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LESSONS FROM THE BUSHFIRES

Turning off tax Victoria agrees to drop the fire services levy

October/November 2010

STAYING ALIVE IN THE OFFICE

THE HARD/SOFT MARKET MIX


Contents 8 Newsmakers » 10 Turning off insurance taxes » Victoria agrees to drop the fire services levy, but NSW will prove a much harder nut to crack – and then there’s stamp duty…

lawNEWS 46 You can’t take them with you » Restraint of trade cases against brokers wanting to contact former clients are increasing. Here’s why.

16 Lessons from Black Saturday » Royal commissioners and insurance personnel alike learned a lot.

18 Working in a two-speed market » Marsh’s local chief talks about premium differences, hesitant insurers and growth ambitions.

20 Setting up for 2020 and beyond » QBE’s new regional chief is geared up for growth, new challenges and competition.

26 Hard market? Soft market? The search for consensus » How accurate – or useful – are the terms used to describe how premiums are performing?

28 Power from the people » The workforce is strong as Wesfarmers Insurance builds momentum.

30 Making some adjustments » ‘Traditional’ claims experts are working to evolve with the times.

32 It’s hardly mutual » Perth-based Capricorn Mutual provides ‘insurance-like’ products – but it doesn’t answer to APRA.

36 Precision Swiss risk engineering »

companyNEWS 50 50 52 52 53

Connect to Newline » Dual refocuses » Mobius takes Lloyd’s into new market » Revamped ARGIS focuses on farms » Ebix rolls out a big range of solutions »

peopleNEWS 54 58 60 61 62 64 66 68 70 72 73

They’re just not into insurance » Celebrating the industry’s achievers » UAC moves into Adelaide » Allianz training attracts the brokers » APIG’s big day draws a crowd » Zurich teaches chiefs to be chefs » AILA succeeds with ‘speed-mentoring’ » Claims experts gather for CC10 » All smiles as IBANZ adjusts » The bosses join in at Vero Expo » Expertise on show at lunch »

74 maglog »

Governments can soften the cost of a catastrophe with public-private partnerships.

38 Take a look at us » Brokers are increasingly using advertising to expand their business horizons.

42 A matter of life and death » Yours, that is. And this is all about personal risk management.

October/November 2010

Illustration: Bill Wood


newsmakers at

insuranceNEWS.com.au They all like Apia:

Putting out the fire services levy

Suncorp brand Apia, formerly known as the Australian Pensioners Insurance Agency, has again topped the list of insurers that customers would recommend to a friend. It’s the second time the company has scored well in the annual survey of customer experience outcomes in the motor and property insurance sectors conducted by Brisbane consulting firm Engaged Marketing. Apia’s motor insurance operation scored 8%, and its property insurance operation scored 5%. All other motor and property insurance companies surveyed received negative scores, with motor insurers recording an average score of minus 18%, and property insurers an average of minus�22%.

Someone somewhere appears to have Allan Manning’s happiness as a high priority. The Melbourne-based loss management guru was very happy indeed with being awarded the Innovation award at the Australia and New Zealand Insurance Industry Awards in August. As he accepted the award (above) in front of around 800 of his industry peers [ANZIIF awards pictures, page 58] Dr Manning added: “The only thing that could make me happier than I am now is for governments to get rid of the fire services levy.” Dr Manning has been an outspoken opponent of the levy system, and has campaigned for its removal. A few weeks later his wish was well on the way to being granted. Victoria broke ranks with New South Wales to announce it will replace its fire services levy in 2012 [cover story, page 10], bringing it into line with most other states.

Same old same old:

Shorten moves in:

The debate over flood insurance continues, with major floods in Victoria last month bringing the issue into focus yet again. Law firm Slater & Gordon advised Victorians to check if their insurance companies will cover damage from the floods. They know the answer already, of course: some do and some don’t. Zurich Australia Chief Executive David Smith – whose company covers its commercial lines clients against flood losses – says the lawyers’ actions “reinforce the problem that vexes the industry – what is storm damage and what is flood damage”. “Currently the industry says if there are not too many claims we will call it storm damage, but when we refuse to cover flood damage it is a reputational risk for the industry.”

There’s been plenty of change happening in Canberra over the past few months, and now that has filtered down to the portfolios most connected to the risk insurance sector. For starters, former lawyer and trade unionist Bill Shorten (right) has been handed the financial services and superannuation portfolio by Prime Minister Julia Gillard. He replaces Chris Bowen, who is now the Immigration Minister, and he also assumes the title of Assistant Treasurer from Tasmanian senator Nick Sherry, who is now Minister for Small Business. Mr Shorten’s appointment was well received around the industry, with most leaders noting he is regarded as a fair negotiator and creative thinker. Former Climate Change Minister Penny Wong has become Minister for Finance and Deregulation, while David Bradbury has responsibility for corporate law and competition and consumer policy as Parliamentary Secretary to the Treasurer. On the Federal Opposition frontbench, Shadow Treasurer Joe Hockey has Western Australian senator Mathias Cormann as his Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation. Political veteran Andrew Robb is the Shadow Minister for

Competitive but solid The battle for supremacy in personal lines insurance continues, with even more competitors emerging in a bewildering variety of distribution channels. But that isn’t stopping the major insurers selling more policies and pushing premiums up. KPMG says in its latest report on the general insurance industry that gross written premium increased by 6.3% to $37.6 billion in the last financial year, compared to $35.4 billion in the 2009 financial year. The professional services firm’s annual industry survey says the impact of newer players on the insurance market has been limited at this stage, and the major players – Suncorp, IAG, QBE and Allianz – continue to dominate even as personal lines becomes increasingly commoditised. Listed insurers that follow the June 30 financial year have reported some encouraging results. Suncorp, for example, reported strong full-year results, more than doubling net profit after tax to $780 million, up from $348 million last year. IAG’s result wasn’t so happy, but there were nevertheless signs that the group is continuing to move confidently forward after several years of horror returns. The insurer reported a $493 million profit, experiencing a blowout in natural disaster claims similar to Suncorp’s. But problems in its UK operations also let IAG down. Chief Executive Mike Wilkins (above) says the local market “remains challenging”. “But we are implementing rate increases of up to 20% across most classes of business, exiting unprofitable broker relationships and strengthening underwriting and actuarial resources.” Wesfarmers Insurance reported a slight drop in gross written premium for the year, with premiums falling 0.8% to $1.34 billion. Nevertheless, its earnings before interest and tax and amortisation were up 27.8% to $131 million.

“We are implementing rate increases of up to 20% across most classes of business”

Figure this

4.6

BILLION

Net profit in dollars of Australian general insurers for 2009/10, according to APRA 6

25.4

N

BILLIO

Australian general insurers’ net premium revenue in dollars insuranceNEWS

493

N

MILLIO

IAG’s net profit in dollars for 2009/10 October/November 2010

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percentage of Australian drivers whose cars have been broken into, says an AAMI survey


Change in the jobs market: Are the days of

Reuters

Killer weather sets a record:

August is typically regarded as a moody month in the northern hemisphere, when seasonal change brings unpredictable weather. This year it was particularly bad. In Europe, the historic onion-shaped spires in Moscow’s Red Square all but disappeared as huge bushfires swept around the Russian capital during a record heatwave. Munich Re says the whole period from January to the end of September has been terrible, with 725 weather-related events costing the global industry more than $18 billion. In fact, 2010 has so far been the warmest year since records began more than 130 years ago, and Munich Re says the 10 warmest years during that period have been within the past 12 years.

high salaries and excellent incentives gone forever from the insurance sector? While insurance recruitment is starting to pick up again, experts say it hasn’t yet returned to the boom years before the global financial crisis. As the Insurance News Jobs website has demonstrated over the past couple of months, there are plenty of insurance jobs available for qualified professionals. But replacing professionals is now a slow and sometimes painful process because many companies aren’t rushing to offer big bucks. While some companies spent the past couple of years clearing out their under-performers, they’re being careful with restructuring to find the right people to “fit in”.

Less deadly, but H1N1 is still out there: The deadly H1N1

New man at Chartis: Noel Condon (above) is a US-born Irishman with a wealth of insurance experience. He has moved to Sydney from Brussels to take up the chief executive’s role at Chartis Australia, replacing new Asia-Pacific President and Chief Executive Chris Townsend. A 26-year AIG veteran who worked in the Australasian market some 10 years ago, Condon most recently held a six-year appointment as Country Manager Belgium.

3.98

While the virus didn’t mutate into a more lethal form during the pandemic, WHO says H1N1 is likely to take on the behaviour of a seasonal influenza virus and remain in circulation for a number of years. Director-General Margaret Chan says even in the post-pandemic phase, localised outbreaks “may show significant levels of H1N1 transmission”. The latest Lloyd’s 360 Risk Insight report – “Globalisation and Risks for Business” – identifies pandemics as one of the top risks businesses face due to increased international travel and trade.

MILLION

Amount in dollars of a fine imposed on Zurich UK for losing the personal details of 46,000 customers

Reuters

swine flu virus has “largely run its course”, according to the World Health Organisation (WHO). But it’s in what is called the “post-pandemic phase”, and it’s still hanging around.

Here come the locusts: They can fly vast distances, eating everything green in their path. There are billions of them. And they’re on the way. They’re locusts – the Australian plague locust to be precise – and they’re forming in great numbers in inland New South Wales, southern Queensland, northern Victoria and central South Australia. State governments are predicting this will be the worst locust plague for 75 years. Aided by abundant rains and the onset of warmer weather, they’re expected to spread south over the next couple of months. While agricultural insurers don’t offer cover against locust plagues chomping their way through farm paddocks and crops – experts say it’s simply too hard to assess the associated risks – they’re still worried. Next year’s crop insurance premiums will be based on this year’s harvest, which could be severely disrupted by lower yields caused by the locusts. In that case next year’s crop premiums will be far lower than they should be.

780 N

MILLIO

Suncorp’s net profit in dollars for 2009/10 insuranceNEWS

490 N

Reinsurance delivers in the Shaky Isles: Reinsurance, it seems, has never been so important. And last month’s Christchurch earthquake [see story, next page] has demonstrated just how important it is in keeping insurers in balance. A new report by Aon Benfield last month said most insurers with claims from the earthquake won’t exceed their reinsurance limits, thanks to insurers taking a conservative approach to the amount of reinsurance they buy. It seems insurers in the Shaky Isles purchase catastrophe protection based on a “scenario” approach – and they obtain it at greater levels than insurers in other parts of the world. Aon Benfield’s Head of Analytics in Australia/ New Zealand Ben Miliauskas says the key scenario is a quake in the capital, Wellington. That city sits astride a major fault line, has a population of around 390,000 and has a recurrence period of about 700 years. Miliauskas says the Christchurch earthquake will impact local insurers’ catastrophe reinsurance programs “to a lower to mid-layer at best”. The quake and the devastating hailstorms which swept through Melbourne and Perth in March haven’t done much to disturb the peace of global reinsurers. But the easy access to capital that is keeping the reinsurers buoyant is seen as a potential danger. Research house Moody’s has given a “negative” outlook for the global reinsurance market in its Global Reinsurance Outlook. The other major ratings agencies give reinsurers a “stable” outlook.

MILLIO

QBE’s net profit in dollars for the six months to June 2010

October/November 2010

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newsmakers at

insuranceNEWS.com.au

Reuters

Pratten arrested in tax probe: The

It could have been worse: NZ Prime Minister John Key (right) in Christchurch

Buildings shook and trembled, homes flooded and streets split like wishbones as an earthquake measuring 7.1 on the Richter scale brought the New Zealand city of Christchurch to a terrifying halt on September 4. It was the most destructive earthquake to hit New Zealand since the 1931 Hawke’s Bay quake, which devastated the cities of Napier and Hastings and killed at least 256 people. In Christchurch no one died as a direct result of the quake – a 53year-old woman suffered a fatal heart attack a few minutes after – and damage was surprisingly light compared with the devastation Napier and Hastings suffered 79 years before. Nevertheless, the quake damaged homes, toppled brick chimneys, cut vital infrastructure and wrecked buildings in the central business district. Insurance Council of New Zealand Chief Executive Chris Ryan says the council has registered more than 60,000

claims, most of them for domestic damage. Modellers have predicted combined insurance losses from the September 4 quake at $4.8 billion, with only the city’s stringent building laws saving it from disaster. As this issue went to print, only 3% of the 6000 buildings assessed are considered unsafe. Several powerful aftershocks – three of which registered more than 5.0 – hindered clean-up and recovery efforts. Aon Benfield says the bulk of damage from the quake is to masonry construction and chimneys. New Zealand’s insurance industry – supported by extensive event reinsurance and the role of the country’s Earthquake Commission – is expected to cope well with the deluge of claims. “Insurance firms are very well reinsured so there’s no question of insurers being unable to cope with it,” Ryan says. “Domestically it’s a big event, but in the overall inter-

“Domestically it’s a big event, but in the overall international reinsurance industry it’s relatively modest”

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A McMullan Conway production

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October/November August/September 2010

Australian Taxation Office’s Project Wickenby, a long-running campaign to investigate international tax evasion, has thrown up some famous names over the past few years. Now it has involved a lesser-known figure, colourful Sydney insurance executive Charles Pratten. Last month Pratten was arrested by federal police in Sydney and charged with seven counts of obtaining a financial advantage by deception and one charge of threatening to cause serious harm to a Commonwealth public official. Pratten is the principal partner of Rural & General Insurance Brokers, a company which has had more than its fair share of difficulties with the authorities in the past. Prosecutors allege Pratten has a massive tax shortfall linked to 165 international funds transfers totalling $5 million made over a sevenyear period. Pratten owns Vanuatubased Commercial Pacific Insurance, formerly known as Rural & General International Insurance, which has links to the Sydney insurance brokerage he now heads. Fairfax media reports said Australian Federal Police are expected to accuse Pratten of involvement in a tax fraud scheme masterminded by Vanuatubased accountant Robert Agius, who has been in custody since being arrested in Perth in April 2008.

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


Turning off insurance Victoria agrees to drop the fire services levy, but NSW will prove a much harder nut to crack – and then there’s stamp duty… By Ben Oliver and Terry McMullan

ON AUGUST 27 VICTORIAN PREMIER John Brumby agreed to abolish the state’s controversial fire services levy (FSL). It was a remarkable change of direction for the man who in 10 years as state treasurer and then premier had fought to retain all insurance taxes.

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It’s easy enough to see why he didn’t want change: insurance taxes will return the state $1.478 billion in the current financial year; that’s 10% of state tax revenue. Victoria’s decision to move to a propertybased levy system now isolates New South

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October/November 2010

Wales, the only other mainland state to retain the fire services levy. (Tasmania also has a limited levy system, but the drain on policyholders’ pockets is considerably less.) The New South Wales Government will be a harder nut to crack than the Victorians. While


News Ltd

Victorian Premier John Brumby: his decision to abolish the insurance-based levy was swift and unexpected

Mr Brumby’s hand has been forced by political reality, there is no such pressure on the deeply unpopular ALP government of Premier Kristina Keneally or the coalition of Opposition Leader Barry O’Farrell. Mr Brumby hopes dropping the levy will ease rural voter angst. For Ms Keneally the issue is far more complex. In NSW, insurance on residential properties attracts a 20% fire services levy, while business pays 36%, before the addition of GST and stamp duty. The levy is expected to collect more than $620 million for the NSW Government this financial year. While academic support for a propertybased levy has been evident in NSW since 2003, political momentum has never hit top gear. The closest the NSW Government has come to removing the levy was in 2008, after a report by the NSW Independent Pricing and

Regulatory Tribunal (IPART) supported its removal. Then Treasurer Michael Costa agreed to review the levy system, but was stymied by the Local Government and Shires Association, which argued that council rates would need to rise 20-40% to cover the funding shortfall left by the levy. A report in the Sydney Morning Herald in July 2008 stated that removing the insurance premium-based levy would cost ratepayers an extra $200 a year. Political will to junk the levy was soon found wanting. Perhaps sensing the lack of political traction, a spokesman for Mr O’Farrell told Insurance News last month “no announcements have been made on the fire services levy”. When asked for the NSW Government’s stance on the levy after Victoria’s announcement of its abolition, Emergency Services Minister insuranceNEWS

October/November 2010

Steve Whan was adamant – the levy will remain, as will the $39 million a year levy also imposed on insurance-buyers to help fund the State Emergency Service. Mr Whan says a 2004 parliamentary inquiry failed to find sufficient evidence against the FSL – conveniently ignoring the findings of his government’s own IPART report and the benchmark for tax reform, the Henry Review. In June NSW abolished the infamous insurance protection tax imposed on insurers since 2001 to fund losses following the collapse of HIH. Insurers were prohibited from passing on the $69 million annual cost of the tax to p o l i c y h o l d e r s . But no further attention on insurance taxes is likely. Without the levy issue having any profile in NSW, there is no electoral groundswell forcing the political parties to sit up and take notice, as 11


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The levy increase is far more complex in NSW: Victoria’s John Brumby with NSW Premier Kristina Keneally

was the case in Victoria. Mr Brumby was forced to act by the final report of the Victorian Bushfires Royal Commission, which examined the fire services levy system in detail and found it inequitable and lacking in transparency [see following story]. The world-record insurance taxes Victoria imposes on property insurance premiums – rural businesses are paying 122% more than the premium in added-on taxes – have forced people in rural areas to deliberately underinsure or not insure at all, and that was an issue at royal commission hearings. After a decade of Labor Government, voters are being asked to give Mr Brumby and his colleagues another four years in government when they go to the polls on November 27. And the voters who gave him the power are the same ones who are now poised to take it away: the rural constituency. Despite accounting for just 10% of Australia’s total population – 5% in Victoria – regional voters hold considerable power in politics. Country independents carried Labor to an indecisive victory at the federal level and the regional vote in Victoria will once again be pivotal. Mounting anger over the Brumby Government’s handling of the 2009 bushfires threatened a rural backlash akin to that unleashed upon Jeff Kennett 10 years earlier, when the popular premier was swept from power by the rural electorates. Mr Brumby’s decision to abolish the fire services levy – a property-based system will replace 12

it on July 1 2012 – was as swift as it was unexpected. He had given no prior indication that the bushfires royal commission’s recommendation

“This reform will ensure that our fire services are funded more sustainably while also taking the squeeze off the cost of property insurance” 64 would be accepted. In fact, with yet another government inquiry into the levy system already at work, he had the perfect alibi for stalling once again. insuranceNEWS

October/November 2010

That’s why, after nearly 10 years of rejections, denials, anti-insurer hostility and internal government “inquiries”, Mr Brumby’s announcement that the levy will be replaced by mid-2012 came as such a shock. In all things political there’s a need for spin, and Mr Brumby’s political conversion certainly deserved a good bit of it. Treasurer John Lenders provided plenty with a statement following Mr Brumby’s announcement that he would accept all but one of the royal commission’s recommendations. “The Brumby Labor Government is taking the tough decisions and doing the hard work to keep Victoria fire-ready and safe,” Mr Lenders said. “This reform will ensure that our fire services are funded more sustainably while also taking the squeeze off the cost of property insurance. “However, the royal commission was silent on the fine details of how the levy would operate and our government will work through how such a levy would be applied. “We want to ensure that the necessary funds are raised to sustain our crucial fire services. “This reform will ensure that everyone who has a property protected by our world-renowned firefighters contributes to their budgets.” Volume II, Part II of the 2009 Victorian Bushfires Royal Commission’s final report runs for 429 pages. Only five pages directly cover the subject of the fire services levy. The “evidence” Mr Lenders relies on to justify his leader’s aboutface is simply a patchwork of previous findings.


The royal commission notes that several reports, including the 2003 HIH Royal Commission, 2008 NSW tax review and 2001 Victorian tax review, have already called for the levy’s abolition. The levy issue is but a tiny speck in the royal commission’s spectrum. But regardless of the rationale, Victoria now joins Queensland, South Australia, Western Australia and the Australian Capital Territory in adopting a land-based property levy. But while campaigners are delighted at winning the long battle in Victoria, there’s still a long way to go before Australia joins most of the western world in restricting insurance taxes to encourage blanket take-up. Leading abolition campaigner Allan Manning put it in perspective best in a statement praising Mr Brumby’s “leadership and statesmanship”. “Hopefully, the state governments of New South Wales and Tasmania will follow [Victoria],” he said. “The fight will go on until all Australian states – and New Zealand – drop their unfair taxes on insureds.” Dr Manning, the Chief Executive of loss management consultancy LMI Group, sees the abolition of the levy as a battle won, with the war on insurance taxes still to be fought and won. That’s because all Australian state and territory governments still add GST to the cost of the premium, and then add stamp duty. These “cascading” taxes are designed to maximise the governments’ total tax on insurance. Having rid itself of a major irritation in the form of Victoria’s inequitable and opaque fire services levy, there are therefore still plenty of tax-related issues left to address. Mr Brumby would probably have been aware of the impending release of a report into state government taxation and debt by the powerful state parliamentary Economic Development and Infrastructure Committee. The committee’s inquiry results, released on September 16, call for, among other things, consideration of ways “state taxes on insurance may be minimised or abolished over the long term”. It also calls for the minimisation of cascading taxes, noting that where they are applied to insurance premiums they are literally “a tax on a tax on a tax”. The Victorian Government’s change of stance over the fire services levy proves that change is possible where the arguments and the electoral environment are right. If politicians can recognise that the insurance taxes which remain are disincentives to adequately insure, there’s hope that more change can eventuate. The industry still has a long way to go before the * last illogical tax on insurance is abolished.

Words that couldn’t be ignored Recommendation 64: The State replace the Fire Services Levy with a propertybased levy and introduce concessions for low-income earners. THE VICTORIAN BUSHFIRES ROYAL Commission’s analysis of the fire services levy (FSL) and its conclusion take up only four pages of the fourvolume final report. The only two headings in the section discussing the levy are “Inequity” and “Lack of Transparency”. While polite in its tone, the royal commission’s comments were enough to shift a seemingly immovable government into an acceptance that change is necessary. Outlining the current system which funds 75% of the Metropolitan Fire Brigade and 77.5% of the County Fire Authority, the royal commission expressed concerns about the manner in which the FSL is calculated, collected and accounted for. It noted that it is up to insurers to determine how much extra they charge to home and contents insurance customers to recoup the costs of their statutory contribution. It also found that as fire and bushfire risks make up “one of many” risks factored into insurance premiums, domestic property premiums are a “very imperfect proxy for fire and bushfire risk”.

The controversial “cascading” nature of the state’s premium taxes – the FSL, GST and stamp duty – also came in for severe criticism because it “substantially increases the cost of insurance to consumers”. The royal commission said the whole collection system lacks transparency, pointing out that apart from imposing the tax and requiring that it be paid, “the state regards the contribution as a business cost of the insurance companies and assumes the market will keep the insurers accountable”. “There is no legal requirement that insurers recover the cost of making statutory contributions or that they explicitly identify such a charge to consumers. “Further, there is no requirement that the amount of the levy equate to the amount of the statutory contribution.”

On this basis the royal commission determined that the FSL is inequitable, noting that “those who do not insure or who underinsure avoid making a proportionate contribution to the funding of fire services, but are afforded the same protection as those with insurance”.

Insurers’ statutory contributions must be paid in advance of premium collection, and the royal commission found the difficulty in forecasting the market “can result in tax collections that vary considerably from the amount required as a statutory collection”.

It found there was plenty of evidence that underinsurance and non-insurance is a major problem, disagreeing with the state’s suggestion “that, in the absence of further data on insurance levels, [the state] is not in a position to conclude that a change to a more equitable model is necessary”.

It pointed to evidence that in the four years to 2003, insurers over-collected the FSL by $50.73 million.

The commission also found the FSL places “an unreasonable tax burden on insurance policyholders”.

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And it didn’t bother placing any value on the State Government’s long-held argument that the FSL isn’t a tax at all but a cost levied on insurers which they “pass through” to consumers. Instead it noted drily: “The effect is the same.”

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The report acknowledged that some low income-earners could experience difficulty transitioning to a more equitable levy system, but concluded: “Jurisdictions with a property-based levy offer concessions to seniors, pensioners and concession card * holders.”


Lessons on the job: Firefighters weren’t the only ones who learned from the Black Saturday bushfires

Royal commissioners and insurance personnel alike learned a lot By Lydia Brisbout IF YOU LIVE IN A BUSHFIRE-PRONE AREA, YOU’D THINK insurance cover would be a “must”. But apparently that’s not the case. There are many reasons, ranging from affordability to people choosing to carry the risk themselves. The Victorian Bushfires Royal Commission’s final report, issued in late July, makes it clear that underinsurance and non-insurance in bush communities remains a major problem. On February 7 last year a combination of record temperatures and storm-force winds in forest areas north and east of Melbourne led to 315 separate fires. Fifteen of them raged out of control through a day where temperatures peaked at 46.4 degrees. By the end of the day 2133 homes were destroyed. Many of the 173 people who died were following official advice in defending well-prepared homes. How many of those homes were insured, underinsured or not insured at all is not recorded. In looking at the role of insurance in the recovery process, the royal commission accepted that “many households are underinsured”. It ac16

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cepted evidence that 4% of Victorian houses (about 51,000 buildings) have no property insurance while 26% (about 490,000) have no contents insurance. It accepted that the trend to underinsure is “often a consequence of failure to insure items other than the main dwelling – for example, fences, water tanks and sheds”. It also found that property owners with sum insured and home and contents policies are likely to underinsure if they lack information about current building costs. And while the Victorian Government has agreed to follow the royal commission’s call to replace the insurance premium-based fire services levy – a move that will significantly reduce the cost of property insurance – some evidence presented to the commission indicated this would be unlikely to increase the take-up of insurance among low to middle income-earners. The royal commission said the general insurance industry should “create or continue to offer ‘no frills’ insurance products… for people with limited household assets, allow fortnightly payments and, where appropriate, receipt of payments through Centrepay” – the free direct bill-paying service offered to people receiving payments from Centrelink. Consumer advocate Denis Nelthorpe, who presented extensive evidence to the royal commission, says insurers could easily solve the problem of underinsurance if they replaced sum insured policies with October/November 2010

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Lessons from Black Saturday


total replacement policies. “We are now in a situation where sum insured policies are essentially obsolete,” he told Insurance News. “The only purpose I can see for sum insured policies is to transfer risk for replacement to consumers and to minimise the risk to the insurer. “The industry can solve a fair proportion of underinsurance by simply acknowledging that everybody should have a replacement policy. “And if we want to see more non-insureds take up insurance, the industry needs to come up with appropriate products, and then it needs to come up with suitable payment methods. “As far as I am aware not one insurer in the country makes Centrepay available to its customers. That makes the insurance industry the only major service-provider that doesn’t offer a Centrepay option.” Insurance Council of Australia (ICA) General Manager Risk and Disaster Planning Karl Sullivan says most people whose property was affected by the bushfires were aware of the type and levels of cover they had. “Where we did find areas that required greater communication were around limitations on policies,” he told Insurance News. Common issues included where policyholders accepted cash payouts for their properties before finding out about additional rebuilding requirements, and then seeking to recoup the extra costs from insurers. While accepting underinsurance is a significant community issue, Mr Sullivan says the royal commission’s failure to recommend the removal of sum insured policies reflects the importance of ensuring choice for consumers. “Ultimately it is the choice of the policyholder,” he says. “It is their responsibility to determine how much insurance they want to take out. “The number one piece of guidance ICA offers to people in a rural context or operating a rural business is that they really should be engaging with a broker and taking advice from them about the type of policy and the level of cover they should have – because the local broker is going to know the area and its risks better than anybody else.” While he is not aware of any insurers who provide for Centrepay payments, Mr Sullivan says there are already policies available covering a minimal level of contents. ICA also distributes community education materials on the issue of non-insurance, as well as working with state governments to address the issue. On an operational level, insurers’ rapid response to the Black Saturday disaster demonstrated their ability to deal with large-scale disasters efficiently and with sensitivity. But while insurers say they’re delighted with the way their catastrophe co-ordination plans responded, the emotional impact of the bushfires on staff could not have been predicted. ICA’s Karl Sullivan says companies worked together to respond to the needs of the individuals and communities affected. The process was facilitated by ICA’s introduction of “insurance captains” to help manage the huge number of claims being received. The “captains” were nominated representatives, usually from a senior claims background, who provided immediate assistance on the ground to anyone who needed it. Information was then fed back through ICA to link policyholders with their insurers. “The industry responded very well and very generously,” Mr Sullivan says. “Everyone had a lot of work to do and it was quite an ask for insurance companies to deliver up a senior person to work for 12 hours in a

recovery centre for an industry purpose rather than just for their own company. CGU National Claims Manager John Innocenzi says the magnitude of the bushfires meant it was essential the company’s disaster management plan was flexible enough to deal with unexpected challenges in a tight timeframe. “This was an event in itself in terms of the magnitude, and its impact on loss of life and loss of properties and communities was quite unlike anything we have seen,” he told Insurance News. “We found our plan provided really outstanding guidance to us in terms of the most appropriate ways to handle different situations, who were the right people to get involved, and also some of the principles by which we would make decisions – even down to things like communication. “But one thing you can’t plan for was that this event produced a large loss of life, and that in itself requires a very specialised approach in terms of how you have conversations with people whose family members have been lost in the bushfires as well as community members.” And he agrees that while total replacement policies lead to a smoother claims experience for customers, some do choose to manage their own level of risk through a sum insured policy. Zurich Head of Customer Care Darren Trott says his experience on the ground following the bushfires has provided him with a better understanding of the role of insurance in assisting people to get back on their feet again. “The enormous scale of the disaster made it difficult to manage customer expectations at a time when you had obstacles outside the control of the insurer, broker or the customer,” he told Insurance News. “But there is no doubt that the on-theground presence of insurance and broker staff meeting with families and businessowners and being right there at the coalface had a major impact. “The value that brings to the customer isn’t written in any policy wording anywhere. It also enabled us to have a much deeper understanding. “It enabled us to feed that back through our own organisation so our entire company got to understand the scale and significance of what was happening.” Zurich has maintained this focus on face-to-face contact by encouraging brokers and claims staff to continue visiting customers to discuss their loss. The company also continues to manage its bushfire claims though a dedicated Melbourne-based claims team. While nothing could make up for the terrible losses caused to so many by the Black Saturday fires, Mr Trott says the experience has undoubtedly strengthened the industry’s ability to better respond to future disasters. “Some of those principles we learned from the bushfires – the local presence and local contact – were some of the things we immediately transformed into the Melbourne hailstorms in March this year, and I think as we have more of these events insurers are getting better and * better at learning how to respond.”

“Companies worked together to respond to the needs of the individuals and communities affected”

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Working in a two-speed market Marsh’s local chief talks about premium differences, hesitant insurers and growth ambitions By Jamin Robertson

WHILE MANY AUSTRALIAN INTERMEDIARIES SPOKE of hardening premiums during the mid-year renewals, major player Marsh was whistling a somewhat different tune. In a mid-year briefing, the broker outlined property rate reductions of between 5-15% on larger corporate accounts and also noted evidence of smaller discounts available to mid-market clients. The presence of lower rates across several lines prompted Marsh to conclude that softer conditions were taking hold across the market. While some of the smaller players scoffed at the notion, Marsh Pacific Region Head and Chief Executive Australia John Clayton says the report merely reflected the firm’s mid-year experience. “Certainly in the large client space the June season was pretty soft,” he told Insurance News. “There’s plenty of capacity around. There are some new entrants in the market and some existing

“As you go down to the mid-level and SME market, the ability to achieve savings reduces” players are showing new appetites, so that’s made that space pretty competitive.” Such variance in opinion reflects the suspicion that the local insurance market appears to be running on two speeds. A trend for generally hardening premiums among small-tomedium enterprise (SME) accounts is evident, in contrast to soft market conditions that continue to permeate the corporate market – of which Marsh is something of a specialist. Mr Clayton agrees. “As you go down to the mid-level and SME market, the ability to achieve savings reduces,” he said. Marsh is performing well in the wider region at present, with Asia Pacific leading the charge among the international divisions with a 22% increase in revenue of $US238 million ($259 million) during the first half. Despite his unit’s contribution to that result, Mr Clayton is hardly crowing about the broker’s good fortune. “Given the circumstances with the state of the economy we’ve achieved good revenue and bottom-line growth, but while that’s continuing, I won’t deny it’s hard work,” Mr Clayton says. “While we are slightly behind plan, pleasingly, we are getting year-on-year growth.” Mr Clayton is well placed to offer his opinion on the state of the market. A lifelong broker, his wide experience makes him the ideal man to steer the firm through the market’s present choppy 18

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conditions. Having entered the industry in the underwriting business as a young school leaver in the early ’70s, he has spent 22 years with his current company, joining Sedgwick in 1988 in Western Australia. The business was later folded into Marsh as part of a global acquisition in 1998. “Back in those days if you didn’t go to university after you finished school and you hadn’t already left to pursue a trade, you went to a bank or an insurance company,” he said. After earning his stripes in his native WA – including a period in his own broking business – Mr Clayton moved to Adelaide in 1994 to run Marsh’s South Australian operations, leading a group of around 40 people. After less than three years he “got the tap on the shoulder” to again relocate, this time to Sydney to take up a national role leading the company’s mid-market and SME segment. From there he continue to ascend the corporate ladder, being appointed Chief Operating Officer for Australia in 2006 before taking on his existing role as Pacific Region Head and Chief Executive Australia on July 1 last year. “I had good exposure to the business prior to taking on my current role,” he says. “I gained a good cross-section of knowledge, met the people and got a good handle on how it operates.” His new job has also involved learning about Marsh’s operations in New Zealand, Fiji and Papua New Guinea. Despite his circumspect observation of current trading conditions, Mr Clayton is a lot more forthright about the future prospects for Marsh in the region. In addition to his interest in growing organically in areas such as the SME segment, he is keenly interested in strategic acquisitions, although he concedes that is highly likely to involve acquiring smaller operations rather than one of Marsh’s top-end competitors such as Willis, Aon or JLT. “In an ideal world I would love for us to do a marketchanging acquisition,” he says. “In the immediate future, we’re focusing on mid-market, SME and risk consulting and looking at acquisitions that make a strategic fit for the business.” Growth in the affinity sector is also expected to further contribute to the ongoing expansion of the brokerage, as well as further growth in areas outside of insurance such as employee benefits consulting. A sharpened focus on the SME sector is certainly a trend Marsh shares among those insurance industry firms located at the top end of town, and Mr Clayton believes that from a broker’s perspective, some of the insurers have found it a tough undertaking. “Most of the opportunity for growth is probably in that midmarket and SME space, but some insurers have had some issues getting their mind around the segment,” he says. “A few of them have tried to apply the client-by-client underwriting approach that is applied in the corporate segment, as opposed to a portfolio approach. “They tend to over-engineer the underwriting process by being too technical on an account-by-account basis.” As Marsh looks to the future, Mr Clayton believes he has the

October/November 2010


Marsh’s John Clayton: still plenty of capacity in the market

necessary backing to fulfil his growth ambitions for the local operation, having engaged the top tier of parent company Marsh and McLennan Companies (MMC). “I did a recent presentation to the MMC board and I talked them through the Australian environment,” he says. “I talked about the political and economic stability, and about how this is a pretty good place to invest. “There is certainly an appetite there. We have bought a number of SME agencies in the United States and also

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recently bought the brokerage business of HSBC. “We are bullish about growth and through well-founded opportunities and our appetite to acquire I’d like to think that in five * years time this organisation will be twice the size.”

October/November 2010

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Setting up for 2020 and beyond QBE’s new regional chief is geared up for growth, new challenges and competition

Terry McMullan asks the questions, Vince McLenaghan, the Chief Executive of QBE’s new Australia Asia Pacific Division, responds. QBE HAS AMALGAMATED THE Australian and Asia-Pacific divisions under your control. What’s the thinking behind the change? The change is all about planning – for what the industry will look like in 2015, 2020 and beyond. In 2005 we did a lot of work with Mike Goodwin and his team in Asia in getting the shared service model right at the back office, but what we never did was get the front office engaged solidly, so we were each doing our own things. While there was a lot of work involved, and we ticked all the boxes and the work was successful, there was a lot more that we could have done in the joint development space. I know we are starting to do that now in the IT space, with a jointly supported applications development centre in Manila in the Philippines. There’s definitely scope for Terry Ibbotson in his new role as Global Head of Distribution and his team to also bring this customer focus and front-end collaboration a little more tightly together. Terry’s recent appointment was a strategic move to support our worldwide intermediary strategy amid changing market circumstances. It made sense for us to invest in aligning our business with brokers’ strategic initiatives, both by geography and market sector. We have a wonderful business in Australia, and this role offers me the opportunity to work with our teams to make it even greater.

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What are the new division’s challenges? Not to sit on our laurels and to recognise our business is very, very dynamic. We have to be conscious that if we want to stay ahead in the game we have to stay innovative, improve our speed of product to market to improve our quality customer focus – and beyond all that, lower the cost to get product into the market. I’m not saying we will have the lowest-priced product, but as a component of the total price we need to make sure our costs are as low as they possibly can be. That will take a lot of investment in new technologies, but the benefits of our intermediary business base demands that we invest in these new technologies as we aim to “de-duplicate” the transactional process. Looking just at the Asia-Pacific region, what are the big challenges ahead? As you can see from our half-year report, on an organic growth basis the Asia-Pacific business grew by around 15% in the first half. The business base is very diverse; we enjoy more than 5000 agency relationships throughout the AsiaPacific region and we’re focusing more attention on the large indigenous and international brokers in specific segments. The biggest issue for us in Asia Pacific is the impact from foreign exchange movements and the effect on claims inflation where imported goods or services form a key component of any major claims efforts. Mike Goodwin and his team run a fantastic business. Our Asia-Pacific division has been leading the pack in QBE on its financial performance and outstanding underwriting results over past years. Could the amalgamation of the Australian division with Asia Pacific be seen as an acknowledgement that QBE wasn’t going to achieve the sort of growth locally that you can achieve in other parts of the world – that Australia alone was becoming a bit sluggish compared with the other operating divisions? On the contrary. If you look at our results for the first half of this year, you’ll see Australia actually led QBE in gross written premium growth, at 26%, followed by Asia Pacific at 15%. Australia has always managed good, strong, profitable premium growth and, at the end of the day, that’s the name of the game for QBE. The Australia Asia Pacific region remains extremely dynamic and – possible acquisitions aside – there are quite a few market segments that remain attractive for us. Looking at the Australian market specifically, substantial growth is obviously hard to come by. What are the alternatives you could look at beyond a large-scale local acquisition? Over 90% of our growth from 2005 through to 2010 has been through acquisitions, so that strategy remains the cornerstone of our growth profitability goals. On the flipside, our teams work extremely hard in getting new business on the books, and we need that to continue. Our corporate partners initiatives, such as the Myer relationship and others like it, will assist in delivering profitable growth. Also, the intermediary-based business segments still afford us great levels of opportunity, so the growth prospects on the organic side have certainly 22

Vince McLenaghan’s new role at QBE encompasses operations in 17 countries and generates annual gross written premium of more than $US4.5 billion. His move in August from the position of Group Chief Operating Officer (the position has been “retired”) and Acting Chief Executive Australia to Chief Executive of a new division combining the group’s Australia and Asia-Pacific operations caused some stir in the market. Mr McLenaghan is now placed alongside the chief executives for Europe, Steve Burns, and the Americas, John Rumpler. Asia-Pacific Chief Executive Mike Goodwin, whose performance in the role has brought plaudits, will remain in Singapore, retain his role and report to Mr McLenaghan. The four executives join Global Head of Distribution and former Chief Executive Australia Terry Ibbotson as part of the Group Operations Executive. QBE now operates in 49 countries with over 13,500 employees and around $US14 billion of annualised gross written premium. The Australia Asia Pacific division alone covers 16 countries.

not dried up yet. The Australian market is dominated by just four or five insurers, so what makes it so competitive? There are still the dominant players out there, but we’re seeing more and more foreign entrants into the market, which could very well pose long-term threats to the major insurers. They wouldn’t be here unless they thought they had any chance of making a real impact. In general, they’re offering customers lower cost and simplified methods of obtaining insurance; they’re skipping our traditional intermediated structure.

“We’re seeing more and more foreign entrants into the market, which could very well pose long-term threats to the major insurers” While you could argue about whether lower-price strategies are sustainable for the longer term, they certainly offer increased competition. We welcome that. They push us to think outside of the square and develop even more innovative ways of attracting our customers. It makes us focus on the quality of our products. For customers, that’s a great thing. Do you see the weather-related losses of the past year as a sign of your local competitors’ vulnerability to weather claims? It’s important to always consider your underwriting operations and what you’ve got in place in terms of risk management. QBE’s diverse portfolio, by both class of business and geography, allows us to manage a lower exposure to natural catastrophe volatility. By comparison, when you have competitors with significant market share in certain segments, of course they are going to bear the brunt of large scale insuranceNEWS

October/November 2010


weather-related losses. The key for us, and for others, is to risk manage our position to avoid any vulnerability or extreme volatility. Is flood in Australia really insurable? Yes, it is, but it almost has to be provided on a non-selection basis. In the home insurance space, the number of potential affected risks represents around 3% of the market. Recognising the significant degree of non-insurance and underinsurance in this segment of the Australian market, and thinking about how many insureds would be willing to pay additional premium to cover themselves on a voluntary basis for contingency representing such a negligible risk, I don’t think the proposal would be affordable unless it is mandatory for all insureds. How does Australia measure up in areas such as the cost of compliance, state and federal regulatory controls and business taxes? It’s true that the costs associated with conducting business in Australia have been extremely high, but the Federal Government has been taking steps to try and reduce that burden over the years. In other countries, the costs of doing business are relatively similar. So with the exception of some jurisdictions that offer more attractive tax rates, by and large wages and rents as a percentage of total expenses are in the same range as Australia. So too are the costs of regulatory compliance, and business taxes aren’t all that dissimilar. From your extensive overseas experience, which country is best to work in from an insurance point of view – and why? Well, that’s a tough question and I guess now, being located back in Sydney, it would be hard for me to go past Australia as the best place to work from! Seriously, we have great infrastructure and a pool of very talented people here that will support the ongoing growth of our sector. Our telecommunications, relatively stable federal government and good business governance and frameworks all add up to Australia as the place of choice. What would you say were the Big Things you’ve observed or even learned over the past three to five years? 1. Never think you know everything. 2. Strategy and planning are keys to success. 3. Insurance is a science, not an art form! QBE wins “insurer of the year” awards in Australia with monotonous regularity. Obviously it’s not just one thing, but how do you keep doing it? What makes QBE Australia so outstanding in such a competitive market? I think it’s simple: we set our sights higher. We continually strive to be a centre of excellence, and we simply don’t accept anything that we consider to be below that. I look to our return on equity benchmark – the measure by which we evaluate business performance and incentive levels and our ongoing willingness to allocate capital to specific products. In spite of lower investment yields, QBE maintains its minimum 15% return on equity target for each product, which is much higher than most of our competitors. For our employees, it means thinking of new 24

ways to do things – do them smarter, better. We also strive to find better solutions for our customers, to be innovative, to be responsive, to provide the best levels of service available and to invest heavily in the long-term relationships we enjoy with our intermediaries and customers. I think, ultimately, it’s that “can do” approach that allows us to aim high. What’s your forecast for the local market going forward – say over the next five years? The industry will be shaped by new and blended distribution channels, new business models, increased commoditisation and more players. Concerns such as climate change and environmental consciousness will start to play a more significant role, as will increasing consumer awareness, as purchasers become more aware of their options. Technology will play a significant role with a push towards paperless transactions and the increased use of business intelligence, mobile solutions, social media, collaboration and knowledge tools. There are also opportunities to utilise third-party data to improve risk selection and reduce underwriting time. Of course, regulatory and compliance trends will also have an impact. We’re starting to see that already, through increasingly technology-savvy consumers and staff who bypass the traditional intermediated structure and choose products based on face value rather than quality and an intimate understanding of what other packages may be on offer. Moving forward, traditional insurer and intermediary business models are unlikely to generate historical investor returns, given increased competition in middle and small business markets. This is a

“The industry will be shaped by new and blended distribution channels, new business models, increased commoditisation and more players” challenge that we’re really working hard to address. The challenges are still there, but the good news is that we’re already engaging with our staff to find alternative models that will sustain our leading posi* tion.

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How accurate – or useful – are the terms used to describe how premiums are performing? By Ben Oliver IT WAS A COUNTER-QUESTION RAISED by a high-ranking insurance executive that seemed self-explanatory. In an informal chat with our publisher over a cup of coffee one sunny Saturday, the executive found himself debating the finer points of market conditions. Are premiums really rising, he was asked, or are the brokers speaking the truth when they say it’s going nowhere? In other words, is the market hard or soft? In a turn of Socratic logic, the executive rephrased the question. “Can you tell me,” he shot back, “exactly what is a hard market? Or, for that matter, what is a soft market?” While the questions seem simple enough, anyone considering them honestly is going to find reaching consensus on a cast-iron definition of hard/soft is far from easy, if not impossible. Insurers and brokers can’t agree on which state the market appears to be in at present. Too many perspectives, too many products doing different things at different times, too many ways of measuring the market at any

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given moment. Some companies even disagree with themselves. For example, while Aon was releasing its Australasian risk management benchmarking survey earlier this year which showed premiums increasing by an average of 6.4%, Chief Executive Steve Nevett was calling speculation of a hardening market “wishful thinking”. But who’s to say he was wrong? Everyone, it seems, has different ideas on what constitutes a hard or soft market – a bizarre conundrum when both terms are referenced with such frequency. What’s lacking is a clear, succinct and technically acceptable definition. But reaching for the textbook gives only guidance, not clarity. The New York-based Insurance Information Institute (III), which has earned a reputation for knowing nearly everything about insurance, defines a soft market as when “insurance is plentiful and sold at a lower cost, also known as a buyers’ market”; while the hard market is a “seller’s market in which insurance is expensive and in short supply”. The American Institute for Chartered

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October/November 2010

Property Casualty Underwriters (AICPCU) takes the definitions further: a hard market is one in which “insurer competition diminishes, buyers have difficulty finding coverage, premiums increase, and insurer profitability rises”. Market conditions where “insurer competition is intense and is indicated by widely available coverage, lower premiums, and decreased insurer profitability” would therefore be defined as soft. These definitions may suffice in a classroom setting, but they fail the real-world test. For starters, insurance line prices rarely move as one beast; directors’ and officers’ (D&O) cover, for example, has very different price sensitivities from commercial motor. And the individual qualifiers of these descriptions are vague. When does insurance pass the litmus test of being “plentiful”, “expensive” or “at a lower cost”? Expense, as any salesman will tell you, is relative to the buyer. As Depression-era American cartoonist Kin Hubbard once said, a bargain is “anything a customer thinks a store is losing money on”.


The definition of “competition” is also largely a moot point. Australia is one of the most competitive insurance markets in the world, and (barring the unlikely occurrence of another HIH) this is not going to change any time soon. Plus the qualifying terms in the definitions fail to address contradictions in the market. Premiums can rise, but remain affordable. Insurance profitability can fall, while insurers remain profitable. Buyers can find D&O cover plentiful, while workers’ compensation is expensive in Victoria and affordable in South Australia. If prices are hardening in a soft market, is the market still soft? Is there a specific metric to define when a market is officially one way or the other? KPMP Head of Insurance Brian Grieg concedes that definitions on the state of the market are based on what he calls “pretty loose terms”. “It’s very subjective,” Mr Grieg told Insurance News. “You can only be fairly general when you do discuss it. “You could read two different articles talking about the same class of business which are saying different things. It may be they are seeing different things in their business and it’s very hard to compare across the market generally. “People say things they absolutely believe, but it may be different to someone else’s experience in their own business.” Mr Grieg says the industry has never been able to agree on specific definitions and must rely on generalised observations, which are often skewed for market benefit. While insurers – mostly through the pages of analysts’ reports on the industry – insist rates are rising, brokers say buyers are still in control. These contradictory price signals are further complicated by the influence of larger insurance brokers, who use their market muscle to leverage cheaper rates for their clients – a competitive advantage small brokers lack. So while the market may be very hard indeed for a mid-sized broker, his large competitor down the road is likely to be having a much easier time of it.

Mr Grieg says self-interest will always mould the opinions of brokers and insurers. “I wonder if at times whether or not people’s commentary relates to where they sit in the insurance equation and what they are trying to represent,” he says. “Different players have their own self-interest.” Do insurers sell the concept of a hard market as some form of self-fulfilling prophecy? Wesfarmers Insurance Managing Director Rob Scott agrees, to a point. “From my experience the better brokers are more focused on sustainable pricing. The better brokers in the market realise if you adopt a slash-and-burn approach to pricing it may be helpful to a client in a point of time, but in subsequent periods they will be going back and saying, ‘sorry we got you 10% off this year but it’s going up 20% next year’. “That’s not good for clients and it’s not good for the insurance industry.” For his part, Mr Scott has his own definition of hard and soft, but he admits he’s no fan of the “hard and soft” terminology. “In a soft market, rates are going down and in a hard market rates are going up, but here we don’t talk so much about soft or hard markets. I think the terms are over-used. “The reality is the insurance market is very competitive and dynamic. At any different point in time there will be different trends.” “It’s very easy when an underwriter or broker loses a client to give the obvious explanation that someone else has gone and cut prices. Often the reason why the client chose to go with another company is much deeper. “It’s for that reason we don’t spend a lot of time talking about hard or soft markets.” Anyway, Mr Scott thinks the industry may have entered a post-cycle world, where terms like hard and soft take on a new post-modern meaning. “There will always be some cyclical element within insurance as people will overstretch to achieve premium growth and the damage comes home to roost further down the track. But I think in the future we will see less volatility in pricing. “Ultimately most of the major insurance

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October/November 2010

companies are accountable to their shareholders to deliver some sort of return. They can always take out their money and put it in a different place. “If insurers don’t make a satisfactory return, shareholders will go elsewhere. In the future, the major listed insurers will be far more focused on profitable underwriting.” Mr Scott says relying on measures of profitability, such as combined ratios, to reach a hard/soft tipping point can be misleading. “The hard and soft market is meant to refer to pricing trends whereas operating ratios refer to outcomes. Pricing trends precede the underwriting outcome,” he said. JP Morgan analyst Siddharth Parameswaran provides his own hard/soft definition, and unlike others spoken to by Insurance News, he provides a technical basis. “The hard market means rates are rising above the cost of inflation,” he tells Insurance News. “This is generally coupled with people pulling out of the market, in terms of capacity.” Asked how he would define rates rising in an already depressed market, Mr Parameswaran is more circumspect. “That would be a hardening market, where rates are rising a lot and profitability is being restored,” he says. Rob Scott says he’d prefer to banish the terms and start over. But if terminology must be used, he has his own suggestion. “I think the concept of irrational pricing is a more relative term to use when describing market trends.” The journey to find a rock-solid basis for * defining hard and soft continues.

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Power from the The workforce is strong as Wesfarmers Insurance builds momentum By Terry McMullan and Ben Oliver

AUGUST MARKED AN AUSPICIOUS PERIOD FOR WESFARMERS Insurance. Product launches, profit announcements and a marquee personnel signing comprised a top month for the diversified insurance conglomerate. If it didn’t add a little swagger to the step of Wesfarmers Insurance Managing Director Rob Scott, it certainly should have. August began with the launch of the Wesfarmers-underwritten online car insurance deal with major supermarket chain Coles. Initial pick-up rates in its first month of operation have pleased Mr Scott, despite the crowded space in which the product is operating. “It’s very early days, but clients seem to be attracted to our offering,” he says. “The majority of private customers want to buy our car insurance over the internet. “Coming up with a technical solution that makes it easy for customers was an important part of our strategy.” Wesfarmers Insurance then announced the appointment to a strategic management position of Alister Jordan, the right-hand man of former prime minister Kevin Rudd. What could a company that covers several insurance companies and two major broking groups possibly want with the brilliant 31-year-old who ran Rudd’s prime ministerial department? Mr Scott doesn’t duck the question. “Alister comes with some unique experience, but he’s looking to build a broader commercial career, and saw opportunities with our division.” “One of our key aspirations is to build the best team,” he tells Insurance News. “Alister is one of many people we have brought into Wesfarmers Insurance in recent years. While we are always on the lookout for talent, we are investing heavily in the development of emerging and experienced leaders across our business.” That signing was then topped by the unveiling of a 27.8% rise in earnings before interest, tax and amortisation to $131 million for the 2010 financial year. “In recent years we’ve implemented many organisational changes to improve underwriting and claims disciplines and to engage more effectively with our distribution partners and clients,” Mr Scott says. “The turnaround in our performance is pleasing, but we still have a way to go.” Such modesty hides an unmistakable boldness building within the walls of Wesfarmers Insurance. An influx of talented staff, a tightening of price controls and a focus on profitable underwriting is driving a newfound confidence which permeates every level of management. But Mr Scott is quick to douse any speculation the group is forging a new empire. He says Wesfarmers Insurance has no interest in market domination. “We are not focused on achieving market share growth through aggressive pricing,” he says. “We don’t have market share targets. We would rather be the best than be the biggest.” Instead, Mr Scott is focused on doing what the group does well. He discounts any possible move into broader risk lines such as life insurance – for the time being at least – so the group can capitalise on its existing strengths. “We have an open mind about future opportunities so long as they deliver value to shareholders,” he says. “However,


“There is no clear leader in the intermediated market in Australia and New Zealand, so that’s what makes it exciting for us and exciting for Lumley.”

at this time we see that there are a lot of opportunities for us to improve our general insurance business. He can foresee the day that the Lumley business – now a strong performer in the Wesfarmers Insurance stable – will sit next to the Big Three as the fourth pillar of the insurance landscape. “We don’t necessarily put a number on it,” he says. “But if we can keep improving, the logical consequence is that we will be a more significant player in the intermediated market. “From our perspective there is no clear leader in the intermediated market in Australia and New Zealand, so that’s what makes it exciting for our team. “The Wesfarmers Insurance business model is very focused on the intermediated market across Australia and New Zealand and most of our partners recognise this commitment. So in that context Lumley is seen by many as an attractive alternative – strong brand, strong team with a strong and stable shareholder.” Several years ago no one would have considered Lumley, cast as something of an industry laggard, as a competitor on par with IAG, Suncorp and QBE. What was a small fish lacking capacity and technical ability outside of commercial motor has come a long way in a short time. Mr Scott says forging new partnerships has been an important facet of the new, bolder Lumley across both sides of the Tasman. “We have focused on trying to broaden our broker relationships and tailoring our approach to the needs of different groups of brokers,” Mr Scott says. “Traditionally Lumley in Australia was focused predominantly on relationships with regional and independent brokers and didn’t do much business outside of commercial motor with larger broking groups.

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“Initiatives such as expanding into the corporate market through our Corporate Solutions team have been a great way to improve our profile among the larger national and international brokers. “This business isn’t solely price-driven; often it is to do with the quality of the underwriting and being able to come up with innovative solutions.” While Lumley seeks to build a larger corporate profile, other lossmaking businesses have been systematically culled, a strategic withdrawal that Mr Scott says is nearing completion. “That was a just a necessity in terms of getting the business back on track,” he says. “Really it was a combination of exiting business where we were not only losing money, but where we didn’t have enough control around pricing or risk selection. “And if we can’t control the pricing and risk selection, and if it’s a lopsided relationship then it’s not one that we want to be in.” Amid all the attention over Lumley’s new found vigour, its transTasman sibling is certainly not being ignored. While operating in a smaller market, Lumley New Zealand has the advantage of being an intermediary-focused insurer in a sector dominated by brokers. Mr Scott is clearly very happy about Lumley NZ’s long-term prospects under Chief Executive John Lyon. “We still see that there’s a lot more potential for Lumley New Zealand,” he says. “We already have started to adopt common approaches to portfolio management, reinsurance, capital management – a number of initiatives that are common across our Australian and New Zealand businesses.

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Lumley’s golden hue should rub off on its rural stable mate, Wesfarmers Federation Insurance (WFI), but Mr Scott is adamant that outside of shared services, the two will remain focused on their respective markets. “Ultimately, WFI is a very different type of business and the agency network is very different to Lumley.” In contrast to Lumley’s repositioning in a highly competitive market, WFI has benefited from the withdrawal of several competitors from rural and regional markets. While this removal of capacity has led to what Mr Scott says is “more sensible pricing”, weather and in particular crop claims have still pushed the business to boost profitability in new ways – such as the new “Time for Action” program designed to improve processes and cut paperwork undertaken by sales staff. “WFI has performed well over the years but the team is determined not to be complacent.” Not that growth and profit for the division is being solely provided by the underwriting side of the business. But expansion plans for the broking side – OAMPS in Australia, Crombie Lockwood in New Zealand and a small operation in the UK – are tending more to organic growth as suitable takeover targets become harder to find. While OAMPS acquired Townsvillebased Magnetic Insurance Solution in September, Mr Scott says the opportunities for the broking arms have been few. “We’re always on the lookout for acquisitions. But there are not a lot of people out there writing cheques for small broking businesses.” “We are finding it more compelling to expand the team and drive organic growth. Short of acquiring bricks and mortar, Mr Scott is now accruing other assets in short supply – quality staff. While the skill shortage has hit insurance as hard as anywhere, Mr Scott cites examples of creative recruitment – such as the hiring by WFI in rural areas of former regional bankers let go during the mass exodus of banks from regional centres in the past 10-15 years. From retaining the knowledge and skills of those approaching retirement to luring the next generation and eventual replacements, Mr Scott says brokers face a delicate balancing act. “The personnel issues within insurance are very interesting,” he says. “Hiring for attitude is fundamental. We want peope with drive and determination with strong values that can engage effectively with others. We don’t want prima donnas or big egos. One of my checks during job interviews is how many times someone says ‘I’ versus ‘we’ when de* scribing their experience.”

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Making some adjustments ‘Traditional’ claims experts are working to evolve with the times By Jamin Robertson SQUEEZED AT THE SIDES BY INSURER cost-cutting and the presence of alternative service providers, loss adjusters haven’t exactly been raking it in hand over fist in recent years. A subdued trading environment has prompted a call to arms by Australasian Institute of Chartered Loss Adjusters (AICLA) President Ian McWalter, who used a mid-year briefing to urge members to get creative in response to shrinking client markets. “A lot of the people who are now in the claims area and the procurement area do not really understand what loss adjusters can do, or perhaps more appropriately, should be able to do,” he says. “They don’t understand because we simply haven’t told them in terms they understand. “That is why, at least in the liability field, lawyers dominate both inside and outside insurance companies. Material damage claims appear to be going the same way – read builders for lawyers. “We need to go and bang the drum and start telling insurers what we can do.” It’s a call to action that has plenty of supporters. Professional Financial Solutions Principal and AICLA Development Director Philip Maguire agrees it’s important for loss adjusters to highlight the unique set of skills they bring to the claims process. “I don’t think there’s any doubt that the claims arena is pretty hot at present,” he told Insurance News. “And lots of loss adjusters are feeling the heat. They need to be able to demonstrate the value they add as professionals because they can communicate effectively around policyholder entitlements.” While MYI Freemans General Manager of Strategy and Marketing Ian Simpson agrees that it is as much about the sizzle as it is the sausage, he has no time for bleak predictions for the future of loss adjusting. He says firmly that progressive loss adjusters will continue to prosper. His firm recently underwent a major merger and with around 500 staff nationally, is a major force in the local industry. “Markets are changing quickly, and there are serious risks for those that don’t want to evolve,” he told Insurance News. “The traditional players have to get with the gig and become more relevant to our customers, because the future won’t

feature the same old product. We need a range of products to address clients’ needs.” Innovation is likely to become a catch-cry for all adjusting firms, given the rise and rise of thirdparty independent claims intermediaries such as Stream Group, led by Managing Director Don McKenzie. His “third way” approach to claims management sits between traditional building and loss adjusting models, and harnesses technology to speed up the claims and rebuilding process. It has been a successful move, with the business enjoying rapid growth and plenty of industry accolades. “The traditional model is under pressure,” Mr McKenzie told Insurance News. “This system allows a lot of the overhead fat to be stripped out.” Mr Maguire describes the new breed as legitimate business models, but says technology isn’t the exclusive preserve of the newcomers. Loss adjusters are also moving to make the necessary investment, and in some cases have also engaged in work-ing partnerships with the new breed of providers. Mr Simpson agrees that while adjusters are naturally adept at handling complex claims, there is no reason why they cannot also compete in the high volume/low value space given the right business model. Mr Maguire believes that in recognition of the two-way relationship that exists between insurers and adjusters, some insurers may need to revisit their remuneration policies. “Insurers need to look at those skills and see that loss adjusters are worth paying a reasonable rate,” he told Insurance News. “We pay lawyers and auditors a decent rate and loss adjusting services deserve a decent return. “If you don’t pay the right rate the danger is that your claims service will not be as robust as it should be. “It’s one thing to have building, legal or technical skills, but a loss adjuster could and should * bring a mix of all of those things.”

“We pay lawyers and auditors a decent rate and loss adjusting services deserve a decent return”

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Perth-based Capricorn Mutual provides ‘insurance-like’ products – but it doesn’t answer to APRA By Ben Oliver REGULATION HAS ALWAYS BEEN THE RUB IN THE complex, occasionally dysfunctional relationship between insurers and governments. While most skirmishes involve excessive regulation, one of the longest running is being fought over the exact opposite: a lack of rules and scrutiny. Six years ago the Federal Government-commissioned Potts Report recommended sweeping changes to regulations governing unauthorised foreign insurers – otherwise known as direct offshore foreign insurers, or DOFIs. Bundled up with the DOFIs in the same round of inquiries were discretionary mutual funds (DMFs) – entities that offer “discretionary cover” which is like insurance but isn’t. While a DMF’s product may involve an obligation to consider meeting a claim made on it, the DMF can decide whether it will pay the claim or not. 32

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A DMF may be a trust, mutual, company limited by guarantee or other structure. And because of their discretionary nature, they are not regarded as insurance companies and therefore aren’t required to be authorised by the Australian Prudential Regulation Authority (APRA). And while DOFIs have been extensively examined and arrangements set in place to control their activities, DMFs have slipped under the regulatory radar. In April 2008, then-Assistant Treasurer Chris Bowen announced limited exemption arrangements to the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007. But the Act was primarily aimed at DOFIs, the legislators doing a Solomon-like job in limiting brokers’ access to DOFIs while half-meeting insurers’ concerns by declaring that anything else would be subject to the same regulations as other insurers. In September last year Treasury extended reporting rule arrangements for business placed with DOFIs, forcing insurance brokers to collect data on insurance contracts with APRA-authorised general insurers, Lloyd’s underwriters and DOFIs. But what about discretionary mutual funds? A threeyear period of reporting annual results to APRA ended at the same time as DOFI data-collection was steeped up.

October/November 2010


“Capricorn Mutual is at great pains to make the point that it does not sell insurance – because payment of claims is not guaranteed”

Treasury announced it would not proceed with an ongoing data collection on DMFs. Partly explaining Treasury’s reasoning is the size of the DMF market. It collects less than 1% of the total premiums received by insurers. DMFs also work in very niche markets, further limiting their exposure. Insurers have previously warned that left unsupervised, DMFs will use their market advantages to aggressively increase market share. While there’s little evidence to support these assumptions, noises are being made across the Tasman that suggest mainstream insurers are still not happy about the situation. The New Zealand Fire Service fired a salvo against DMFs in August, saying it was having to pursue “mutual organisations” for providing alternative risk cover in place of insurance, thereby avoiding the NZ fire services levy. Insurance Brokers Association of New Zealand Chief Executive Gary Young went further, claiming his members were losing business to mutuals as brokers’ customers were wooed away by the promise of cheaper fees. “We’ve got lots of examples of the mutuals moving business away from proper insurance,” Mr Young told Insurance News. The company at the centre of this controversy is Capricorn Society, a Perth-based co-operative that according to its website is one of the largest automotive buying groups in the southern hemisphere. Members of Capricorn have access to credit, favourable pricing from suppliers, trade rebates and – the heart of Mr Young's concerns – an insurance alternative in DMF offshoot Capricorn Mutual Ltd (CML). Established to offer a “commercially feasible alternative to insurance” to Australian and New Zealand members, Capricorn Mutual is a club. Members pay a one-off $10 fee to join, after which they may take out any number of risk products for a certain fee. A key point of difference between CML and the rest of the insurance market is its “walled garden” business model. Only Capricorn members – themselves vetted as suppliers to or part of the automotive industry – are able to join. Capricorn Mutual is at great pains to make the point that it does not sell insurance – because payment of claims is not guaranteed. “If insurance is ever mentioned in CML’s advertising materials, then it is only to illustrate and clearly state that CML does not offer insurance, as CML’s product disclosure statement and all its dealings with its members reinforces,” Capricorn Mutual Chief Executive Trent Bartlett told Insurance News. Capricorn Mutual cultivates strong conversion rates from its parent company. About 4000 of Capricorn’s 10,000 members place risks with Capricorn Mutual. Its premium flow is also no small beer at $26 million in annual contributions, paying around $14 million in annual claims and honouring $43 million in claims since 2003. Risk products, euphemistically called “insurance alter34

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natives”, include protection for business buildings, contents, stock and assets, business interruption and liability, home and contents, motor and public liability. While Mr Bartlett won’t disclose the commercial sensitivities of CML’s pricing, the advantages of existing outside the onerous obligations of the Insurance Act 1973 or APRA oversight are obvious. “An essential feature of mutuality is the pooling of a layer of risk among the members,” he says. “Effectively the members are self-protecting on a group basis. “This is a form of co-operation which is at the heart of the co-operative movement – the group acting collectively to achieve benefits that individual members could not achieve alone.” Mr Bartlett is adamant the main gripe of insurers – that DMFs are simply offering insurance by any other name – is not valid. “CML considers it should not be subject to the same level of regulatory protection that may be appropriate for a retail consumer dealing with a profit-driven commercial insurer, and this approach is supported by Australian law. “Insurance and the protections offered by a discretionary mutual are different in substance, and there is legal authority to this effect.” Mr Bartlett says a balance must be achieved between the “full weight of regulation” appropriate to a commercial insurer and the “lighter touch” reflecting the “different risks associated with a not for profit, self-protecting group like CML”. “To obtain its Australian financial services licence CML had to submit detailed financial accounts to the Australian Securities and Investments Commission (ASIC) demonstrating that it had sufficient capital and financial reserves,” he says. “A key licence condition for CML is to always have assets that exceed its liabilities. As such it is required to provide ASIC with its audited accounts and to report to ASIC if at any time it is unable to meet its licence conditions.” Mr Bartlett says DMFs like Capricorn are vital to a thriving, competitive risk market. “Despite discretionary mutuals like CML being smaller in size compared to insurers, discretionary mutuals are beneficial in providing choice and competition in a free market, as well as being able to provide tailored protection and benefits for members, and a collective ownership and control model that supports the economies in which they operate” he says. For the time being at least, it appears regulators agree.

*

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Precision Swiss risk engineering Governments can soften the cost of a catastrophe with public-private partnerships By Jamin Robertson

RECENT DISCUSSIONS BETWEEN Australian government agencies and global public sector risk mitigation experts were well overdue. After all, this is a country where 19 of the 20 largest property losses in modern history were directly related to weather – with the public purse carrying much of the cost burden of natural catastrophes. Australia has been slow to adapt to some of the more innovative mitigation measures employed elsewhere. But in a sign that authorities are becoming more interested in reducing public exposure to the increasing incidence of natural catastrophes, Swiss Re Global Head of Public Sector Reto Schnarwiler travelled to Australia in July to meet with local government agencies along the eastern seaboard. Mr Schnarwiler took a break in his schedule to tell Insurance News about the growing demand for public-private partnerships to tackle the risks associated with disasters such as the March hailstorms in Melbourne and Perth that left a $1.85 billion dent in insurers’ pockets. “The growing frequency and severity of extreme weather events result in a higher burden for individuals, corporations and governments,” he says. “Rather than financing damage repair after the event, more and more governments are considering prefinancing and risk transfer instruments to manage this exposure more actively.” While he says local discussions remain “at an early stage”, there appears to be growing interest in the kind of public-private arrangement for which Swiss Re is well known. Mr Schnarwiler says there’s plenty of potential in Australia, where authorities have hitherto elected to largely self-insure. “I don’t see many examples of an overarching approach to risk management here,” he told Insurance News. “Governments need to un36

“Governments need to understand and manage exposures before they happen, and not just after the fact” - Reto Schnarwiler (above) insuranceNEWS

October/November 2010

derstand and manage exposures before they happen, and not just after the fact. They have an obligation to the citizens of a country to manage risk in a proactive way.” Swiss Re cites its established partnerships such as those with the California Earthquake Authority, Mexico Fund for Natural Disasters and Caribbean Catastrophe Risk Insurance Facility as some of the ways governments can improve their disaster resilience. These facilities exist in situations where either the public sector or private providers are unwilling or unable to act unilaterally, ensuring financial protection in the event of a disaster. “On the public side you have the legislative power to introduce measures to reduce and manage risk,” Mr Schnarwiler says. “On the private side you have the risk appetite and innovative capacity to introduce these mechanisms. The combination of the two can be very effective.” Despite this, he says too many governments continue to rely on an ad hoc approach to risk mitigation and management. “Within most governments different units are looking at various risks. It may include the Ministry of Finance on the financing side, and perhaps the Department of Environment or Climate Change,” he says. “Typically [such] units don’t talk to each other on a regular basis. “Many multinational companies have introduced a chief risk officer, and perhaps that is a concept that should be used by the public sector as well.” Mr Schnarwiler nominates the United Kingdom, United States and Singapore as countries leading the way on public sector risk management, and says other countries need to take a similar focus on integrating holistic risk management principles at the federal level. “We are seeing a higher concentration of


Case study: California Earthquake Authority In January 1994, the Northridge earthquake struck Los Angeles, killing 72 people and injuring nearly 9000. The 6.7-intensity quake caused more than $US15 billion ($18 billion) in insured losses, including widespread damage to public infrastructure such as roads and hospitals.

Reuters

Following the quake, the Californian Government issued a decree compelling insurers to offer earthquake insurance. This led many companies to withdraw from the Californian market, restricting supply. In response, the state government created the California Earthquake Authority (CEA) in 1996, which allowed insurers to offer earthquake coverage without retaining the risk. The CEA is publicly managed but privately funded, with Swiss Re assuming the underlying earthquake risk through reinsurance and the use of capital markets. Since 2001, Swiss Re has securitised almost $US2.3 billion ($2.7 billion) of CEA’s * earthquake risk.

risk and increasing exposures, which is testing existing risk absorption capabilities,” he says. “It is possible to address that widening gap * through the insurance transfer.”

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Take a look at us! Brokers are increasingly using advertising to expand their business horizons

MORE INSURANCE BROKERS ARE HEEDING THE WISDOM OF American marketing psychologist Steuart Henderson Britt, who famously said that doing business without advertising “is like winking at a girl in the dark: you know what you are doing, but nobody else does”. Since the National Insurance Brokers Association (NIBA) ran its “every business needs an insurance broker” billboard and radio campaign in 2006/07, some brokerages have taken up the challenge to advertise their services rather than rely merely on market forces, client references and the occasional brochure. While advertising is never cheap, it is effective if the message is right for the audience. And the creative approaches are what make them successful. One company uses the eyebrows of former federal opposition leader John Hewson to arrest the attention of passers-by in the high-traffic area outside Sydney Airport’s domestic terminals. Another uses a purely “local” TV campaign to assure residents of his country town that he’ll be there when they need him. Large or small, brokers’ campaigns provide a wider service by building recognition not only of the individual company, but of the importance of insurance brokers in dealing with commercial risks. Brokers have proved to be cautious about expensive advertising campaigns. Following the success of its 2006 “Needabroker” campaign, NIBA last year failed to get a new nationwide campaign based around the value of “NIBA brokers” off the ground. Only 42% of members agreed to contribute to the cost of the threeyear campaign – even though the association was seeking only $500,000 of the total $1.8 million cost. While some NIBA members questioned what they would get out of a campaign promoting their affiliation with a trade association rather than a set of values or service excellence, “it’s still difficult to understand why they would choose not to back an initiative to promote the profession that provides their livelihoods”, NIBA Chief Executive Noel Pettersen said at the time. Perhaps that’s because many brokers now believe they can spend their advertising dollars better promoting their own business interests. It’s likely that as competition in the broking sector intensifies over the next few years, even more will turn to advertising to expand their horizons. Competitive or not, only one medium-sized brokerage refused to discuss its advertising campaign with Insurance News, protesting that it didn’t want to “give away our marketing secrets”.

Broking with a bit of flair: Sydney’s GSA takes an innovative approach to making its mark By Jamin Robertson

Staying local and spreading the love: TV and radio ads keep Peter on the rocky road to success By Adrienne Agg

It’s all in the sizzle: MGA has some advice for brokers considering advertising By Tony Black

Advertising veterans will smile wryly at that. There are new products, new companies and new approaches, but there’s nothing secret about 38

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The eyes have it: GSA Insurance Brokers poster image outside Sydney Airport

ANYONE TAKING THE DRIVE FROM SYDNEY AIRPORT TO the city recently will have noticed that GSA Insurance Brokers likes to stand out from the crowd. Billboard advertising is unusual in the broking sector, where the marketing spend is usually limited to such things as sponsoring the local footy team. GSA’s aggressive strut into the market doesn’t end there. It is headquartered in beautifully restored premises in The Rocks, while its chairman is former Federal Liberal Party leader John Hewson, a personal friend and mentor of Chief Executive Paul Hines. GSA employs around 50 staff, including experts in such fields as professional risks, workers’ compensation and trade credit. Established in 1990 by Stephen McCarthy, it is now 100% owned by Mr Hines, who bought out his partner five years ago. Mr Hines agrees that GSA does do things a bit differently from your

average suburban broker, starting with a focus on medium-to-large clients with turnover of $10-500 million. “I’m not saying that we’re inventing something new, but speak to your average broker and ask them what makes them different and you’ll hear about their technical skills, their business acumen and their professionalism,” he told Insurance News. “That’s entry ticket stuff. What we realise is that it takes genuine business flair in the area of sales, marketing and distribution to add value, and all of these have to be done propoerly; you have to customise, package and sell the insurance product in a discernibly different way that equates to a genuine value-add for the customer.” For GSA, the points of difference come in various guises. Apart from the ubiquitous billboards, the firm also adheres to a little blue book of culture, an “eye opening” ethos and an entrenched vision of “challenging

It’s not about being cheap: screenshots from the Piranha Insurance Brokers television ad

WHAT WOULD A BROKER IN A RELATIVELY SMALL RURAL town hope to achieve through the expensive pursuit of television and radio advertising? Quite a lot, if you’re Peter Peirano. The flamboyant Rockhampton businessman/broker has embraced the concept – and it’s paying dividends. Mr Peirano, the principal of Piranha Insurance Brokers, spends

about $40,000 a year on television, radio and print advertising. While he doesn’t have the budget of the insurers, his latest television ad is effective by being short, sharp and simple. It aims to prick up the ears of the average Rockhampton resident sitting at home on the couch.

THE OLD ADVERTISING ADAGE THAT “SELLING THE SIZZLE, not the sausage” is well understood by Adelaide-based broker Stephen McInerny. It suggests that building the company’s philosophy around the brand will resonate with customers. Mr McInerney, who controls the advertising campaigns of MGA Insurance Brokers, says the company’s advertising reflects a solid philosophy of “putting our clients’ needs first and foremost”. He says he is continually surprised by the number of clients who still don’t realise that the broker works for them, is neither an insurer of some sort or an agent of an insurer. “We’ve recently moved our branding statement to be more focused around the phrase ‘The power of choice’,” he says. “We believe that ultimately this is what we provide our clients on a day-to-day basis. “When clients come to us they know we will be searching for the

cover that fits their individual needs, at a competitive premium – and that we will provide a comprehensive claim service. “It’s a difficult task in getting this message across in an advert that catches the eye while being clear, concise and uncluttered.” He says MGA’s secondary aim with its advertising is to educate the general public in the role brokers play in the marketplace. “We try to brand MGA as a solid, trusted professional organisation that provides individualised service,” he says “We back up these branding print adverts with regional TV and radio advertising.” The company now has a solid regional presence in South Australia, the Northern Territory, Queensland, New South Wales and Victoria. It’s an achievement that Mr McInerny says has  been achieved with the help of advertising. “We find that once we have a recognisable brand presence in an area

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the status quo”.  Mr Hines insists that’s a meaningful guidepoint rather than a vacuous platitude dreamed up by some wannabe marketing executive. “It might sound a tad cheesy but we challenge the status quo in everything we do; the way we think, the way we act, the way we communicate,” he says. “But we know this can’t be gratuitous; there must always be some intrinsic value in what we do. Rather than just being different for the sake of it, there has to be real value for the client. “Insurance is an emotional purchase and the focus should be on the relationship. We want our clients to become passionate supporters of GSA, not merely parties to a transaction – and we move mountains to achieve this.” He believes the credentials of his young staff – only a few are older than their 45-year old boss – stack up with any of the mid-sized boutique firm’s peers or indeed the big internationals. While GSA doesn’t actively measure its return on investment in things like those big Sydney billboards – “It’s very expensive, but I can’t give you any numbers” – there are other signs the firm’s innovative approach is paying off. For example, in the past two years the business has grown by 30%.

The commercial begins with vision of a man looking through the window of an empty office as the voice-over says: “Don’t you hate it when you’ve built up a long-standing relationship with an insurance broker or agent, only to have them move on to greener pastures? “If you’re upset your broker or agent sold out and you feel like you’ve lost your best insurance friend, don’t worry. Just transfer your business to Piranha Insurance Brokers.” It finishes with a final underscoring of that word “local”, emphasising that the brokerage is “locally owned, family operated. Your local broker, here to stay.” Mr Peirano says he meets disgruntled individuals and businesspeople every day who have fallen out with their insurance broker or agent. “All people want is a bit of service,” he told Insurance News. “It’s not necessarily that they’re looking for a cheaper deal.” He hopes the television and radio ads will make people realise that changing their broker doesn’t necessarily having to change their insurance plan. “If you’re with Suncorp, you can stay with Suncorp.” He likens his role in the community to performing a similar type of

GSA’s Paul Hines: challenging the status quo

“In relation to the billboards, what we’re doing is building brand awareness,” Mr Hines says. “I don’t expect anyone to look longingly into John Hewson’s eyes and decide to phone us on the spot! The billboards are reassuring to existing clients, but if there’s a CEO or CFO who is considering a change to GSA it might just be one more sign that we’re a credible firm, we’re progressive and we’re substantial. “Pride, passion and integrity are important, and if you have those * three things in abundance, the rest is pretty easy.”

service that a general practitioner provides for sick patients. “As a broker, you have to be a jack of all trades. I have to be able to do everything from personal to business insurance.” In his 32 years in the industry, Mr Peirano says he has always believed in advertising and building a strong brand name. “You get good bang for your buck with advertising. I could stop all my TV and radio ads, but then I would lose all the build-up. People wouldn’t stop to think about Piranha Insurance Brokers.” Piranha also builds up its unusual brand by supporting various sporting groups, events and associations in the region. And the company’s reputation for generosity spreads to the office, where the team of about 10 staff get free lunch every day. “I might spend $80 to $100 a day on food, but I get more than that in productivity,” Mr Pierano says. “They’re happy that they don’t have to eat a boring packed lunch every day.” The central Rockhampton office even has a disco ball spinning from the ceiling. But then, as Mr Pierano puts it: “I know we do things differently here. But if everyone’s happy at work, we spread the laughs and the * love.”

we can obtain measurable results by then drilling down into target segments,” he says. “It’s a natural progression in any of these advertising media to progress from being purely for branding purposes to gradually introducing ourselves as the broker of choice for specific target industries.” But he admits there is only so much a high level of brand awareness can achieve. He’s aware of another old advertising adage that “good advertising can sell a bad product, but only once”. “Advertising on its own doesn’t guarantee the results we want,” he says. “It’s only part of the bigger picture. We still need our staff on the ground to promote themselves via mailouts, telemarketing, community involvement and the like. “But if prospective clients know who MGA is via the broader media channels, they seem to be more receptive to contact from our staff.” Mr McInerney has some simple advice for other brokers thinking of dipping their toe in the advertising pond. “My advice is to do much the same as we’re asking our clients to do – seek the advice of professionals,” he said. “You will pay handsomely, but as always you get what you pay for. “The natural mistake that many make is to try to fit too many things in the one ad. You will have a lot to tell but very little space to do it in, so it’s best to maintain a consistent look for the ad, focus on one or two points and build the message over time.” * And never forget the sizzle. Part of the picture: an MGA magazine ad

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A matter of life and death Yours, that is. And this is all about personal risk management By Chris Woodley

INSURANCE IS ABOUT PROTECTING your assets from the consequences of something bad happening, but the best way to protect your assets is to minimise the risk of anything bad happening in the first place. But now move the focus away from property and on to you – yes, you. Consider this: do you have a risk management plan to avoid becoming ill or incapacitated? What I’m suggesting isn’t a policy to cover you against illness, terminal illness or death. I’m just suggesting that you need to take responsibility for your own health and your ageing outcomes so you can be in control of your own future. In an industry that is acutely aware of life’s shortcomings, minimising the risk factors that could make you ill or even kill you would seem to be a no-brainer. How much do you earn? Do you have a nice car? A big house? How quickly do you think the lustre would last on these material things if your health was compromised? The most important thing we have is our health and the health of our family. But by not planning for a healthy life we are ultimately planning for failure. The old adage that “failure to plan is planning to fail” was never more relevant than with our health. If you‘re not being proactive with your health by being physically active – and that means exercising – then you are setting yourself up for failure. And that can translate to a premature – and permanent – departure from this mortal coil. But I think you might agree that chronic ill health and physical incapacitation could be even worse than dying. Most of the people I’ve met in insurance are glass half-full people – they don’t like to dwell on the negative aspects of life. But having a positive view on life isn’t going to prevent you having a major stroke. A cerebral infarct – a blockage in one of your major arteries – would in most cases be fatal unless you had the good fortune to have immediate medical inter42

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The risk management strategy that may save your life • Eat less • Drink alcohol in moderation or not at all • Maintain a weight suitable for your height and weight (body mass index) • Eat fewer calories/kilojoules per day if you’re overweight • Engage in daily physical activity like walking, running or cycling – anything that raises your heart rate. (Yes, sex does count as exercise, but for the over-50s it’s probably not going to be of long enough duration to afford a significant cardiovascular benefit!) • Get some downtime away from work and away from the mobile phone • See your GP for regular checkups

vention. And even then the prognosis may be grim. A cerebral infarct can cause a blockage or leakage in one of the blood vessels supplying the brain, often resulting in death or, in some instances, severe and permanent paralysis. And one-third of all cerebral infarcts result in death. But you always try to eat reasonably well and you don’t drink that much? Good for you, because cerebral infarctions can be the result of poor eating and lifestyle habits that translate into atherosclerotic plaques – thickenings along arterial walls. Small particles called emboli can break off from these plaques and travel in the bloodstream until they form a blockage, restricting or totally blocking blood from getting to vital organs like the brain. It’s like a beaver gathering debris to make a dam, eventually blocking the river’s flow. In your body the debris is fast food, doughnuts, fatty foods and poor lifestyle choices like excessive alcohol, smoking and inactivity. Eventually those things accumulate and may kill you. Lifestyle conditions are the long-term result of poor eating habits and inadequate physical activity, and the risk rises over time. The most dangerous thing in your office (other than your fridge) is your office chair. Think about that. The average office worker can spend up to 46 hours with their buns firmly planted in a chair. A study by the Cancer Prevention Centre at Sydney University found a sedentary office worker on a 38-hour week spends 31 hours inac-

tive, while a 60-hour workaholic spends about 46 hours sitting. By removing your backside from the upholstery for even a short period your metabolic rate increases by as much as 10-20%. The famous Mayo Clinic in the United States says that within two minutes of sitting “your metabolism starts to wind down. In several minutes your production of lipoprotein lipase (an important regulator in the transportation of cholesterol and fat metabolism) is reduced and your insulin receptor activity severely curtailed.” It’s becoming more apparent that our collective ill health isn’t just caused by ageing but by inactivity. We’ve become so efficient at engineering physical activity out of our daily lives that we’re now engineering ourselves into an early grave. The most dangerous thing in your office really isn’t the fridge or the open window on the 10th floor – it’s the chair! Think about it. Every working morning you either get in the car or sit on the train or bus, catch the lift to your office and then plonk your derrière in a comfy chair for the rest of the day, looking at your screen and talking on the phone. Sitting in that chair for long periods not only increases your risk of deep vein thrombosis, it’s also bad for your spine, your cardiovascular system and your overall health. So how long do you want to live? I don’t think any of us really want to grow old, but it’s better than the alternative. Given a choice I think all of us would choose to grow old in a state of fitness and good health. Yet 65% of us are overweight and pos-

Websites • Check your daily energy needs and expenditure at http://firstyear.chem.usyd.edu.au/calculators/food_energy.shtml • You’ll find a good BMI calculator at www.mayoclinic.com/health/bmi-calculator/NU00597

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sibly already heading down the path to bad health. Heart disease is killing us in droves. Cardiovascular disease is still the biggest killer of men and women alike. In fact, more women are likely to die from a coronary event than a male. There are several reasons for this, one being that women are less inclined to seek medical treatment, and when they do their symptoms are sometimes overlooked. With heart disease the best prognosis comes from early detection, prevention and intervention. So what type of “personal insurance” plan will you sign up for to ensure you have the best possible health and a good shot at a long life? * That’s entirely up to you.

About the author Chris Woodley is a former Sydney firefighter turned health and fitness expert. He knows many people in the insurance industry through his wife Lisa, and believes that many of us need to take a good long look at ourselves. Chris has a degree in health science and associated qualifications in nutrition, remedial massage and sports injury therapies. A volunteer speaker for the National Heart Foundation, he also writes articles for fitness magazines. He’s a threetime winner of the Mr New South Wales bodybuilding competition, and is the current “Mr Sydney” in the over-50s division.


lawNEWS

You can’t take them with you Restraint of trade cases against brokers wanting to contact former clients are increasing. Here’s why By Tony Black

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lawNEWS IT’S A COMMON ENOUGH STORY. A broker leaves, then suddenly a stack of clients follow. What happens next, depending on the provision of legal restraints, can often be messy. The general insurance industry is awash with tales of business shuffling out the door after a successful broker. In the New South Wales Supreme Court recently OAMPS sued former employee Peter Hanna after clients decamped to his new employer, Strathearn. The 30-year insurance industry veteran had signed confidentiality obligations and restraint covenants in his employment contract, but believed he could still deal with his former OAMPS clients, if not actually solicit their business. Justice David Hammerschlag thought otherwise, and banned him from soliciting OAMPS clients for a year. Such a ruling, says Mark Sullivan, a partner at law firm Lander & Rogers, is not unusual. But there are several reasons why restraint of trade clauses are becoming more common and are causing so much confusion. “The expression itself has a negative tone to it and it is understandable,” he told Insurance News. “Despite termination of an employment relationship, the employee is being restrained from an activity associated with that former employment. “The effect can be that proposed commercial dealings will be prevented, sometimes contrary to the wishes of the clients involved. “For this reason, as a matter of public policy, restraints will only be enforced by a court to the extent that they are reasonable.” The problem hinges on interpretation of that word “reasonable”. Just what that is, says employment law specialist Lisa Berton, a partner at law firm Kemp Strang, depends on an analysis of the particular set of circumstances and the terms of the restraint. Because if a restraint isn’t well drafted, this further muddies the waters. “The issue to be resolved with respect to reasonableness in a case is whether the restraint offers no more protection than is reasonably necessary to protect the legitimate business interests of the employer,” she told

Insurance News. “The common law treats unreasonable restraints on post-employment activities as unenforceable. If the purpose of the restraint is not primarily to prevent competition from the employee but is designed essentially to protect the confidential information of the employer, the courts will be more amenable to the restraint. “In this situation the employer would have something in the nature of a propriety interest to protect, as distinct from a mere economic interest.” In determining whether a restraint is reasonable, Australian courts regard a variety of factors such as the character of the employer’s business and the employee’s connection with that business. The relationship between the employee and the employer’s clients and the seniority the employee has within the organisation are also key considerations. The duration of the restraint and the activities restrained will also depend on the particular circumstances of each case. It’s unlikely that a restraint which purports to operate internationally or interstate will be enforceable if the employer carries out the vast majority of its business in Australia or in one state only. Nor will a restraint usually be allowed to apply to employment activities that never formed part of the employee’s duties with the employer. If this sounds a complicated business, it’s because it is. But there are a few safeguards employers can take, Mr Sullivan says. “While restraint clauses can have a deterrent effect, a lot of management time and resources will be involved in actually going to court to enforce a restraint, such as by getting an injunction. “So it’s important to have restraint clauses which are clearly drafted to avoid arguments about contractual certainty, and which are reasonable in their scope. “For example, the restraint should be for the benefit of the actual company needing protection from poaching rather than, say, a subsidiary which has no clients. Employers

“For this reason, as a matter of public policy, restraints will only be enforced by a court to the extent that they are reasonable”

Unenforceable? The experts say to think again WHEN BROKERS DO TALK TO FORMER clients – however innocently – they can be on very shaky ground. The courts apply a broad interpretation to the meaning of the term “solicit”. And that applies even if it’s the client doing the contacting. Kemp Strang partner Lisa Berton says in such a case the broker may still be found at fault. And for a broker to act on such an approach is playing with fire. “You may be held to have solicited that client’s business if, for example, you propose something that is too attractive for the client to refuse, often based on knowledge of some confidential information of the employer,” she says. Lander & Rogers partner Mark Sullivan believes there will always be such cases

where “employees move between employers and have an incentive to bring work with them”, and Ms Berton echoes this view. “Companies will always bring cases of this type where there is potential significant damage and loss of business likely to be suffered through the actions of a departing employee,” she says. “Movement in many industries is based on the number of clients someone can bring with them. This almost creates incentive to ‘have a go’ at poaching clients and to see whether the old employer will do anything to enforce the restraint.” It’s true that employees and “their” clients often develop close working relationships and that some restraint agreements are ineffectively drafted, but the widely held misconception that restraints are in many

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cases unenforceable can land the former employee in all sorts of bother. Mr Sullivan says brokers should understand what the words used in the restraint clauses actually mean. “They can often be difficult to read because of the technicality of drafting, but also there should be an appreciation of the effect of a particular expression. “The most common mistake is to believe that a clause preventing a broker from ‘soliciting’ the custom of former clients means that the broker is free to do work if the client makes the approach. “That is completely wrong and can land the broker in difficulties, sometimes unintentionally. “As soon as the broker tries to sell his or her services in response to that approach, * solicitation has occurred.”

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lawNEWS which use service companies for employment purposes should be conscious of this. “In those cases there is a much greater chance that an employee who is found to be acting in breach will, upon getting a letter from solicitors, give undertakings not to act in breach in the future. The litigation process may then be avoided. “Of course, sometimes there is just no option.” John Edmond, a partner at Allens Arthur Robinson, says – perhaps unusually for a lawyer – that litigation should always be a last resort. “Even though it is against my own interests as a litigator, I would not recommend litigation,” he told Insurance News. “A negotiated outcome is nearly always the better way in this sort of dispute. “Aside from the legal costs and management time involved, employers need to have in mind the fact that they may tarnish the very client relationship they are seeking to preserve – for example, the client will more often than not be a witness in the proceedings. “Whether a restraint clause is reasonable or not is an area of law where a healthy dose of discretion has been left to the courts. Where the legal answer is not black and white you are always less likely to see matters settle and more likely to see them litigated.” For brokers, getting things right at the start is essential. Being aware of just what you are signing up to can spare blushes, and much worse, later on. Understanding that restraints are enforceable and that the courts regularly enforce restraint provisions is a must. A laissez-faire attitude just won’t wash. Ms Berton says new employees should “negotiate at the outset of the relationship” – and under no circumstances listen to pub chatter about restraints not being enforceable. “If you are taking your own client base

with you, make sure that the restraint ‘carves out’ your clients from those of the organisation you are joining,” she says. “And make sure you are free to take those clients with you when you leave. “Know that if you sign a properly drafted and reasonable restraint as part of your employment agreement, you will be held to it.” Mr Edmond does not believe future restraint cases can be stopped; but they may be minimised by the employer ensuring that the new employee makes a representation in the contract he is entering into that it is not inconsistent with the terms of any other obligations he or she may be under. He also suggests the parties agree to mediate “sooner rather than later in the proceedings”. Tighter regulation is often mooted as the catch-all answer to difficulties between employers and employees, but the complicated nature of the insurance business is likely to preclude this. “The difficulty with tighter regulation is that this may discourage competition and could lead to a position where unreasonable restraints on a person are enforced,” Ms Berton says. If there is one thing clear about this murky issue of restraint disputes, it’s that they are not simply going to disappear any time * soon.

No choice but to sue

NINE YEARS AFTER BROCK HALLIDAY pursued a former employee of his brokerage in court for taking company records detailing clients and policy information, he says he’d recommend other brokers follow his example.

Brock Halliday remembers a case that dragged on for six years

He says his driving force in bringing the action and a later appeal between 1996 and 2001 was “to prevent other employees following suit”. The case cost more than $600,000 over a six-year period and today the errant exemployee is still paying $250 a week against the final judgement. “Although it was expensive – the matter dragged on for a number of years – the legal action becomes a cost of doing business,” Mr Halliday told Insurance News. “It wasn’t really stressful, but it was certainly a massive time-sucker. In reality the matter became just another irritating commercial difficulty to overcome. “It was a matter of defending the business from attack. It was a fact of life – an unpleasant episode to be dealt with civilly.” He says cases like his keep coming up because “employees believe they have a

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“Understanding that restraints are enforceable and that the courts regularly enforce restraint provisions is a must. A laissez-faire attitude just won’t wash”

‘right’ to the clients”. With the advent of electronic communication, “it’s almost impossible to protect a business database from a marauding rogue employee”. “A brokerage cannot rely on industry associations, and though broking groups can have some degree of influence, their control over members is limited,” he says. “The courts dislike cascading restraint of trade. They seem to believe a one-year period for damages is reasonable, less costs. As for insurers, they couldn’t care less where the business comes from. “A brokerage cannot rely on the law or the industry to stop the transfer of clients, so it becomes the responsibility of the brokerage to develop a strategy to minimise the potential of an employee to steal a portfolio. “It would be a gross act of commercial cowardice to not prosecute the rights of the business. Other employees expect management to protect their livelihood from erosion by a rogue employee. “I don’t think there is a choice.” There is no case for legislation to control the problem, Mr Halliday says. “You can’t * legislate morality.”


companyNEWS

Connect to Newline: Liability specialist aligns with its global parent’s brand

Rebrand helps clarity: Newline Australia underwriting managers (from left) Stephen Mullaly, Craig Rowsell and Christine Pistone

CONNECT LIABILITY SOLUTIONS HAS been renamed Newline Australia Insurance to aligh it with the global brand. Newline bought the Connect business in 2007. It specialises in public and product liability, professional indemnity, directors’ and officers’, financial institutions, medical malpractice, life sciences and clinical trials cover. The Melbourne-based operation has three underwriting managers – Christine Pistone (responsible for financial institutions and directors’ and officers’ liability); Stephen Mullaly (professional indemnity and medical malpractice) and Craig Rowsell (liability, life sciences and clinical trials).

Newline is owned by US reinsurer Odyssey Re. Its London Market Division Chief Executive, Carl Overy, says Australia “has been a core market” for Newline for more than a decade. “We purchased Connect Liability in 2007 to solidify our position in the SME casualty sector,” he said. “The local leadership team has significantly enhanced our profile in this strategically important market.” A Newline Australia spokesman told Insurance News the rebranding is a reflection of Newline’s confidence in the team we’re continuing to build. “The change of name to Newline Australia

has provided key brokers with clarity around who we are, what we do and our ownership structure.” The spokesman says the initial response in the local market to the name change has been positive, “which reflects on the parent company’s standing”. Newline writes business in more than 80 countries around the world, with the Melbourne office joining underwriting centres in London and Singapore. Newline Australia writes business on behalf of Newline Syndicate 1218 * at Lloyd’s.

Dual refocuses:

UNDERWRITING AGENCY DUAL Australia has undergone an organisational restructure as a result of suggestions from 320 brokers who participated in a company survey. Managing Director Damien Coates says the restructure will deliver a “more consistent and focused” level of service. While Mr Coates will continue to manage the company’s distribution strategy, newly appointed Chief Operating Officer Peter Bailey has assumed responsibility for underwriting management, including product development, together with all head office support services. “The revised structure will afford me the opportunity to more effectively drive Dual’s distribution strategy, together with continuing to focus on expansion in the Asia-Pacific region,” Mr Coates says. “Dual’s state managers are committed to building strong local relationships and I’m really looking forward to a more personal level of involvement with our key brokers and distribution partners.”

The restructure comes on top of a decision to upgrade the Dual Web Rater, with changes also driven by feedback from brokers. The system now allows brokers to indicate, quote and bind online without referring to a Dual underwriter. This new end-to-end functionality “allows brokers to gain instant premiums and documentation”. The global Dual group also recently expanded its Lloyd's capacity, with Hiscox Underwriting providing 25% extra capacity on top of the international group’s 75% capacity with Lloyd’s syndicate Arch. Mr Coates says the move will allow Dual Australia “to expand beyond our traditional financial lines products”. “The expansion represents another great partnership for us as we continue our growth as * a specialty lines agency,” he says.

Growing agency undergoes a restructure

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companyNEWS

Mobius takes Lloyd’s into a new market space: Commercial property agency finds support from underwriters and brokers

Revamped ARGIS focuses on farms: The rural specialist passes commercial and personal lines business to owner Calliden

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UNDERWRITING AGENCY SLE Worldwide Australia has expanded into the commercial property market with a new company, Mobius Underwriting. Tim Higgins, who previously served as Director Australia Operations at Affiliated FM, is the Chief Executive of the business, which was launched on September 1. Mobius Underwriting is fully backed by Lloyd’s and will initially specialise in commercial property – but in a different way. SLE Managing Director Brad French says the Mobius approach brings Lloyd’s into a new area in Australia. The new company will mainly concentrate on office and retail buildings with a value of up to $100 million. “Normally Lloyd’s syndicates write risks at the very top of the market or at the very bottom,” he told Insurance News. “I worked out that if we could reach agreement on the form of a new managing general agency there was no reason why they couldn’t compete in this part of the market.” Mr French says syndicate leaders at Lloyd’s told him they “normally only work with things that catch fire or sink. This is an opportunity to work in ‘softer’ occupancies.” He says the reception in the Australian market to the Mobius offering has been as enthusiastic as it was at Lloyd’s. “We’ve attracted a lot of interest from brokers of all sizes, as well as from the broker clusters,” he says. “We’re already looking at a number of significant risks.” But the Mobius approach will be conserva-

INSURER CALLIDEN HAS BEGUN THE revamping of rural underwriting agency ARGIS with the launch of its new Farm Extra product. The company is repositioning ARGIS as a pure farm insurance specialist, with non-core personal and commercial lines products being moved from the unit’s portfolio to the Calliden brand. Group Executive Marketing and Distribution Mike Hooton says the development and launch of Farm Extra demonstrates the firm’s commitment to brokers operating in the farm insurance market. “We have a clearly defined appetite, and combined with the launch of our new national farm underwriting centre in Melbourne we now have a team dedicated solely to the farm sector,” he told Insurance News. “This enables the group to provide a consistent, quality service to farm insurance brokers nationally.” The decision to retain the ARGIS brand within Calliden was carefully thought out, Mr Hooton says. “We did some research with brokers who told us the ARGIS name was valued, so we’re retaining that brand for our specialist farm product because Calliden is not known as a farm brand.” The ARGIS Farm Extra policy provides enhanced cover, increased policy limits and additional benefits. Calliden will offer all existing insuranceNEWS

October/November 2010

Mobius chief Tim Higgins: a new approach

tive and careful. Mr French says the new underwriting agency has no plans to take on the larger commercial property underwriters. “We have modest plans for the business to start with and we won’t be a market-maker against the large players. We’ll go softly-softly.” The Mobius brand pays tribute to German mathematician August Ferdinand Möbius, who in 1858 invented the Mobius Strip, a surface with only one side and only one boundary component. “That makes the surface endless,” Mr French says. “It’s a good omen for a new * enterprise!”

policyholders the benefits of the upgraded product. Mr Hooton says he is optimistic about the future of the company’s rural business. “We’re getting good growth on farm insurance. We have a good product and good focus in that area.” ARGIS has already begun rebranding its domestic portfolio to Calliden and will now make the same transition for its commercial business. In July Calliden closed ARGIS premises in Albury, Tamworth, Toowoomba and Canberra in a move to centralise the business in Melbourne. Fewer than 30 staff were affected, with employees invited to take up positions elsewhere in the group. Development managers retain a presence in the regions. Calliden acquired a half-share in the farm specialist as part of its 2007 $62.5 million purchase of Australian Unity’s general insurance business. Following the deal, FMG Insurance – the former Australian branch of New Zealand’s Farmers’ Mutual Group – was rebranded as Australian Regional General Insurance Services (ARGIS.) In 2008 Calliden bought out the remaining 50% stake in ARGIS from Australian Unity for * $6.3 million.


companyNEWS

Ebix rolls out a big range of solutions: New features stretch from websites to software to iPads

GLOBAL E-COMMERCE DEVELOPER Ebix is refusing to stand still in an ever-evolving technology market, unveiling a new range of software products to help insurance companies increase their web presence. Ebix Australia, which operates dominant insurance trading platform Sunrise Exchange, recognises that consumers, particularly generations X and Y, are seeking the benefits of online purchasing – availability, choice and convenience. Heading the range of next generation software solutions is Ebix’s new customer relationship management (CRM) system, SmartOffice, which promises better management of the insurance workflow cycle. The company says the program has already been installed by more insurance organisations in North America than any other CRM system. And while there are an increasing number of CRM systems entering the market, Ebix argues that none have been developed from the ground up exclusively for insurance professionals. SmartOffice will become available in Australia later this year, with a small international base of clients already established in Japan and Singapore. The program is designed for insurance activities such as client and prospect management, sales campaigns, customer service, and compliance and policy tracking. It can also be fully integrated with Ebix’s three broking systems – CBS, eGlobal and WinBEAT. The WinBEAT system alone is used by more than 4900 (60%) brokers in Australia every day, while 80-85% of the broker community use an Ebix broking system. Ebix Australia has now “significantly ungraded” the software program to create WinBEAT 4.0. Mr d’Apice says the new WinBEAT will improve access to information, processing and workflow enhancements and enhance reporting. It is also set to reveal its Custom Web

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Applications Toolkit, which helps brokers build ecommerce websites for a “fraction of traditional costs”. The websites come complete with client quoting capabilities and the ability to automatically upload the policy transaction into an Ebix broking system. It’s e-commerce made easy, says Ebix Australia Managing Director Leon d’Apice. He says such internet facilities are becoming increasingly important for brokers. “There are three main drivers – cost of distribution, reach and consumer demand. “Distributing insurance products using internet technologies can substantially lower the cost of distribution.” Mr d’Apice says online solutions particularly benefit brokers with schemes or specialising in “high volume/low value products”. Ebix is also offering an online payment gateway that allows brokers’ clients or staff to pay premiums online. The module can be added to an existing company website, permitting a user to pay an invoice by credit card without the need for manual intervention. Mr d’Apice says that by eliminating the manual receipts process, back-office costs are reduced and staff can use their time more productively. It can also reduce brokers’ bank fees by “smart handling” of credit card surcharges. Similarly, as portable computing technologies invade the market, Ebix is developing Apple iPad access to a range of its software products. The firm will launch its latest e-business products at the National Insurance Brokers Association Convention this month. Ebix will also launch new modules in its iClose suite of e-commerce solutions at the convention. These include solutions for claims processing, insurer settlements, and a messagingbased solution handling negotiated classes of risks. *

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peopleNEWS

They’re just not into insurance But once they’ve experienced it, 85% of recruits plan to stay By Lydia Brisbout THE INSURANCE INDUSTRY’S challenge to attract top quality recruits is well documented. While it is understandable some may be sick of the subject, there’s little doubt that competition for new recruits is only going to intensify in the future. So what is being done about addressing insurance’s image crisis? And has the time come for a unified industry approach to the issue? Australian and New Zealand Institute of Insurance and Finance (ANZIIF) General Manager of Marketing and Communications Cameron Skews says the industry’s lack of appeal is a recognised problem. “Most people you talk to tell you that they just sort of ‘ended up’ in insurance,” he told Insurance News. “And there are a number of times I have gone to an event and a prominent chief executive has got up to talk about their career and kicked it off with, ‘I never though I’d end up working in insurance’.” Mr Skews says the biggest issues the industry faces in establishing itself as a career of choice is the lack of understanding of insurance, how it works and the wide range of skills it includes. Most young people have had very little exposure to insurance, and won’t until they start purchasing expensive items like a car or buy a house. And even then the impression they may get can be that insurance companies are “just a bank of phones”, or a website. “So when you have people who have graduated from university or are finishing high school and are thinking about a career in finance, insurance isn’t at the top of the list,” he 54

says. “In fact; it’s probably at the bottom, because banks, investment careers and even financial planning have a much more prominent reputation and position and people ‘get’ them. “You aren’t exactly going to have young people beating down your door to work in an industry they don’t quite ‘get’ and have very little exposure to.”

“I don’t think that many people have an understanding of what an insurance broker is”

Harsh facts, but they’re reflected in research ANZIIF has undertaken with members of its “Generation i” young insurance professionals program. It shows 68% had an ambivalent perception of the industry before entering it, but with experience 94% have a positive perception. insuranceNEWS

October/November 2010

Even more impressively for the notoriously fickle generations Y and Z, 85% of young professionals plan to stay in the industry. Clearly, the problem is not the work itself, but the public’s perception of what a career in insurance involves. To address these problems, ANZIIF has three programs in place to promote a career in insurance. The “Why Risk It” program is a national teaching resource that fits within the existing curriculum and is aimed at improving the financial literacy of year nine and 10 students. This is built on by the “Careers in Insurance” booklet sent out to schools and universities across Australia and New Zealand aimed at broadening perceptions of how important insurance is in day-to-day life, the scale of the industry and range of roles it includes. This program is supported by ANZIIF’s website, which it plans to revamp to include a tool linking insurance professionals with career days at local schools. Finally, the “Generation i” program is designed to keep young people in the industry once they have entered it. ANZIIF is also co-ordinating a new “Know Risk” initiative, which will be an online aggregator of information on practical and financial risk management, bringing together product information and tools to assist people to get the right level of insurance. Mr Skews says this initiative has received the support of all insurance associations and bodies and by increasing knowledge of the industry will likely also improve recruitment efforts.


peopleNEWS CPA Australia’s Alex Malley: the brand is important

the focus was on ensuring that people who choose to become CPAs do so for the right reasons, based on quality information. “There is an integrity in projecting really appropriate messages to people when they make their decision to move into this profession,” he says. “I like to think that everyone who decides to become a CPA does so based on not just their own image of what accounting is about but also on an appropriate, contemporary view of it.” Even with its high profile advertising campaigns, Mr Malley acknowledges CPA Australia continues to battle stereotypes when attracting new recruits. “I don’t think people generally realise how interesting, exciting and broad the range of roles are that people conduct under the banner of being a CPA,” he says. “In our membership we are literally a microcosm of society: we have got people in politics, sport, business, in not for profits and the public sector.

CPA case study AS ONE OF THE WORLD’S LARGEST accounting bodies, CPA Australia knows well the importance of attracting top-quality entrants to the profession. To compete effectively for talent, the organisation has decided it must not only focus on attracting members and promoting educational, development and employment opportunities, but must also establish itself as a distinctive brand valued by employers and members. CPA Australia Chief Executive Alex Malley says the organisation formally adopted its branding strategy two years ago. “Obviously our central focus is the member,” he told Insurance News. “But our role is also to promote the brand of their designation and the quality of it. “We recognised that there is an enormous benefit and value that you get from the designation and the value you bring to others,

National Insurance Brokers Association (NIBA) Professional Development Executive Linda Evans agrees that the insurance industry, including brokers, have historically struggled to attract interest from students due to lack of understanding. “I don’t think that many people have an understanding of what an insurance broker is and that is because it is hard to break through the clutter of messages for the big accounting firms, the banks and even the insurance industry to introduce people to what broking is about,” she told Insurance News. She says this means insurance brokers have to take a “mixed approach” to attracting new entrants, including recruiting at a local level through high schools, universities and career expos. This is supported by NIBA, which provides materials to brokers and careers advisers, and last year invited schools to attend its convention. The NIBA website also allows students to post their CVs to find work. Ms Evans says a range of educational initiatives is also helping to attract interest by students. 56

and that the only way to project that appropriately is to have a structured brand process. “The whole concept of a brand brings with it an internal and external discipline to your business.” Currently, CPA Australia is running an international television advertising campaign, and has a range of “factual brand analysis” interviews providing information about the real-life careers the qualification can lead to, including roles at both Adidas and Disney. These campaigns are backed by a very comprehensive website, and a wide range of university programs for students and academics. CPA Australia has also created a pathway program to facilitate the entry of people into the profession who don’t have a degree in accounting. In establishing the CPA brand, Mr Malley says

“There are two viewpoints. One is to take in school leavers and to train them from school, or to target those who are recent entrants into the workforce and are looking for an opportunity to move into an industry where the work is more consistent and more detailed,” she says. “Then there are graduate programs which target university graduates and put them through a fast-track learning program so that they understand what the business is about.” NIBA provides support to brokers taking on trainees by managing the training process, and reports a high retention rate for its courses. Ms Evans attributes the success of NIBA’s training to its practical, well-planned programs and the fact it also provides relevant on-the-job experience and supervision. But she acknowledges further work is required to promote a stronger image of insurance broking and the opportunities it offers. “We have got to have a consistent message, and what we are trying to do is push that message in lots of different ways,” she says. “We have just got to ensure that our particular benefits are clear – it is a varied job, you insuranceNEWS

October/November 2010

“If you have a CPA qualification, you can literally put it in your suitcase and travel the world and be relevant to anyone.” He says this is the same challenge facing the insurance industry. “I think there is still a lot of work to be done broadly about promoting the breadth and the relevance of a career in financial services, and the value it brings to recipients,” he says. “People have a presumption about insurance that probably dates back until the time they were five and they first heard about the concept. “It is the same with accounting – people have these positions and presumptions and it is important that we surprise people about how things have changed and the contemporary nature of the work and the breadth of it.” If the insurance industry can just do this, there is no reason to think that it will have any trouble meeting the need for top-quality new recruits in the future.

*

are not just sitting at a desk, and if you like dealing with people and you’re good at relationships, then broking is a great opportunity and it also offers great financial rewards.” While no unified industry approach to recruitment yet exists, it is clear the insurance industry is becoming more aware of the importance of promoting a positive image to the community and potential recruits. And with the industry showing it is willing and able to co-operate on issues such as underinsurance with the “Know Risk” initiative, there is still hope for a * unified approach to recruitment.


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Celebrating the industry’s achievers It was smiles all round at the annual Australia and New Zealand Insurance Industry Awards, the widest of the lot covering the faces of QBE staff who picked up the title of General Insurance Company of the Year. Now in its seventh year, the awards recognise outstanding achievement in the Australian and New Zealand insurance marketplace. Some 800 insurance industry leaders gathered in Sydney for the occasion, hosted by the Australian and New Zealand Institute of Insurance and Finance. The awards gather more momentum each year and this year’s event was a sell-out, with 800 industry professionals taking the chance to get together and cheer the effort that goes into making the risk insurance business a success.

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UAC moves into Adelaide Brokers from across Adelaide flocked to recreation club Next Generation recently for several interesting hours. Rather than indulge in the club’s recreational facilities, the brokers were there to check out the latest insurance offerings from members of the Underwriting Agencies Council (UAC). A record number of exhibitors and more than 160 brokers spent several hours discussing the wide range of specialised products UAC members deal in, then attended a light lunch. The lunchtime speaker was Lloyd’s new General Representative in Australia, Adrian Humphreys, who spoke about the London market and its work in the Australian industry.

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Allianz training attracts the brokers Major insurers have become more involved in the training of brokers over the past few years, and Allianz Australia has taken the initiative one step further by tailoring its program to meet varying needs. So far this year Allianz has held training days in Canberra, Wollongong, Brisbane, Adelaide, Sydney, the Gold Coast and Geelong, reaching more than 500 brokers. Sessions have been “streamed”, providing separate topics and training targeted specifically toward broker principals, account managers and office support staff. The result has been a mix of product training, marketing tips and “area-specific” growth strategies. Each training day earns accreditation of six CPD hours or six CIP points. Allianz says feedback from brokers and agents this year will be used to design more interactive sessions, with expert speakers and specific product training already identified as a requirement for next year’s training days.

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APIG’s big day draws a crowd You can get through a lot of business in one day, especially when you’re as organised as the people who guide the affairs of the Australian Professional Indemnity Group (APIG). About 300 lawyers, brokers, accountants, claims specialists and other insurance liability specialists gathered in Sydney last month for APIG’s popular annual national conference and gala dinner. The Dockside event was a great chance for industry players to get together and discuss the latest issues relating to professional indemnity, financial lines and directors’ and officers’ insurance. The one-day conference format was specifically designed for the convenience of those attending the event. Apart from the more “normal” professional liability issues, the program also covered issues such as kidnap and cybercrime. The dinner that evening brought together 450 people for a memorable end to an intense day.

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Zurich teaches chiefs to be chefs Managers should be responsible for the things they plan and prepare, so chief executives from brokerages around Australia have been learning how to be masterchefs at Zurich’s Zenith CEO lunches. Hosted by National Intermediary Distribution Manager Nick Cook (puns were not permitted), the special lunches in Sydney, Melbourne, Brisbane, Adelaide and Perth brought 120 principals together for a culinary masterclass. And they ate what they cooked… While the bosses were learning what’s cooking, brokerage account managers and back-office staff attended 11 Gen Z forums around the country to learn personal marketing and presentation skills, claims and strategic marketing for the company. The sessions were conducted by experts in their fields and attracted more than 800 staff.

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AILA succeeds with ‘speed-mentoring’ The Australian Insurance Law Association (AILA) has come up with a new concept in getting business leaders alongside younger members. Using a concept perfected by speed-dating services, AILA brought together about 60 potential mentors from all branches of the industry for a far less romantic meeting with young professionals during a dinner at Sydney’s Establishment. MYI Freemans Head of Expertise Andrew Thomas, who helped organise the unique event, says the young professionals swapped tables at the end of each course, giving them maximum exposure to a range of executives. “Everyone who participated said it was a terrific success,” he says. “We’re very grateful to the participants. And even if it wasn’t really like speed-dating, quite a few individuals agreed to get together later to discuss work and careers. That’s how mentoring begins.”

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peopleNEWS Claims experts gather for CC10 The annual Claims Convention hosted jointly by the Australasian Institute of Chartered Loss Adjusters and the Australia and New Zealand Institute of Insurance and Finance grows more popular year by year. The fourth convention (CC10) in Sydney last month attracted 230 representatives from a wide range of insurers, loss adjusters, risk managers, claim industry specialists, suppliers and industry associations. Organisers say the associated exhibition is the largest yet staged, featuring mainly service-providers demonstrating the latest in products and techniques. The two-day convention was marked by some lively debate and covered a wide range of topics. Speakers ranged from Lumley Chief Executive Vivek Bhatia to Insurance Ombudsman John Price. Our pictures were taken at the convention dinner held at Sydney’s Luna Park.

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All smiles as IBANZ adjusts Problem: How to prepare New Zealand brokers for the arrival of a new regulatory regime, as well as answer their demands for more professional education opportunities. Solution: Turn the annual Insurance Brokers Association of New Zealand (IBANZ) “Propel” convention into a smorgasbord of technical seminars. Method: As IBANZ Chief Executive Gary Young puts it, switch from “inspiration to education”. Use flexible day passes to encourage a good turnout. Program five concurrent streams throughout the two days of the convention. Result: A record attendance at the Sky City Convention Centre as up to 800 brokers attend sessions and wander through the expansive exhibition area during breaks. A very happy Mr Young says the decision to try a convention venue in Auckland for the first time – after all, it’s the city where most brokers work – has been vindicated. “Our sponsors and exhibitors are happy with the large numbers of brokers they’ve met over the two days,” he says.

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The bosses join in at Vero Expo Building relationships with brokers and helping to increase their skills and knowledge is very important to every major insurer, and Suncorp demonstrated its serious intent in Brisbane last month when it hosted its latest Broker Expo. Commercial Insurance Chief Executive Anthony Day, Executive General Manager Intermediated Distribution Andrew Mair, and Executive General Manager Commercial Claims Paul Smeaton were on hand to speak at a panel session about the state of the market and Suncorp’s plans, answer questions directly and chat to other brokers in the breaks between the technically based workshops. Held in the Brisbane Hilton, the expo attracted 250 brokers, who earned CIP and CPD points for attending the accredited professional development workshops.

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peopleNEWS Expertise on show at lunch Loss adjusting is a far more sophisticated business than it used to be. These days most adjusters are employed by large companies with substantial reserves of expertise available. MYI Freemans recently held a lunch in Melbourne to show just how such knowledge is being harnessed by its new “expertise” division. The “launch lunch” – the first in a series across Australia – brought together claims managers and specialist lawyers to meet some members of the 50-person expertise team, who deal with claims and risk services in areas as diverse as agriculture, construction, engineering, investigations, financial, liability, major property, marine and risk surveying.

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maglog »

Terry McMullan Publisher

IN THE GOOD OLD DAYS OF JOURNALISM, documents were left on journalists’ doorsteps in the dark of night by brave whistleblowers. These days unsolicited documents flop electronically on to the desktop via email. Sometimes they come from specially constructed email addresses, so you can’t track down who sent them. Usually such communications contain scurrilous information about individuals and the plea to “check them out”. That’s how we obtained a document from a broker recently. He thought it deserved exposure for what he called its “high level of tackiness”. Here’s what it’s about: A reputable Australian insurer, which we won’t name – they’re not doing anything illegal and for all we know there are others out there doing the same thing – is offering “points” to brokers which can be redeemed for prizes. The company has nominated a number of target occupations it wants to write business for, and will allocate one point for each commercial quote the broker completes that matches its target list. Sorry, there are no Ferraris or Mediterranean holidays available – 10 points gets the broker a lolly jar and the maximum 50 can be redeemed for gourmet hampers. So it’s not as if anyone’s going to be diverting enormous amounts of business away from other insurers in the expectation of an early retirement.

The broker who brought this to our attention used phrases like “thin end of the wedge”, but we find it hard to be alarmed. If the program tempts brokers to try the insurer out when they otherwise wouldn’t bother, then that’s pretty effective marketing. If the broker gets the client a really good quote as a result, well and good. If they don’t, they still get a point for trying the insurer out, anyway. But if there’s a nagging little feeling in the back of brokers’ heads that they shouldn’t be trading quotes for movie tickets, they should maybe stop and consider if this is the sort of thing a professional intermediary should be getting involved in. However, let’s keep this in perspective. Collisions between marketing strategies and professional ethics are hardly new. Drug companies, for example, make insurance company marketers look positively tight-fisted and slothful.

One Sydney GP kept a record in 2008 of drug company activities with him, and reported that in the space of one month he’d had 11 direct visits from drug company reps, received 17 promotional drug brochures, six drug samples, five product information leaflets, three invitations to functions, three invitations to visit drug company websites, a patient information booklet, a consumer medicine information leaflet, a branded pen, a magnet, a mouse pad, a notepad and “other bits and pieces”. 74

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In that one month he was contacted by 18 different drug companies about 33 different drugs. Doctors, of course, are guided by a very strict code of ethics. So are accountants and lawyers. But what about brokers? The National Insurance Brokers Association Code of Conduct calls on brokers to “act in the best interests of the client” as well as to “be professional, efficient and responsive in all dealings”. That’s plain enough. It doesn’t say brokers can’t look around a bit further than they might otherwise (it might even be a good thing to do so). Nor does it forbid building up award points. But as with anything, if it makes you feel “tacky”, or even unprofessional, stop it immediately – you may go blind. The recent Insurance Brokers Association of New Zealand (IBANZ) convention in Auckland was an eyeopener for Kiwi brokers who have grown used to the more familiar “entertain, inform and don’t stretch anyone too much” formula. Like the upcoming National Insurance Brokers Association (NIBA) convention on the Gold Coast, professional education is now a very important part of proceedings. The IBANZ event was the first the Kiwi brokers had held in Auckland – the centre of the industry in NZ – because like most organisers, they feared losing delegates who might be lured back to their offices, never to return. That didn’t happen. IBANZ followed the example of NIBA last year and introduced “flexi-passes” to ensure they filled up a huge array of sessions – 60 of them over two days. The result was constant activity as some 800 people scurried from session to session, strolled through the exhibition hall or stopped to chat to groups of colleagues/friends. But where were the staff of the two largest brokers, Aon and Marsh, at this professional edu-fest? It transpires they didn’t share their smaller counterparts’ enthusiasm for acquiring knowledge outside their own hallowed halls. Don’t know why, but what a shame. Congratulations to the crew at the Australian Professional Indemnity Group, who announced at their recent Sydney conference that they’ll be naming a new award for excellence after the late Frank Earl, the broker who built his enviable reputation for integrity on the professional indemnity business. Lumley Head of Distribution Chris Collins announced the award while Frank’s widow Dianne and daughter Melanie looked on. Chris is the son of Frank’s oldest mate. It’s great to know that Frank’s example and * contribution won’t be forgotten.


Profile for Insurance News (the magazine)

OCT/NOV 2010 - Insurance News (the magazine)  

OCT/NOV 2010 - Insurance News (the magazine)