zurich Global Corporate leaders – Chief Executive Thomas Huerlimann, Asia Pacific Chief Executive Vincent Vandendael and Chief Operating Officer Max Schoenholzer. Australia and New Zealand Chief Executive Shane Doyle hosted the event to connect local board members and brokers with the international visitors. Mr Huerlimann was fresh from presenting at the Asia Risk Council as part of the World Economic Forum, and spoke to the gathering about global risk and the opportunities and risks of “black swan” events on the insurance industry.
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Epsilon Underwriting turns 10 Peter and Lynn O’Shea, the owners of underwriting agency Epsilon Underwriting, celebrated their company’s 10th anniversary with 80 guests and staff at Sydney’s Ivy Penthouse. The O’Sheas started their business in 2001 as an agency to concentrate on liability insurance and the company has since written $100 million worth of business. Insurance industry guests including brokers and underwriters attended from all over Australia and some as far away as London. London guests were Lloyd’s Chief Underwriting Officer Darren Jacobs, CV Starr Casualty Underwriter James Cassidy, and David Robinson and Alastair Johnstone, both from the reinsurance section at Lloyd’s broker The Underwriting Exchange.
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Red carpet event for IBNA in Adelaide South Australian brokers can usually be relied on to do things in style, as more than 100 guests attending the inaugural IBNA SA members and business partnersâ€™ dinner at the Adelaide Entertainment Centre can attest. IBNA brokers rolled out the red carpet for staff from insurers and premium funders in a networking event that was a mix of business and pleasure. Entertainment was supplied by Adelaide band the Flaming Sambucas. IBNA is planning to make this an annual event.
December 2011/January 2012
Women in Insurance celebrate 25 years Popular industry networking group Women in Insurance (WII) has celebrated its 25th anniversary with an event at Darling Harbour, Sydney after its annual general meeting. Brokers, loss adjusters, underwriters, lawyers, claims staff… in fact, women working in any area in insurance, are welcome at WII. Events are designed to foster networking, mentoring and sharing experiences in the industry. Over the past six years attendances at WII’s functions have increased from 170 to 500 people for each event. Newly elected president Emma Hoolahan says the association can look forward to another exciting year in 2012. “Women continue to excel in the insurance and financial services arena but there is still much to achieve at the most senior levels,” she says. “Through our events, we will continue to address issues relevant to women in the industry, maintain colleague support and advance our enormously effective networking platform.” Past president Sherrie Morton says the association provides an environment for young women to “make the essential contacts they need to progress in this industry”.
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Excellence recognised, knowledge shared at Lumley’s fleet event Lumley Insurance’s large fleet insurance customer base gets more than insurance from their insurer – they also obtain important information that enables them to run their fleets more efficiently through its annual benchmarking report. Using the data provided helps fleet managers to stay within – or exceed – the industry average over a wide range of measures. And Lumley’s knowledge base grows with its motor fleet business – it now insures more than a million fleet vehicles. The awards initiative is in its 17th year, with the insurer this year bringing major fleet operators together in Sydney for its annual Lumley Insurance Motor Benchmark Awards. More than 100 motor fleet professionals from across Australia were there to have their efforts to run safe and economical fleets recognised by their peers. The 2011 Benchmark Award for Inspiring Excellence in Fleet Risk Management was awarded to building materials supplier Boral Limited. “Boral demonstrated a strong focus on managing driver safety and controlling fleet costs,” Lumley National Commercial Motor Manager Rick Norrington said. Driving trainer Jeff Thomas and CSIRO vehicle environmental expert David Lamb made presentations at the event.
December 2011/January 2012
Calliden holds juggling lessons for female brokers Work-life balance is the catchcry of the decade, with most women well aware of the complications associated with private life versus work life. It’s a juggling act that’s almost impossible to get right. Speaking on the subject was doctor, author and TV personality Linda Friedland, who is – most importantly – a career woman. She presented her theory on getting the balance right at Calliden’s networking event to an audience of 50 female brokers who all found some wisdom in her words. Calliden’s event in Melbourne was part of a series of fun events for female brokers to encourage networking while providing
December 2011/January 2012
Ghouls and ghosts at AILAâ€™s Halloween party Halloween gave young lawyers, underwriters, brokers and loss adjusters an opportunity to break out of their business suits and party. The Australian Insurance Law Association Halloween party in Sydney attracted more than 500 members of its New South Wales young professionals network â€“ every one of them eager to be entertained. They were enticed with plenty of food and drink, a photo booth to commemorate the occasion, cartoonists to immortalise them, fortune tellers to foretell their potential and magicians to wow them. Awards and gifts were presented for best-dressed ghouls as well as lucky door prizes for the vampires, witches and warlocks in the room. Young professionals in the industry work closely together during the year and foster great business relationships. This Halloween event presented a great platform on which to foster less formal ties.
December 2011/January 2012
Insurance Advisernet delegates learn the fun way Insurance Advisernet Australia (IAA) authorised representatives from across the country gathered in Port Douglas in Far North Queensland for their annual conference, proving by sheer weight of numbers that the organisation is growing fast. Some 300 IAA delegates and 80 insurers and industry partners flew in for the big event. There was plenty of motivational material between the serious business, with cricketing great Glenn McGrath and winning Americaâ€™s Cup skipper John Bertrand sharing insights on how great teams work. Social media guru Iggy Pintado was also there to see IAA create an event hashtag which achieved more than 400 tweets by 60 users and reached an astounding 600,000 impressions.
December 2011/January 2012
A well-equipped program eQuip, QBEâ€™s special training initiative for young professionals, has held its annual graduation dinners across Australia to celebrate the successful completion of the formal learning component of the program. Hosted by QBEâ€™s General Manager Australian Intermediaries Shaun Standfield, the dinners also provided an opportunity to officially welcome the class of 2012. Program graduates are invited to join the eQuip alumni so they can maintain and enhance the industry networks they have started to develop. eQuip gives participants resources and tools to maximise professional development and mature in their roles as the future leaders of the Australian general insurance industry. Over the next year the class of 2012 will complete three modules: leadership, insurance acumen and sales and relationship management â€“ the key competencies QBE believes will drive ongoing success. Our pictures were taken at the Melbourne and Adelaide events.
December 2011/January 2012
Frocked-up fun with Zurich in Geelong Ladies only is the catch-cry for Zurich on Geelong Cup Day, with 60 female brokers and underwriters putting on their finest fascinators to get together for a day of frockedup fun. Before the ladies hit the turf this year at the Roseview marquee on the grounds of the Geelong Racing Club, they were treated to a champagne breakfast at Zurich’s offices in Melbourne – served by the men from Zurich. After breakfast the women boarded a coach for the trip to Geelong. In between races, champagne and networking Zurich gave out lucky ticket prizes. This year the prizes were shoe gift vouchers. “We like to host this event every year as a ‘thank you’ to all the women in the industry who support us,” Zurich Broker Manager Tania Maxwell said. “We like to acknowledge their hard work and give them something back.”
December 2011/January 2012
maglog » IF YOU’RE SEEKING SOME WHOLESOME entertainment over the summer break and you don’t have kids, rent or download Cedar Rapids, a movie made earlier this year that follows the fortunes of a naïve American agent’s experiences at an insurance conference. It’s a fun movie, with plenty of action and lots of laughs. But while it’s set in the rather sleepy Iowa burg of Cedar Rapids, the movie was actually shot in Ann Arbor, Michigan, Something to do with tax credits. Most of the stuff the characters get up to – like nude swimming and other unclothed stuff – was perfected many years ago at the NIBA Convention, and usually at Broadbeach at night. You know who you are. As some wise convention delegate once said: “Sex at a NIBA Convention is like an airline meal; it doesn’t count.” The recent retirement of Lord “call me Peter” Levene from the chairmanship of Lloyd’s has robbed us of one of the industry’s great characters. His successor, alas, sounds a tad ordinary in that 21st Century way of being good at cutting costs and even better at Doing The Right Thing. The chauffeur-driven S-class Mercedes is gone from the Lloyd’s garage, because new chairman John Nelson prefers to dash silently about London in his own Toyota Prius, fighting the good fight against global warming. “He had his style and I will have mine,” says John. In case you hadn’t noticed – and it was impossible not to while the Rugby World Cup was on in October – there are 35,000 more New Zealanders living in Australia today than there were a year ago. There are about 570,000 of them stealing our jobs and our women and possibly even our cars. A comment to Mr Publisher on the kiwiness of Steve Lockwood, the bloke on the front cover of this issue who at least lives in Auckland, led to a discussion about the proliferation of Nu Zilnd exiles working in the Australian insurance industry. The most extreme example we can think of is Wesfarmers Insurance, where a disproportionate number of them seem to have ended up. Apart from Big Steve there’s Keith McIvor running OAMPS and John Nagle helming Lumley. (Odd that an Irishman runs Lumley NZ, though.) Zurich’s Shane Doyle is also from Over There. We do recall many years ago a former New Zealand prime minister, the late Robert “Piggy” Muldoon, noting that with every 74
Sam Pentecost Contributor
departure of a Kiwi across The Ditch, the IQ of both countries was raised. Any other Kiwis at the top of the Aussie insurance tree you can think of ? In the world of awards, Insurance News stands aloof. We don’t enter awards for the insurance or publishing industries, secure in the knowledge that around 20,000 people vote for us every month by accessing our website. We’re also insecure in the knowledge that we might not win. It’s that word “win” that gets us. You “receive” an Order of Australia, but you “win” an industry award, like it’s a grand final instead of recognition of endeavours or brilliance. But we’re on the losing side here. Going by the plethora of awards being handed out around the insurance industry these days, maybe we should be getting in on the act not as receivers but as dispensers of awards, thereby avoiding our dignified but disappointed look as we clap for the winner. But being late entrants into the award-presenting game, we’re at a disadvantage because, frankly, there’s not much left. And the boss has made it clear that the cost of a piece of plastic mounted on a hunk of wood is way over the budget. Recognition alone will therefore have to be the reward.
thrilled the consumer activists who apparently man its ramparts. It was just such a dumb and insulting thing to do, and shows what can happen when you pick up all your knowledge from a News Ltd tabloid. Choice was once a magazine you subscribed to so you knew who made the best washing machine. Maybe they’ve decided it’s more personally fulfilling to adopt that whiny sneery tone activists use to signify that they know all businesses are, by their very nature, guilty of something. Chartis Australia staff have raised more than $5000 for the KidsXpress charity, using the theme ““Xpress your inner child”. Many games were played, but our favourite
And so to our first award, known simply as the “Que?” Award, won hands down by the Future of Financial Advice (second bill) draughtsmen who came up with this intriguing definition. “If it is not reasonably possible to identify the individual who is to, or individuals who are to, provide the advice, the person who is to provide the advice is the provider for the purposes of this Division.” Our nomination for the Order of the Hopelessly Mixed Metaphor goes to Assistant Treasurer, Minister for Financial Services and Superannuation, Parliamentary Secretary for Victorian Bushfire Reconstruction, Parliamentary Secretary for Disabilities and Children's Services, the Hon William Richard Shorten, MP, who said the Federal Government “didn’t need to wait until the end of the [Queensland floods] inquiry to get down to tin tacks about fixing up some of the low-hanging fruit to make flood insurance a better product than it is”. Go Bill! And lastly the Figjam Award, presented to consumer advice group Choice. Their decision to hand out one of their own “Shonky” awards to the insurance industry obviously insuranceNEWS
December 2011/January 2012
was “pin the tie on Noel”, an event in which chief executive Noel Condon and his neck stood in for the donkey’s, err, derrière. We gather Noel survived the efforts of staff to connect his tie to his oesophagus, although in our picture he does look like he’s trying to remember which clause in his employment contract obliges him to do this sort of thing. And that’s it for 2011. Roll on 2012. Have a great summer break, and may La Nina and all she stands for stay away.
The way brokers work, their attitudes, beliefs, concerns, challenges and ambitions are examined in depth in the latest edition of Insurance...
Published on Dec 1, 2011
The way brokers work, their attitudes, beliefs, concerns, challenges and ambitions are examined in depth in the latest edition of Insurance...