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EXCLUSIVE: AIG’s Chris Townsend oversees operations in 75 countries. Read his insights on challenges, opportunities and the future

#time4inclusion

As this year’s Dive In Festival kicks off, Allianz diversity and inclusion expert Charis Martin-Ross explains how change can come faster

August/September 2018


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Contents 6 Newsmakers »

66 Buying trouble »

10 #time4inclusion » We’ve been talking about diversity in the insurance industry for long enough – now it’s about making it happen.

16 Stronger together » Allianz wants other industry players to join its diversity drive.

22 New boss, same culture » Lingafelter returns as Colahan sets out to build BHSI in Europe and the UK.

Business acquisitions can sometimes go wrong for the most unexpected reasons.

70 Vale Terry Lane: clever, wise, caring » …and the life of the party. An outstanding broker is remembered for working hard and playing hard.

72 What goes around … » This year’s Sonar report warns of new threats from some familiar foes.

companyNEWS 80 Easy access

30 Litigating change » Reform of the class action regime is gathering momentum as insurance costs climb.

36 Running faster » Chris Townsend pursues global growth as AIG reshapes to compete in a rapidly changing industry.

42 The insurance industry’s big secret » The way some claims end up being paid must remain as untold stories, Mansfield Awards crowd told.

44 Fame for claims » Mansfield Awards champions reveal why they’re consistent winners.

48 Lifting the bar »

Suncorp app helps customers manage finances.

80 Casualty expertise StarStone joins with Lloyd’s syndicates in new consortium.

peopleNEWS 81 Industry backs White Owl fundraiser » 82 Axa celebrates Bastille Day, World Cup triumph » 85 BHSI goes west » 86 CQIB awards recognise top insurers » 88 Brisbane expo plays to full house »

Suncorp says insurers should aim to beat expectations, as the industry is examined like never before.

90 YIPs celebrate successful year » 92 Allianz sends golf champs off to France » 94 Lloyd’s networking night pulls in crowds »

52 Investing in the future » Emerging risks such as climate change have forced insurers to pursue more ‘responsible’ portfolios.

96 Claims teams honoured at Mansfields » 98 maglog »

56 Taking flight » Fast-growing 360 Underwriting Solutions has added aviation to its suite of products.

58 Mega problems » The world’s biggest cities are growing at a furious pace, creating a new, concentrated risk landscape.

62 Back to basics » Andrew Godden is building a business with a strong focus on traditional broking.

Cover: Charis Martin-Ross, Allianz Head of Diversity and Sustainability Image: Kym Thomson

August/September 2018

insuranceNEWS

June/July 2018

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newsmakers at

insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 25,000 subscribers. In June/July we published 435 articles online. These were made up as follows:

68 75 62 LOCAL

CORPORATE

Queensland praised for cyclone mitigation Queensland has launched a $20 million cyclone mitigation initiative to upgrade at-risk properties built before 1984, earning applause from the insurance industry. Suncorp and the Insurance Council of Australia (ICA) have welcomed the Household Resilience Program, which acts on a re-election pledge made by Labor at last November’s state poll. “For the first time, we have a government that is addressing the core of the problem, not just a Band-Aid solution,” Suncorp Insurance Chief Executive Gary Dransfield said. The program will fund 75% of the work required to improve a home’s resilience, up to a maximum of $11,250. It applies to homes in a defined cyclone-risk area. “The Queensland Government should be recognised for this,” ICA General Manager Risk Karl Sullivan said in a LinkedIn post. “It’s now up to underwriters to establish what premium reductions can be delivered once an older property is upgraded to become more cyclone-resilient.” Industry hails Qld cyclone mitigation, 30 July

REGULATORY & GOVERNMENT

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LIFE INSURANCE Cunningham Lindsey

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THE PROFESSIONAL

71 9 4

INTERNATIONAL

ANALYSIS

Insured losses from natural catastrophes fell 28% to $US21 billion in the first six months of the year, Aon Benfield-owned Impact Forecasting says. Economic losses declined 32% to $US45 billion. “While first-half losses were lower than average, it is imperative to reiterate that this does not automatically correlate to a quieter second half,” Meteorologist Steve Bowen said. “As last year proved on multiple occasions, even one… event can completely change the trajectory of a year from a humanitarian and financial cost perspective.” There were no “mega” catastrophes – economic losses above $US10 billion – during the half, but there were at least 15 billion-dollar disasters. These include drought in Argentina and Storm Friederike, causing $US3.4 billion and $US2.75 billion in economic losses respectively. Smaller-scale disasters dominated, with the Asia-Pacific suffering most catastrophes (55), followed by Europe, the Middle East and Africa (44), the US (37) and the Americas (20). First-half cat losses fall below average, 30 July

Destruction: Cyclone Debbie caused $1.7 billion damage

Every other industry in Australia had to deal with this. They survived and the insurance industry will survive. – Financial Rights Legal Centre officer Drew MacRae reacts to industry warnings that the imposition of unfair contract terms on insurers will cause chaos

icare appoints new chief

BREAKING NEWS

John Nagle has been confirmed as the Chief Executive of Insurance & Care NSW (icare) following an international search. Mr Nagle, a key executive at icare since it formed in 2015, took the interim job in January after Vivek Bhatia left to lead QBE’s Australian and New Zealand operations. “John has a proven commitment to icare customers and our people and a thorough understanding and focus on our social purpose,” Chairman Michael Carapiet said. “He also has a commitment to continuous improvement and operational excellence.” Mr Nagle has served as group executive for workers’ insurance at icare and has held senior positions in the private sector during a 40-year career. He was previously Lumley Insurance chief executive, Suncorp executive general manager corporate and specialty, and Vero chief operating officer retail.

More than 27,000 news articles – including 295 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. Access to news articles and other services provided by insuranceNEWS.com.au is free. 6

Cat losses ‘below average’

Nagle takes top job at icare, 30 July

insuranceNEWS

August/September 2018


Industry fights unfair contract terms proposals The Insurance Council of Australia (ICA) says a proposed model for extending unfair contract terms to the sector would have a major impact on premiums and the scope of cover offered. Chief Executive Rob Whelan says the Treasury proposals would cause insurers to fundamentally review their contracts and reassess pricing. “The model under discussion would change the nature of the industry and the risks that insurers are prepared to underwrite,” he said. “This is not consistent with the Government’s announcement that it would apply unfair contract terms protections to insurance contracts in line with other sectors of the economy.” ICA has long argued there are sufficient protections in place for insurance, while also working to make improvements for consumers, such as in product disclosure. But Revenue and Financial Ser-

IAG announces Asian sales

Gallagher moves for ‘heritage’ broker

IAG is still reviewing its holdings in Malaysia and India after agreeing to sell operations in Thailand, Indonesia and Vietnam in two separate deals. As reported in a Breaking News bulletin last week, Tokio Marine & Nichido Fire Insurance will pay about $525 million for IAG’s 98.6% stake in Safety Insurance in Thailand and its 80% interest in Indonesia’s PT Asuransi Parolamas. IAG has also agreed to sell its 73% interest in Vietnam-based AAA Assurance Corporation to a company with interests in the country. The transactions are expected to conclude next financial year, subject to approvals, and contribute at least $200 million to after-tax profit. IAG said in February it would review its Asian operations, which also include a 26% interest in a State Bank of India joint venture and a 49% holding in Malaysia’s AmGeneral. “The review is ongoing until the end of the year,” a spokesman told insuranceNEWS.com.au. “Our operations in India and Malaysia are part of the strategic review.” The Asia business contributed a profit of $15 million in the first half, but made an underwriting loss of $6 million. IAG says removal of Thailand, Indonesia and Vietnam from continuing businesses will lift reported insurance margin guidance by about 50 basis points this financial year, and improve the capital position.

Gallagher has announced the acquisition of Sydney-based brokerage Milne Alexander. The brokerage has a team of more than 20 specialist insurance and risk advisers across two locations in Sydney and SA. It was a non-equity member of Steadfast and one of the founding Steadfast members. Founded in 1973, it is currently led by Darren Milne, son of the founder, John Milne. Gallagher says Milne Alexander has a diverse portfolio of SME, mid-market and corporate clients with specialist capability in transport, manufacturing, aquaculture and a

IAG weighs Malaysia, India operations after Asian asset sales, 25 June

vices Minister Kelly O’Dwyer told the ICA Forum in March that many outside the industry disagree with its position. A proposals paper released last week suggests the unfair contract term provision in the Australian Securities and Investments Commission Act should be included in legislation covering insurance, with tailoring for the industry’s specific features. It says the main subject matter of an insurance contract should be defined narrowly and, where a term is unfair, a court could make orders as an alternative to it being declared void. Examples of unfair terms may include paying a claim based on the cost of repair or replacement that may be achieved by the insurer, but which could not be reasonably achieved by a policyholder, it says. ICA challenges unfair contract terms plan, 2 July

tailored offering for Australian ski resorts. Managing Director Specialisms Paul Harvey says Milne Alexander’s team has built a strong reputation in the market. “There was a natural alignment with Gallagher from the outset and Milne Alexander were impressed by what we were able to offer and how that presented a logical next step for the team and their clients. “This is a unique opportunity for Gallagher to secure one of the last independent ‘heritage’ Sydney insurance brokers.” Gallagher acquires Milne Alexander, 9 July

Plant takes reins at Zurich Zurich’s appointment of Tim Plant as its Chief Executive General Insurance for Australia and New Zealand is the latest in a remarkable set of moves for the highly regarded insurance executive. Mr Plant’s move to Zurich in August will see him taking up his third top-level role at a major insurance player in as many years. He was appointed chief executive at QBE’s Australia and New Zealand Operations in August 2015 and in March last year joined New South Wales Government insurer icare, where he is currently Group Executive Insurance for NSW, Community and Innovation. As reported in a Breaking News bulletin last week, Mr Plant will join Zurich on August 7, replacing Raj Nanra, who left suddenly in April. It’s possibly a reflection on the scarcity of talented top-level insurance executives in Australia that Mr Plant was appointed to icare by Managing Director Vivek Bhatia, who was appointed in January to the role at QBE that Mr Plant had left some 16 months before. Z  urich appoints general insurance CEO, 9 July

insuranceNEWS

August/September 2018

7


newsmakers at newsmakers at

From the Broking at the SME level is a relatively new art. Prior to the 1970s, small businesses commonly bought their insurance from agents who were “tied” to one or possibly two insurers. The move to those agents becoming independent brokers came about because the insurers wanted to eliminate the cost of maintaining agencies all over the country. Personal lines Today the broker sits between the customer Finalists: Allianz, RAC Insurance and TIO and the insurer, but the rise of technology gives insurers the opportunity to once again reduce a significant distribution cost. There’s no doubt that algorithms and Big Data are central to insurers’ drive to build a new interdependency between them and their SME property and casualty customers. The endgame is to retain the Finalists: Ansvar, Calibre Commercial Insurance Chubb Insurance customerand for life. Is that a threat to the role of the alive broker? You bet. New technology with strange names (why do so many developers ignore vowels?) holds the promise of untangling the complexities of Corporate property and casualty insurance policies, which is good for consumers. At the AIMS Conference in Perth in April, Finalists: Berkshire Hathaway Specialty Insurance, General Manager Glenn Schultz pointed out that The issue Liberty was discussed at public International Underwriters and QBE insurance broking is itself evolving as customers’ hearings in Sydney and Melbourne. needs change. He sees brokers becoming risk A Genworth submission says specialists, with insurance just one of a series of Genworth and QBE have about 64% of service lines that meet customers’ risk concerns. the LMI market, while Westpac LMI and (We will have a full interview with Mr Schultz in ANZ LMI are captive providers. It notes Specialty the next edition.) Australian LMI pricing is “significantly Finalists: Axis Underwriting Services, MeconSo Insurance and QUS brokers are most likely to find that lower” than in some other jurisdictions. insurtech holds the key to their futures, rather ICA says there is a “robust” dynamic than being something to be feared. But it will be between QBE and Genworth and disan enabler for brokers, not the whole answer that putes a draft report observation that the it seems to be for insurers. competition incentive is limited as costs Mr Schultz also believes the broker of the are passed on to consumers. future must be recognised as a true professional, The Mansfield Award for overallwhich excellence in claims has implications for training standards. “TheGold nature of the tender processes Finalists: Chubb Insurance, FM Global and QBE Uncertainty is now normal. In this issue of that these LMI providers engage in is Insurance News we look at the upsides and the highly competitive and ensures the best potential downsides of technological change, possible price is offered to the lender discovering along the way that like so much of and the least expensive price is passed the world’s radical developments, we only know through to the borrower,” it says. what we know and we don’t know yet where all by “In addition, Sponsored there are competitive this is going to end up. But ignoring change isn’t pressures on the domestic LMI providers the answer.

WINNER: CHUBB INSURANCE

Home ownership: LMI helps keep the dream

WINNER: ALLIANZ

Lenders’ mortgage cover ‘helps home owners’ The Insurance Council of Australia (ICA) has rejected suggestions lenders’ mortgage insurance (LMI) is unnecessary and could be replaced with increased interest rates on loans that require the cover. It says overseas experience suggests costs could be higher under the interest rate approach, and borrowers with less than a 20% deposit would find it harder to obtain home loans without LMI. “Affordability and accessibility to home ownership has and continues to be a key focus of Australian governments,” ICA says in a submission to a Productivity Commission’s draft report on financial system competition. “This is the key purpose and benefit of LMI, and LMI providers specialise in managing the higher risks presented by that cohort of Conceived and organised by borrower.” Consumer group Choice’s submission says LMI “masquerades” as a consumerfacing product while protecting only the lender. It wants the cover abolished.

WINNER: FM GLOBAL

JOINT WINNERS: GT INSURANCE AND NATIONAL TRANSPORT INSURANCE

WINNER: ALLIANZ

due to the role of offshore reinsurers.”

Publisher: TERRY McMULLAN Email: publisher@insurancenews.com.au MANAGiNG eDiTOr: JOHN DEEX Email: johndeex@mccmedia.com.au ADverTisiNG: MADISON SEYMOUR Email: advertising@insurancenews.com.au subscriPTiON eNquiries: www.insurancenews.com.au/subscribe Email: admin@insurancenews.com.au ADDress: McMullan Conway Communications Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 PO Box 116, Ivanhoe VIC 3079 Australia or Level 1, 120 Upper Heidelberg Road, Ivanhoe VIC 3079

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ICA defends lenders’ mortgage cover, 9 April

Terry McMullan

cONTribuTiONs: We welcome all material that is relevant to the Australasian and regional risk insurance industry, including all aspects of risk management. Please contact the Editor, +61 3 9499 5538. PriNTiNG: Printgraphics, 14 Hardner Road, Mt Waverley VIC 3149, Australia ArT DirecTOr: KRISZTINA STRZEBONSKI purple ink creations Email: kris@purpleinkcreations.com.au www.insurancenews.com.au/magazine

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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.

ISSN 1837-4972


#time4inclusion We’ve been talking about diversity in the insurance industry for long enough – now it’s about making it happen By John Deex

AS CALLS FOR CHANGE INTENSIFY, insurance leaders are starting to resent having to explain why a diverse and inclusive industry is important. The business case was proved long ago. There is a raft of evidence showing that diverse workforces are more innovative, productive, and loyal. Even without this, logic dictates that industry leadership should broadly reflect the current make-up of Australia. Put simply, it’s the right thing to do, and it’s time to get on with it. The size of the task, however, cannot be underestimated. Figures from the Workplace Gender Equality Agency (WGEA) put Australia’s full-time gender pay gap at 15.3%, but financial and insurance services is the worst performing sector with a gap of 26.1%. Some point out that it’s a broad sector, and there is no accurate way of telling how general insurance performs. But the signs aren’t great. The UK Chartered Insurance Institute recently drilled down into pay gap figures to extract pure insurance industry data, revealing an average gap of 29%. This is more than double the average gap for all companies. And the problem isn’t contained to gender. A new report from the University of Sydney Business School confirms that about 90% of senior executives come from Anglo-Celtic or European backgrounds. This is despite these groups accounting for about 75% of the broader Australian population. Race Relations Commissioner Tim Soutphommasane describes Australia as a “multicultural triumph” but says it’s time for more

cultural diversity in leadership. “There’s a challenge to get board diversity right – and not just on gender,” he says. So the problem is clear and the local insurance industry’s determination to fix it is increasing. Putting the issue front and centre in the industry is the fourth Lloyd’s Dive In Festival, which takes place this year from September 25-27. It’s become a crucial cog as the wheels of change begin to turn, and it’s bigger than ever. Lloyd’s might have started it, but the venerable organisation doesn’t claim ownership. It’s the industry’s event, and a rare example of rivals coming together for a common cause. The first festival in 2015, inspired by Lloyd’s Chief Executive Inga Beale, was restricted to the UK. It expanded globally the following year and last year attracted more than 7000 people across 17 countries and 32 cities. This year it will take in 26 countries and 50 cities. In Australia and New Zealand some 15 events will be held in Perth, Adelaide, Melbourne, Sydney, Brisbane, Wellington and Auckland. The theme, #time4inclusion, reflects the current mood of getting on and making it happen. Lloyd’s General Representative in Australia Chris Mackinnon tells Insurance News he has been delighted with the level of support for the Dive In Festival. “There was a huge amount of enthusiasm to get involved,” he says. “It was fantastic to see because it was non-competitive – everyone came together and worked on the initiative for the greater good, rather than trying to kill each other which is what we normally do Monday to Friday.

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“I have no doubt that one of the reasons for the success of the Dive In Festival here is the nature of Australian society. We are a multicultural society, a diverse society. Generally we are very inclusive and accepting of people with differences and that is reflected in the speed of progression.” He says last year’s inaugural survey of the insurance industry, organised by Macquarie Bank, was ground-breaking. It gave a benchmark of the industry in terms of cultural diversity, age and gender balance, which can be used to judge progress. But he believes the focus must now switch from talk, to action. “We have had two years of talking about where we are and what we need to do. We feel that for 2018 the call to arms is about what practical steps we can take to start implementing change, to make sure that the work we are doing is not just a talkfest but actually becomes actions.” Mr Mackinnon says running the survey again this year should deliver crucial insights. “It will give us a view as to whether anything has changed in the last 12 months. If it has, which we hope to see, that is fantastic news. “It will show where we are making progress and where we’re not making progress. That will be a really important discussion piece within the festival. “We have some real data here, now let’s start working out what we can do to implement some change.” Eoghan Trehy, Macquarie’s National Head of Insurance Broking, says this year’s survey questions are broadly the same in order to make direct comparisons easy. “But we have added three or four attitudinal questions so we can go a bit deeper,” he tells Insurance News. “We needed the first


“We have had two years of talking about where we are and what we need to do... The call to arms is about what practical steps we can take to start implementing change.”

Influencing change: Lloyd’s Chris Mackinnon presents at a previous Dive In Festival

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“We are seeing much better communication around the importance of diversity. Everybody knows that it is the right thing to do for all the right reasons and people are starting to make changes.” – Chris Mackinnon, Lloyd’s General Representative in Australia

On target THE BIG THREE INSURERS IN Australia have specific targets in place to boost diversity. IAG currently has four female board directors out of 10, and last year women held 34% of senior management roles. It aims to boost this figure to 40% in Australia and New Zealand, and 30% in Asia, by 2020. IAG also targets 1.5% Indigenous employees in its Australian workforce by the end of this year, and through a partnership with CareerTrackers has appointed four Indigenous interns to permanent roles. The Suncorp board currently has three female members out of eight, and 55% of direct reports to Chief Executive and Managing Director Michael Cameron are women. The senior leadership team is 44.4% female, and the total leadership population has been at 50% since December. Suncorp’s 2020 targets include equal representation of men and women in leadership roles; 45% of senior leadership roles filled by females; and 40% female board directors. QBE has two female board members out of seven, with women making up 32% of the senior executive team. It is aiming for 35% by 2020.

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survey to find out what the lay of the land is before starting to make comparisons. “There are a lot more people who want to be involved this year.” While the most obvious illustration of diversity within insurance is Hollard Insurance, where half of the executives reporting directly to Group Chief Executive Richard Enthoven and four of the nine-person board of directors are women, Mr Mackinnon also points to the Insurance Council of Australia (ICA) board as an example of “definite change”. The ICA board, of which Mr Mackinnon is a member, now includes three women among its 13 members. “We are getting some better balance within that board to give better perspectives and different viewpoints, which is obviously critical. Across the broader industry I think you only have to read Insurance News to see the work that people are doing. “We are seeing much better communication around the importance of diversity. Everybody knows that it is the right thing to do for all the right reasons and people are starting to make changes.” Mr Mackinnon does not believe general insurance is “markedly worse or better” than any other financial services sector. But he believes there is a “historical element” to the challenges faced. “Lloyd’s is right up there with being culpable, certainly in terms of gender equality,” he says. “It wasn’t until 1972 that women were even allowed into the Lloyd’s building. We look back on that now and wonder, what were we thinking? “Insurance has historically had the awful description of ‘male, pale and stale’. That is changing dramatically. Whether it is changing fast enough is a major question.” insuranceNEWS

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ICA Chief Executive Rob Whelan believes the financial services pay gap is driven by “history of employment practices”, but says this will change as more women enter the industry. “Firms need to take account of this change and ensure they have flexible work practices and pay equality for those entering the workforce,” he told Insurance News. “Successful organisations are those that reflect in their culture and ideas the society and markets they operate in. Australia is a highly diverse and eclectic society.” But he believes the industry is making progress, albeit slowly. While ICA “does not mandate the employment practices of members”, the council itself has a diverse workforce and “it is the policy of the ICA board to encourage companies to adopt diversity and inclusion”. Many companies within insurance, like Hollard, do have targets in place to boost diversity. But if progress overall is too slow, could binding quotas be the remedy required? Mr Mackinnon isn’t keen. “I’m a big believer in targets,” he says. “You have to set a strategy to try and influence change. “But I’m not a big believer in quotas. They have the potential to effectively invoke some form of reverse discrimination where you are not necessarily getting the best person for the job.” Mr Whelan says quotas “can be useful”, but adds a caveat. “If they are the only criterion in deciding employment practices they can breed dissension and scepticism in the workforce. “Recruitment needs to be a multi-faceted endeavour – humans are complicated. ICA recruits on the basis of capability, diversity and organisational cultural fit.


“There are pockets of excellence [within the insurance industry] that should be acknowledged. But there is a long way to go.” – Prue Willsford, ANZIIF Chief Executive

“But capability is crucial to ensure the employee has the best chance to achieve success within the organisation. It should not, however, be a cloak for unconscious bias.” Australian and New Zealand Institute of Insurance and Finance (ANZIIF) Chief Executive Prue Willsford says her views on quotas changed as progress faltered. “Five years ago I would have said no way to quotas,” she told Insurance News. “But we are now at a point where they could be useful if used well. However, that does not mean that you should appoint an unqualified person. “We are not making enough progress, and sometimes it is difficult for groups to imagine different approaches, if you’ve always hired men and that’s how you think of yourself as a group.” Ms Willsford highlights the quota appointment of professional director Sam Mostyn to the AFL Commission in 2005 as a successful example. “Is Sam Mostyn an unqualified director? Of course not. She was a fabulous candidate but without a quota she may never have been appointed.” Ms Willsford says diversity and inclusion is “hugely important” to ANZIIF. “We aim to be relevant by region, by level and by area of interest. It’s a broad church and to do that well we think it is worth engaging all those perspectives. “At board level it is pretty healthy – 40% of the ANZIIF board is female and we make sure there are representatives from the different sectors, from New Zealand and Asia. “In terms of staff, out of about 55 people we have about 15 different nationalities represented. We hire the right person but are always delighted when we have another nationality join us.”

ANZIIF is consultative and collaborative, with each of its committees genuinely reflective of the people it aims to represent. Events and conference panels are also a cross-section of sectors and gender. The ANZIIF Australian Insurance Industry Awards also features a Women’s Employer of the Year category. “Two years ago we discussed changing to a broader diversity award,” Ms Willsford says. “We would love to move to a diversity award when we’ve cracked the first problem.” But while she believes “some improvement” is being made, she warns that broad sector-wide generalisations can be misleading. “There are pockets of excellence [within the insurance industry] that should be acknowledged. “We have to be careful about broad-brush statements – it is not all doom and gloom. But there is a long way to go.” Despite the amount of work still to do, Ms Willsford backs constructive debate over cynicism. “There are so many conversations we can have today that 15 years ago were not that easy. If you look at the story arc of driving gender equality in the workplace, first we have had the conversation, and second the policies. “Then it takes time for those policies to become normalised, and genuine and real. “It’s difficult to do that as quickly as people want, but it’s a journey. It’s easy to be cynical, but better to be constructive within the debate.” Mr Mackinnon believes momentum within broader society will continue to help push the issue forwards. Professional sport and Hollywood are two areas that society looks to, he says. “People say, hang on, if Serena Williams is getting the same cheque for winning WiminsuranceNEWS

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bledon as Andy Murray, then why am I being treated differently in my work environment? “There is a cultural shift and a generational shift in terms of attitude and behaviour.” He says increasing levels of flexibility are also key to enabling change. “I’ve been in the industry for 30 years, and if even two years ago you’d have told me I’d be most welcome to go into the Lloyd’s building wearing jeans and a t-shirt to go and see the innovation lab on the fourth floor I’d have thought you’d completely lost your marbles. “Not that long ago the insurance industry was very much suits and jackets and ties, and 9 to 5 Monday to Friday you will be sitting at your desk. Globally we are going down the path of full flexible working. “If you want to do a nine-day fortnight and work longer days, that’s fine. It’s all about the output, not the input. “We’re rolling out laptops globally to all staff with direct connect systems with your desktop so you can work from anywhere you’ve got internet. “We need to be providing an environment where we can accommodate family commitments, flexible working, job-sharing, encouraging people which physical disabilities into the workplace.” Mr Mackinnon says the industry is very aware that inclusion stretches beyond just gender equality and cultural diversity. “The work the Insurance Council is doing around the improved code of practice is critical, because we are focusing on issues like family violence and mental health, and making sure that we as an industry are taking those into consideration. That is all part of inclusion.” But he makes no apologies for an initial focus on gender. 13


“Quotas can be useful [but] if they are the only criterion in deciding employment practices they can breed dissension and scepticism in the workforce.” – Rob Whelan, Chief Executive, Insurance Council of Australia

“Half of the world’s population is female, so that is the biggest sector that we need to look at. It is the most obvious sector where there is likely to be an imbalance or a lack of opportunity. That is the big-ticket item to tick off. “The other issues are just as important in their own way, but you are dealing with a smaller segment or a smaller group who are impacted. “Gender is the obvious one because of the sheer demographics.” So how long will it take to get to where the industry wants to be? Ms Willsford believes five years will not be long enough, despite all the good work being done. “I resent giving you this answer, but I don’t think it will change that quickly.” She points to “structural barriers on the home front” that will continue to hold women back for the foreseeable future. “I believe the logistics role within a family equates to 40% of a full-time job, and predominantly the vast bulk of that sits with women. This is a significant barrier to them taking on some of the senior roles. “In Australia we have some of the longest working hours in the world, and it is just not compatible with that additional 40% role. “For 30 years more than half of our university graduates have been women. That’s a long time. If the trickle-down theory worked we’d be there already.” Mr Mackinnon says that while significant progress can be made in the next decade, a destination may never be reached. “In 10 years’ time we might have gone some way to significantly improving gender gaps both in terms of employment numbers, senior leaders, and pay gaps. 14

“But artificial intelligence will be mainstream, we’ll have driverless cars all over the roads. The world of risk will have changed, so the world of risk transfer will have changed, and the skills and expertise that we need will be a quantum shift from where we are now. “My sense is that it will be a little bit like painting the Sydney Harbour Bridge. We’ll

start at one end and go as far as we can and then realise we actually need to go back and start painting from the start again. “But there is no alternative path here, and no going back. “I don’t think there is a single person in our industry that would actually want to go 0 back to the old way of doing things.”

Dive In program September 25 12.00pm

Sydney

Out in the workplace: The power of LGBTIQ+ inclusion

2.30pm

Auckland

The mental health stigma: ignorance or unconscious bias?

4.00pm

Sydney

Finding opportunity through adversity

September 26 7.00am

Perth

Mental health for life

8.30am

Melbourne

Inclusive leadership

12.30pm

Sydney

Time for inclusion

4.00pm

Sydney

Remaining relevant: Diversity in business is the key to success

September 27 7.30am

Sydney

Waking up to mental health: An open conversation with Lifeline

7.30am

Adelaide

Policy construction - it’s a matter of interpretation

9.00am

Brisbane

Diversity doesn’t stick without inclusion

12.00pm

Sydney

Future of work

3.00pm

Melbourne

Gender vs multiculturalism - the great unconscious bias debate

3.30pm

Sydney

Aboriginal and Torres Strait Islander inclusion: Time for action

4.30pm

Wellington

Creating an environment for inclusion

5.15pm

Perth

Cultural diversity within the insurance industry

For more details, or to book tickets, go to www.diveinfestival.com Event partners in Australia and New Zealand are: AIG, AILA, Ando, Aon, Chubb, DXC Technology, Gallagher, Gilchrist Connell, Hall & Wilcox, JLT, Liberty International Underwriters, Marsh, McInnes Wilson, NIBA WA, NZ Brokers, QBE, Sparke Helmore, Steadfast, Sura, Swiss Re, Wotton + Kearney, Willis Towers Watson, XL Catlin and Zurich.

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August/September 2018


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Stronger together Allianz wants other industry players to join its diversity drive By John Deex

ALMOST EVERY INSURANCE business on the planet has an internal focus on becoming more diverse and inclusive. Most now recognise the problem, and the urgent need to do something about it. But, according to Allianz Australia’s Head of Diversity and Sustainability Charis Martin-Ross, real change can only come if the industry – and wider community – work together. Ms Martin-Ross is a psychologist with a background in consulting who emigrated from north London 15 years ago. Not yet an Australian citizen, she nonetheless feels a strong bond with her adopted community, and delights in the chance to bring positive change through her “dream job” at Allianz, which she started two-and-ahalf years ago. “A company that makes a genuine commitment to inclusion and creating a stronger society, and allows me to make a difference, that is the kind of company I want to work for,” she tells Insurance News. “My self-defined job description is changing the world, one project at a time.” Diversity and inclusion, she says, is central to Allianz’s DNA. The company made a formal commitment to positive change in 2014 through its future work16

force strategy, and it has been onwards and upwards ever since. Clear targets are in place, and within sight. Allianz wants to have women in 40% of senior leadership roles by 2020. In 2014 it was at 26.9% and, as of last quarter, the figure has risen to 37.9%.

A key project is Allianz’s work with refugees, which at the end of last year won an Australian Human Rights Commission award. Working with Settlement Services International (SSI), Allianz employs about 10 people with refugee backgrounds per year.

“We have made a formal commitment to diversity and inclusion and it really is at the core of what we believe in.” In terms of cultural diversity, Allianz aims for non-Europeans in 14% of senior leadership roles by 2020, with the figure now at 10.3%. “We have made a formal commitment to diversity and inclusion and it really is at the core of what we believe in,” Ms Martin-Ross says. “We have made significant progress to date, but there is so much more to do.” insuranceNEWS

“The program is so dear to my heart,” Ms Martin-Ross says. “Its purpose is two-fold. On the one hand it is a source of multicultural talent, and at the same time it gives us the opportunity to strengthen the Australian community and give a helping hand to people who have been dislocated from their homeland.” Allianz asks managers to nominate available roles that provide meaningful career pathAugust/September 2018

ways. It passes descriptions of those roles to SSI, which scans its database of thousands of refugees for suitable candidates. They must have business-level English, be Microsoft Office proficient, and have transferable skills and experience. “SSI acts almost as a recruitment agency in shortlisting for us,” Ms Martin-Ross says. “Then we go through our normal selection process. I work very closely with the recruitment manager, we interview the candidates, we think about their fit with our placements. “The ones that are successful are given a permanent role.” The program has been a resounding success, with 21 refugees having been given roles at Allianz and 15 remaining with the company today. Those who have moved on have progressed to further training, or set up their own businesses. “Our view was the best way we could support refugee settlement was to provide employment. With that comes a sense of identity and belonging, which in turn strengthens their family and the community. “It is interesting to think about what success means in a program like this. From an individual’s perspective they are looking for stability and income and a sense of meaning and identity, and a career path.


Pushing for progress: Charis Martin-Ross

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August/September 2018

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“We have been able to meet that for all those who have come through the program. For Allianz, on a micro level, they come in and do a good job. But also it is a clear cultural symbol of our commitment to diversity and inclusion. “I don’t think it was on our radar when we first set up the program, but it has been a huge source of pride. People are working for a company that is genuinely committed to making a difference in the community. “It sparks a sense of energy and loyalty and gives meaning that I don’t think you can create through words alone. For us, it is a privilege to make a difference to these people’s lives.” Ms Martin-Ross believes the refugee program has helped break down unconscious bias within the company. “We know people tend to prefer working with people who are similar to themselves, but one of the best ways to counteract affinity bias is through up-close encounters with people of different backgrounds. “Bringing people in from a different country with a different first language and creating positive encounters between localised employees and people with a refugee background is one of the most direct avenues for combating stereotype and bias in the workplace.” 18

Despite all the good work going on at Allianz, Ms Martin-Ross knows it cannot work in isolation. She believes true culture change can only be achieved if the industry and wider Australian community pulls together. Allianz is happy to share its knowledge and experience on ref-

ress we will make together. “This is not something to compete on. Diversity and inclusion is culture change – within organisations, across industry and society. I don’t think a company can make progress in a vacuum. “Joining forces across the industry to develop an industry

“Inclusion is about saying to our future and current employees, you belong here, you’ll be listened to and you are all equal.” ugee settlement, or any diversity and inclusion project, with others. “My view is always that we have an open policy on the work we do in the refugee program and in relation to diversity and inclusion more generally. “When people come to ask for advice and learnings from our program we very happily share anything we can. The more we can collaborate and share insights the better proginsuranceNEWS

culture and a societal culture of inclusion, for me, is the vision.” Events such as Lloyd’s Dive In Festival are key to developing this cross-industry co-operation, Ms Martin-Ross says. “What Dive In does is unite the industry. It gives us that point of collaboration where we can put our competition to the side for a day and run some high-quality motivating and inspiring events.” August/September 2018

Allianz believes a commitment to diversity and inclusion is the right thing to do, but that it is also good for business. “We know that difference makes us smarter,” Ms Martin-Ross says. “Diversity of thinking helps us solve our most complex challenges. You see that in the research. “Companies that have more diverse leadership teams, more diverse boards, outperform companies that don’t. “If you come back to the heart of what inclusion means, inclusion is about saying to our future and current employees, you belong here, you’ll be listened to and you are all equal.” Allianz, like many others, is focused on increasing female representation in the senior leadership ranks. Ms Martin-Ross believes women face a “unique barrier” due to social attitudes towards men and women’s perceived roles at work and home. But she believes change is already well under way. “We are seeing that change in a generation. We are seeing attitudes change towards dads being caregivers and spending time with their families. “I do think it is key to tackle gender stereotypes both around women in the workforce and around men at home with their families.”


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Fleeing war: Norta Barchin

Felt unsafe: Dana Al Samaan

Incredible journeys MANY OF ALLIANZ’S REFUGEE CADETS HAVE SHOWN remarkable resilience. Dana Al Samaan was born and raised in Damascus, Syria. She had a happy childhood before her father died in 2008 and 21-year-old Dana became the sole provider for her family. When war broke out in Syria in 2011, she was forced to leave home to find work in Erbil, Iraq. “I did not feel safe at all as a single girl living among terrorists who were targeting individuals like myself,” she says. “At that point, I realised that as a female I could no longer stay living either in Iraq or in Syria if I wanted to feel one of the most essential human needs: safety.” After three years in Erbil, Dana’s visa application for Australia was approved and she arrived in Sydney on July 27 last year. Despite having a degree in economics, majoring in accounting, she was concerned about finding work. However, SSI connected Dana with Allianz, and just one month after arriving in Australia she was successful in securing a position. She now works in the business’ finance arm. Norta Barchin, also from Syria, says life changed dramatically when war broke out and her family faced significant upheaval and threats to their safety. Norta completed a degree in fine arts and had exhibitions in major national galleries in Syria before applying for a visa to Australia. When Norta and her boyfriend (now husband) arrived in Sydney, they spoke little English, had few possessions and knew no one. One year after arriving, SSI put Norta in contact with Allianz. She was accepted into Allianz’s Ladder program – an initiative dedicated to helping young refugees build confidence within the business world by providing mentoring, training and advice. She gained employment at Allianz, where she now works as a case manager in the workers’ compensation team. Norta can now look to the future with confidence and excitement. “Refugees, just like all Australians, deserve a good life,” she says. “We are hungry for opportunity and chances to improve our lives – just like I have been afforded through the opportunity with Allianz.”

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insuranceNEWS

Cultural inclusion cannot be overlooked either. Ms Martin-Ross says the issue was “put firmly on the map” by Race Discrimination Commissioner Tim Soutphommasane in 2016, with the publication of the Australian Human Rights Commission’s blueprint for cultural diversity and inclusive leadership. She believes it has only grown in importance since. “We always said cultural diversity was as important as gender equity. We base that on demographic research that shows the changing face of the Australian population. It is getting more culturally diverse. “Immigration of skilled and educated migrants from countries such as China and India is now outpacing more traditional countries such as the UK. “It is sensible for organisations to be on the front foot, to ask: how can we tap into this source of talent? When we set up the refugee program, the managing director at the time said the game-changer will be the day a refugee cadet sits on the senior executive team. “Bringing the cadets in doesn’t immediately affect our targets on senior leadership, but it is a clear cultural symbol of our support. “Progressing our cadets and promoting them through the ranks gives the most powerful symbol of hope for future and August/September 2018

current employees that you can be successful at Allianz no matter your background or beliefs or gender or sexual orientation.” And Ms Martin-Ross believes the message is not just seen as management-speak – it’s getting through to the workforce, from top to bottom. “Whenever we showcase our work internally, on refugee employment or on the topic of same-sex marriage last year, the comments we get back from our 4000-strong workforce are so genuine and so heart-warming and so supportive of what we do, we can’t help but think we are on the right track and we are influencing the masses at Allianz. “We’ve only seen commitment, engagement and support for the work that we do.” She is certain Allianz, and the industry, has made rapid progress in recent years. But she is equally certain there is much more to do. “Culture change is messy, it’s complex and it is long term. You cannot rush it. We are never going to get where we want to be in a year or five years. In a way, I don’t think we’ll ever get there. “Even though we have 2020 targets, we are not going to stop there, there is always more to do. The benchmark for what ‘good’ looks like changes every year, and our commitment to diversity and inclusion must continue.”0


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Handing over: Chris Colahan, left, and Mark Lingafelter

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August/September 2018


New boss, same culture Lingafelter returns as Colahan sets out to build BHSI in Europe and the UK By Terry McMullan

CHRIS COLAHAN WAS A VIRTUAL unknown when he set up Berkshire Hathaway Specialty Insurance (BHSI) in Australia and New Zealand in 2015. The company’s arrival in the local market caused a considerable stir, for many reasons. Not least among them was that its parent company, US investment giant Berkshire Hathaway, a major player in the global (re)insurance market, was expected to use its financial muscle to buy a big hunk of the commercial market. But as we’ve all since learned, that’s not the BHSI way. It set up shop with ambitions that seemed remarkably modest, bought nothing and started with a clean sheet. Mr Colahan, who was born and raised on the Gold Coast but had never worked in the local industry, said at the time that BHSI would “take the long view” when it came to growth, promising only to be “a meaningful player” in the market. Just three years down the track, BHSI is an established and respected player in the two countries’ specialty markets, with five offices, about 100 employees and six successful product lines. And Mr Colahan is now BHSI’s President in Europe and the UK for the specialty division of its affiliate Berkshire Hathaway International Insurance Limited, charged with doing there what he did so successfully Down Under. His replacement is Mark Lingafelter, an affable American insurance executive who, thanks to being managing director of Chubb Australia from 2004 to 2014, has a deep knowledge of the local market. On his final day in the Sydney office, Mr Colahan and Mr Lingafelter sat down with Insurance News to talk about the market, the company, strategies and ambitions. For Mr Colahan, it was “a bittersweet day”. The move to Europe – he is now based

in London – marked the end of three years’ hard work and the start of renewed separation from extended family for him, his wife and three young children. Counting the time it took to set up the BHSI operation and obtain an operating licence, Mr Colahan worked in Sydney for four years. “The longest I’d done a job before that was 24 months, so I’ve set a new record for myself,” he says. He has much to look back on and celebrate from his time in Sydney. Such as the fact that, three years ago, no one was partic-

mission, which may well have the same impact on the market as a cat event, albeit one that plays out over a longer period of time. “You’ve got insurers that have left the market and insurers that have changed their risk appetite, you’ve got rate hardening and terms and conditions changing. “At the beginning of 2015 you couldn’t have seen any of that coming. But we’d set out to build a business model that would work well no matter what market conditions we found ourselves in.” Mr Colahan says the amount of disruption in the market has allowed BHSI

“We knew it was what we did on the ground for our brokers and customers every day that was going to allow us to become relevant in the market.” ularly interested in seeing a new entrant in an already crowded insurance market. “When we first showed up in Sydney in 2015, without exception people were saying to us, ‘We don’t need another insurer, we don’t need more capacity.’ They told me, ‘It’s going to be really hard – no matter who you are – to get traction in this market.’ ” A lot has changed in three years, but the model BHSI followed has enabled it to establish itself and grow in a difficult market. “At the end of 2015 there was the Kaikoura earthquake, then Cyclone Debbie in 2017,” he says. “Now we’ve got the royal cominsuranceNEWS

August/September 2018

to move more quickly than it might otherwise have. “What we brought to the market was the brand and the financial backing. We haven’t had to do much to explain the brand, and our financial backing is unrivalled. “But from day one we never took any of that for granted. We knew it was what we did on the ground for our brokers and customers every day that was going to allow us to become relevant in the market.” The insurer’s intended low-key start didn’t last long, as it went on a recruiting drive that brought in high-performing specialists, then went “wide and deep” with its 23


“We tried to make claims core, right at the centre of what we do, by bringing together a gold standard claims team that’s been really externally focused.”

A short but vertical career CHRIS COLAHAN IS NOW WORKING to insert the BHSI business into the heterogenous insurance world of Europe and the UK. BHSI has been operating as a division of its European affiliate, Berkshire Hathaway International Insurance Limited for about two years, after setting up northern Europe and southern Europe regions. But the regions have been brought together under Mr Colahan’s new role. Since early August he has been working from the London office BHSI set up last year. Before joining BHSI in 2014 – the company obtained its Australian operating licence in April 2015 and in New Zealand several months later – Mr Colahan was chief executive of RSA Asia, overseeing operations in China, Hong Kong and Singapore, and joint ventures in India and Thailand. His recruitment by BHSI in 2014 was the latest move in what has been a remarkable progression over a short insurance career. In 2005 Mr Colahan, then a law graduate from the Gold Coast on a backpacking tour of Europe, joined major British insurer RSA because he needed a job. Starting as a strategy analyst, he was rapidly promoted through the group, ending up within a few years as RSA’s country manager for retail in Singapore. He then became chief executive for RSA’s Hong Kong operations before being appointed to lead the company’s regional operations for Asia in 2012.

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product offerings. “Relatively quickly after we opened we were in property, casualty, financial lines, marine, and soon after that we had healthcare and accident and health.” That wider product offering enabled BHSI to address the range of clients’ – and brokers’ – needs rather than act as a more limited specialist. “We worked really hard to make our underwriters and our claims specialists highly responsive to brokers and customers in terms of speed and also in creativity – the brainpower they could apply to solving problems. “I’ve lost count of the new and innovative types of deals we’ve done – innovative in terms of things such as policy duration or type of cover or structure of program that no other insurer could or would do. “Then we tried to make claims core, right at the centre of what we do, by bringing together a gold standard claims team that’s been really externally focused. What that’s allowed us to do – and it’s been recognised in various awards and feedback from the market – is be highly responsive when it comes to paying claims, or finding ways to pay a claim.” The Europe/UK challenge is a much bigger one, of course, with different economies, rules and insurance markets. But the core lessons learned in developing a successful business in the competitive hotbed of the Australian market will be his template. “I’m taking the playbook that we developed in Australasia and applying it to a different part of the world,” Mr Colahan says. This latest move sees him back in London, the city where his insurance career began. He says his sadness at leaving so much behind is tempered by the knowledge that the operation is now in the hands of Mr Lingafelter, “a true professional who is going to be a great custodian for the team and the business”. insuranceNEWS

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For Mr Lingafelter, a 30-year insurance veteran, working for a specialty company in the Australian market is nothing new, although the company’s dynamic probably is. He was managing director of Chubb Australia for 10 years until 2014, when he left to join QBE to lead their Asia Pacific business within their emerging markets division. The following year Chubb was acquired by Ace Insurance, which chose to keep the long-established and highly regarded Chubb brand. He was proud on the evening before our interview to see the claims team from Chubb win an award at the Mansfield Awards for Claims Excellence. “When Chris and I sat down over breakfast the first time we met, it became immediately obvious to me that the values that defined Berkshire Hathaway – particularly its focus on the customer and building a business for the long term, were very aligned with both my personal values and belief in the right way to run an insurance business,” Mr Lingafelter tells Insurance News. “There are so many cliches in our industry, but I love the fact that ‘doing the right thing’ remains a central part of insurance. This is not a company that cuts corners – the focus is far more on the long term and building a firm with a foundation that’s going to last. “It’s great for me to come in from the outside with a bit of perspective on how insurance should be, and recognise the value in the way things are done here.” He says it’s pleasant to return to Australia, where there is a rational regulatory framework and financial disciplines that compare starkly with the extreme comparisons that exist in the complex, diverse and financially challenging Asian region.


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“That belief in concentrating on excellence in the way we operate means there will always be a space for us in the market.” At BHSI in Sydney, he says, “Chris promised me I would find immediate differences in the way we think and work the minute I walked in the door, and that’s exactly how it was. The way we approach relationships and claims here is the way it should be done.” While it’s too early for Mr Lingafelter to easily assess the local market – he had been back in Sydney only 30 days when he spoke to Insurance News – he says some parts of his early briefings “were immediately familiar”. “Insurance is a business that can destroy a lot of capital, and the Australian market

Brexit: first piece of the puzzle ONE OF THE FIRST ISSUES CHRIS Colahan will tackle in his new role is, how to operate in Europe following the UK’s vote to withdraw from the European Union. Like all insurance companies with international customers, the uncertainty of the Brexit negotiations makes decision-making difficult. “For BHSI it’s a little bit different, in that we’re still in the early stages of building our business in Europe,” Mr Colahan tells Insurance News. “We haven’t got a big operation there that we’ve got to dismantle and reconfigure to keep operating in Europe post-Brexit.” A decision on where BHSI will base its post-Brexit Europe headquarters hasn’t been made. Some insurers have already started establishing new operations in various political and financial centres such as Brussels, Dusseldorf and Luxembourg.

26

sometimes shows signs of having a competitive tension that’s out of balance,” he says. He suspects there are still some insurers at a point in the cycle “where they’re not pricing their business correctly”. The market is “at the point where it is resetting, but a lot of people have lost a lot of money in property business or financial lines, or executive and professional lines, because they’re not getting a return on capital. That feels different from when I left. “But we’ve all been around, and we realise that this too shall pass. But the headwinds for [BHSI] are not as strong as they are for others.” He points to the explosion in directors’ and officers’ claims brought on by class action lawsuits and their accompanying litigation funding as an example of a rising risk “that was in train for many, many years”. “So, although rates are up by as much as 40% or 50% in some cases, does the math still hold up? We were writing thought leadership pieces on trends in class actions and litigation funding years ago, but those have crystallised to more than $1.2 billion in losses for insurers against about $300 million in premium. “It was a train wreck that was always going to happen, and people now are having to manage their way through it.” When Mr Lingafelter left Australia in 2014, there were three or four class actions a year on average. In the 18 months to the start of this year, there were 18. More recently, AMP faces five separate class actions, a situation he and Mr Colahan both describe as unsustainable. Mr Lingafelter says the issue of class actions, and the inevitability of continually rising premiums, is now firmly on the radar of business leaders. “I think it’s going to be the clients who will drive that dialogue, with the GoverninsuranceNEWS

August/September 2018

ment, to say this is, in effect, a tax or a cost that can’t be sustained,” he says. So, how will Mr Lingafelter shape BHSI in Australia and New Zealand? Does he have growth and profit targets? He smiles. “This is not a company that sits every quarter with a top-line view of the world. One of the things that appealed greatly to me about [BHSI] is a belief first and foremost in building a great company that cares about the way it takes care of customers and cares also about the quality of the people, how we trade in the market and how we behave. “That belief in concentrating on excellence in the way we operate means there will always be a space for us in the market. Customers are attracted to that proposition.” BHSI doesn’t set unrealistic growth targets for its executives because “that’s not how this business is wired. Too many people fall into the growth trap in general insurance, and ultimately that just destroys capital.” Mr Lingafelter says BHSI views the local market “very optimistically”. “Are we going to continue to build? The answer is 100% yes. But the rate of growth is going to depend very much on how the market responds over the next 12-18 months.” He says BHSI will continue to focus on hiring the best specialists and maintain a “non-bureaucratic operation”. The BHSI model is framed around “patience and discipline – taking the long view”. This also involves “keeping your expense structure lean to compete in a world where there’s $160 billion of surplus capital that constantly presses down on our market. We have to stay nimble, and be prepared to make the right underwriting decisions. “You have to have competed and been in business for a while to really respect the 0 wisdom of that view.”


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The New Capital Paradigm By David Priebe, Vice Chairman, Guy Carpenter & Company, LLC

A

s we hear almost every day, the insurance industry is facing disruption from multiple angles. Low interest rates are depressing investment income, rapidly evolving technologies are redefining business strategies, and abundant capital is keeping rates low. In this context, both insurers and reinsurers are taking a careful look at their balance sheets in an effort to unlock value and increase return on capital. For insurers and reinsurers, this largely involves portfolio reviews to increase risk understanding and properly allocate resources to the most profitable lines of business. It also means a review of all solvency regimes in which a company operates to ensure the required regulatory capital is likely to generate acceptable levels of profit. In response, both are leveraging advanced analytics and catastrophe models to match the most efficient capital with emerging risks, creating capital-efficient structures that use contingency capital rather than equity capital to support the customisable solutions today’s clients demand and improve operational flexibility to capitalise on new opportunities. During the global financial crisis of 2008, collateralised insurance risk represented one of the few asset classes to hold its value. Investors quickly recognised the diversification benefit of including this non-correlating risk in their portfolios to reduce volatility and improve overall returns. As such, we have seen an exponential increase in assets under management directed at insurance risk, with the asset class growing from USD 20 billion in 2008 to well over USD 90 billion today. This broadened interest from investors has created new opportunities for insurers and reinsurers to improve capital efficiency. As a result of this increased access to new forms of capital, innovative companies began developing more flexible capital structures that allowed for the introduction of more complex, customised covers designed to meet the specific needs of individual clients. These carriers were able to differentiate, finance new product offerings and drive profitable growth. Coverages became broader and more flexible as reinsurers began offering special features

for specific industries or risks unique to specific clients or partnering with their insurance company counterparts to support new primary products. Today, this shifting capital paradigm is becoming entrenched in capital-efficient corporate structures that depend less on equity or debt issuance to finance operations and more on capital markets and reinsurance, leveraging the balance sheet to facilitate this transition from traditional, commoditised risk products to more tailored capital advisory solutions. Attracted by the favourable yield and noncorrelating nature of insurance-linked security (ILS) products, capital markets investors continue to flock to the sector. Perhaps an even more important factor in this trend was the ILS markets’ response to the loss events of 2017. Despite being only the third year on record with losses over USD 100 billion, convergence capital, which includes collateralised reinsurance, sidecars and catastrophe bonds, paid losses as expected. Lost capacity was also quickly restored and pricing remained competitive, demonstrating investors’ commitment to the asset class and proving its reliability to corporates, governments, and (re) insurers around the world. As a result, the first six months of 2018 has already seen record levels of catastrophe bond issuance and capital outstanding, with USD 6.76 billion issued year to date, according to our estimates. For comparison, the total issuance in 2017 was USD 10.25 billion (see figure 1). Convergence capital overall represented roughly 22 percent of global catastrophe capacity at year end – a figure we expect to continue increasing in 2018. In fact, Artemis estimates that total ILS and reinsurance-linked assets have already grown 23 percent this year. Much of this comes from independent ILS managers, with pension funds and sovereign wealth funds increasing their participation in the space. Sidecars and alternative capital facilities in particular are becoming an important form of contingency capital for (re)insurers. These

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solutions can serve as valuable capital tools compared to some other securitised products by giving a company greater control of risk transfer terms and conditions, but maintaining alignment with capital market investors through greater access to underwriting practices, client relationships and distribution networks. Examples of the success of such solutions include two recent efforts by Brit, and Liberty Mutual’s Limestone Re. In December 2017, Brit launched a new collateralised vehicle Sussex Re, followed closely by the fourth expansion of its Versutus platform to USD 187 million in February, augmenting its own risk capacity with the two fully collateralised solutions. And Liberty recently made its second issuance under Limestone Re, securing USD 278 million of protection despite its first issuance facing possible losses from the 2017 natural catastrophe events. Innovative (re)insurers are also increasing their use of legacy portfolio transfers and structured solutions, such as loss portfolio transfers and adverse development covers, to move capitalconsuming business off their balance sheet and free up capacity for more strategic opportunities. This allows carriers to redeploy the large amount of regulatory capital required under Solvency II and other new capital regimes to fund such business. These companies can then react more swiftly and nimbly to new market developments and dedicate capacity to developing new, tailored solutions to address the emerging risks of each individual client.

This capital management strategy has been leveraged by several leading insurers in recent years. In 2017, AIG transferred much of its U.S. commercial long-tail liability for accident years 2015 and prior to Berkshire Hathaway. Many of these policies had already incurred higher than expected claim costs at the time, and the potential for additional losses to emerge – even years after the original contracts were written – prompted the insurer to seek capital relief. In a similar strategy, Aspen Insurance transferred USD 125.5 million of U.S. primary casualty reserves to SunPoint earlier this year, simultaneously securing retrospective reinsurance coverage for the 12 months ending on December 31, 2017. In today’s environment of disruption, the cost of capital is more important than ever for insurers and reinsurers. As carriers leverage advanced analytics and innovative models for greater understanding of their risk profile and expected returns, the use of contingency capital to support capital-efficient balance sheets will empower them to nimbly reallocate resources away from underperforming business to finance more promising market opportunities. The same can be said for reinsurers, who will also enjoy greater return on risk capital under new, more robust solvency regulations. And all industry constituents will gain the added flexibility to customise products and solutions for their clients. At Guy Carpenter, our Strategic Advisory Practice and GC Securities team stand ready to help clients match the most efficient capital to the emerging risks they face to adapt to opportunities and drive profitable growth.

Guy Carpenter & Company, LLC provides these responses for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Please consult your insurance/reinsurance advisors with respect to individual coverage issues.


Litigating change Reform of the class action regime is gathering momentum as insurance costs climb By Wendy Pugh CONCERNS THAT AUSTRALIA HAS BECOME TOO conducive to class actions are gaining traction, with the Federal Government’s law reform agency seeing “growing evidence of unintended adverse consequences” from current arrangements. The Australian Law Reform Commission (ALRC), midway through a review of class actions, has proposed regulation of litigation funders and has identified issues beyond its terms of reference that warrant further scrutiny. The ALRC suggests the Government should launch a separate inquiry to examine legal and economic impacts from the class action regime, coupled with sharemarket continuous disclosure rules and misleading and deceptive conduct laws. If the proposed inquiry proceeds, it would go to the heart of insurer and corporate disquiet around increased targeting of listed companies and the effect of rising settlements on directors’ and officers’ (D&O) cover. “The recommendation that the ALRC has made is a really significant one,” Australian Institute of Company Directors GM Advocacy Louise Petschler tells Insurance News. 30

“There are significant insurance availability and cost ramifications from an environment where class action settlements continue to grow, as they have over the past 10 years.” The proposed review would provide clearer evidence on how current settings are playing out and where the economic costs are falling, she says. D&O premiums have surged 200% in the past 12-18 months, according to some reports, with more gains forecast and underwriters reducing risk appetites as they seek to restore profitability in the business. A report from Aon shows securities class action settlements reached more than $1.7 billion last year, rising more than tenfold from the start of the decade. The Hayne royal commission on financial services misconduct, which has prompted five class actions against AMP, is adding to market unease this year. “The environment for securities class actions has intensified over the past 18 months,” AIG National Manager, Corporate D&O, Financial Lines, Professional Indemnity Adam Suplina tells Insurance News. “We see an increasingly litigious environment within the corporate sector. “Adding to this is the wave of class action activity that has come about as a result of the royal commission and other inquiries.” The Insurance Council of Australia says the average securities class action can cost $50-$70 million, while the D&O insurance market premium pool was a comparatively small $280 million last year. “Insurers are seeing an increase in class actions as litigation funders and legal firms become more confident in the

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laws and procedures involved in mounting a class action,” spokesman Campbell Fuller says. Aon says a QBE settlement in December for $132.5 million and current open claims activity may result in upward pressure on settlement averages, which it puts at about $50 million. Class actions are 26 years old in Australia but have become a burgeoning industry in the past decade. From 2005-08 there were 11 legal representatives for filed class actions, while from 2014-17 there were 43, the ALRC says. Litigation funder numbers have grown to about 25 since the legitimacy of their role in multiparty actions was recognised by the High Court in 2006. A Marsh insights paper says the annual number of securities class action claims averaged just four from 2007-11, but there were 16 in train by May this year. “The proportion of class actions represented by shareholder claims is uncontroversial on its own,” the ALRC says. “However, there is growing evidence of unintended adverse consequences caused by the existing framework of the Australian class action regime, coupled with the peculiar characteristics of the Australian statutory provisions concerning continuous disclosure obligations (as compared with some other cognate common law jurisdictions) and those relating to misleading and deceptive conduct.” Australian Securities Exchange rules, backed by the Corporations Act, say a company must alert the market as soon as it becomes aware of information that could affect its share price. At the same time, the high rate of share

ownership makes fertile ground for class actions when rules are breached. The ALRC says a standard approach has emerged around developing securities actions. Litigation funders, law firms and hired experts monitor the market for sharp drops in a share price, then examine any move to see if it involves the late revelation of material information.

“There is growing evidence of unintended adverse consequences caused by the existing framework of the Australian class action regime.” Likely shareholder losses are calculated if analysis suggests disclosure and conduct rule failures, and steps are taken to encourage people affected to join a class action. “The ALRC discussion paper makes a strong and wellfounded nexus between the ease of aiming at a listed entity, the loss of value and the associated concerns surrounding availability and cost of D&O cover in the Australian market,” AIG’s Mr Suplina says.

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Adverse impacts can include a share price drop caused by the class action itself, which can disadvantage new shareholders. Questions have also been raised about the potential for a business to be tipped into failure if insurance cover is insufficient. The ALRC’s review and a similar Victorian Law Reform Commission (VLRC) inquiry stress the importance of class actions and the key role of litigation funders in providing access to justice. Proposals aim to improve consumer protections and make the system more efficient. Securities class actions have also assumed something of an unofficial sheriff’s role in punishing poor corporate behaviour, operating to their own agenda but alongside market regulators.

Australia’s largest funder, IMF Bentham, says the continuous disclosure regime has served shareholders well in providing information, and the flow of class actions is not the flood often portrayed. CEO Andrew Saker says failure to comply with rules often comes down to hubris, and the focus should be on improving the performance of company personnel. “The growth in class actions is really just a reflection of the growth in directors’ breaches, rather than spurious or unmeritorious claims,” he tells Insurance News. “You only need to be witness to the royal commission over the past several weeks to recognise that even the most esteemed institutions in Australia have been underserviced by their boards.”

Settled securities class actions – cumulative total (millions) by year $2,000 $1,740

$1,800 $1,600

$1,475

$1,400 $1,200 $1,021

$1,000

$1,096

$1,192 $1,213

$800 $600

$500

$400 $200

$277 $97

$101

$107

$112

2003

2004

2006

2007

$560

$350

$0 2008

2009

2010

2011

2012

Source: Aon *There were no settlements in 2005 32

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2013

2014

2015

2016

2017


IMF Bentham supports greater regulation of the litigation funding industry. The company debuted on the stock exchange in 2001, but many of its rivals are not subject to the same scrutiny as a listed entity. The VLRC says private or overseas funders can operate free from mandatory licensing, financial disclosure requirements, reporting obligations or prudential supervision. The situation creates risks for consumers and a low threshold for new entrants. The ALRC proposes licensing, which would require funders to provide services “efficiently, honestly and fairly”. Licensees would also need to show sufficient resourcing, arrangements for handling conflicts of interest and a dispute resolution system. Meridian Lawyers Principal Andrew Sharpe says improved oversight of funders is long overdue. “The talk of regulation has been around almost as long as the litigation funders themselves, but now we have a substantial market and some law firms and private individuals looking at setting up their own funders,” he says. Litigation funders have also drawn criticism for taking too high a share of proceeds and leaving insufficient money for the people at the core of the action. In a case involving Huon Corporation, former employees seeking to recover a shortfall in entitlements ended up empty-handed. The litigation funder, which didn’t have control of proceeding costs, received a 36.2% share of $5.1 million in proceeds, while lawyers and others accounted for the remainder, according to submissions to the VLRC. Mr Saker says instances of returns to claimants being disappointingly low have been the exception across the sector, and that over 17 years IMF Bentham has returned 63% of money recovered to claimants, while selecting claims and managing costs to adequately protect group members’ positions. “Up until litigation funding was available, shareholders with very small claims, even though there were many of them, had no capacity to prosecute their claims without lawyers taking on substantial risks,” he says. “There is a definite niche demand for access to justice for those small claimants who have a common claim against a deep-pocketed defendant.” Reports suggest fees are often about 30-35%, and funders bear the costs of cases that often run over several years. Funding business Litigation Lending Services says in

a submission that 22% would be at the very low end of the market, and some would charge 40-45%. “It is easy to look at a settlement and say the funder is receiving a reward that is too high given the funding it ultimately paid and the risk ultimately borne, but that fails to take into account that if a claim is lost then the downside for a funder can be very severe,” it says. “There are no guarantees in litigation.” The ALRC says the Federal Court should be given an express power to reject, vary or set the rate in third-party litigation funding agreements, and asks for feedback on whether a maximum percentage should apply. Other proposals include allowing lawyers to charge contingency fees, so they can receive a percentage of sums recov-

“There is a definite niche demand for access to justice for those small claimants who have a common claim against a deep-pocketed defendant.” ered, while measures are suggested to address increased costs and problems when several class actions compete over the same issue. The proposals, along with a range of questions, were put out for consultation in an ALRC discussion paper, with a final report to be delivered to the Attorney-General by December 21, in a likely lengthy reform process. In the meantime, insurers are adjusting D&O strategies to avert pain caused by underpricing in the long-tail class. Premium rises are highest in insurance program lower layers that are the first to be called upon when there is a claim. Limits have declined, making it more costly for an insured to cover overall needs, and underwriters are looking for clients to absorb higher deductibles.

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Aon Financial Services Group Director Eden Fletcher says some insurers have sought to ringfence their exposure to royal commission issues through the introduction of exclusionary language. “Insurers are closely monitoring their potential exposure to the royal commission outcomes and have some concerns around the possible impact on what is already an unprofitable financial institutions portfolio,” he tells Insurance News. Companies can look to London for cover, although underwriters there are said to be watching the Australian situation and making adverse comparisons with similar markets such as Canada. Allianz Asia-Pacific Financial Lines Regional Manager Damian Lynch says the market may reach a point where more radical change is introduced, such as co-insurance arrangements, where the risk for an entity’s cover is spread more equally among participating insurers. Programs may also be structured to provide more incentive to defend claims, rather than settling. Shareholder class actions in the Federal Court rarely proceed to trial and have never resulted in a judgement. “We are looking at things we might do to potentially encourage the insureds to fight,” Mr Lynch says. “At the moment, some matters settle more for the reason of commercial expediency than for the merit of the case.” The ALRC is also interested in the propensity to settle due to potential conflicts of interest between profit-oriented litigation funders and class action participants. Class actions represent a relatively small part of the total insurance and legal environment, but they are having an outsized impact and there’s a strong push for reforms. “Despite representing a very small proportion of actions commenced annually in the Federal Court, class actions are among the most high-profile and far-reaching procedures within the federal legal system,” the ALRC says. The current review and any future inquiries will be closely watched for measures that improve the system without undermining the benefits. “Class actions are an inherent part of the corporate sector,” Mr Suplina says. “In fact, they are necessary in some instances to make the market operate more efficiently. “Having said that, we believe class formation requires tighter rules, that litigation funders should be required to hold funds onshore and that shareholders should benefit to 0 a greater degree from successful actions.” 34

Food for thought CHINA’S RISING DEMAND FOR SAFE ORGANIC BABY FOODS HAS powered the success of Tasmanian infant formula producer Bellamy’s. But a stock exchange update titled “Bellamy’s well placed to continue growing in China” released on April 14, 2016 laid the ground for two class actions. The release said China was changing its import registration system, but the company was in a good position to transition to new requirements, once known, and it was also business as usual for its ecommerce trade. The positive tone continued at the annual general meeting on October 19, but six weeks later the company said the regulatory changes had affected China sales and other brands were discounting inventory, hurting the overall market. “Bellamy’s will continue to experience temporary volume dislocation until regulatory registrations are completed in China,” the December 2 update said. The company forecast full-year revenue of about $240 million, well below analyst forecasts of around $368 million. Bellamy’s shares plunged more than 40% after the release to close at $6.85. The company requested a trading halt on December 12 while it prepared further information. Bellamy’s, in response to ASX queries about what it knew when, said the board had viewed revised forecasts on December 2 and provided the update without delay, in compliance with listing rules for immediate disclosure of price-sensitive information. Legal firms Maurice Blackburn, Slater and Gordon and ACA Lawyers all flagged potential class actions in the wake of the price slump. Slater and Gordon filed its action in the Federal Court on February 23 2017, with litigation funding from IMF Bentham. The action, brought on behalf of people who bought shares between April 14 and December 12, alleges Bellamy’s contravened ASX continuous disclosure obligations and made statements amounting to misleading and deceptive conduct under the Corporations Act. Maurice Blackburn filed a similar action on March 7, with funding from Investor Claim Partner and ICP Capital. Bellamy’s said it would “vigorously defend” the proceedings, which are still before the Federal Court. In the meantime, the company has paid a $66,000 penalty, without admitting liability, after the Australian Securities and Investments Commission (ASIC) alleged it failed to comply with disclosure obligations from October 18 to December 2. ASIC said Bellamy’s should have known by the October board meeting that it was unlikely to achieve market consensus forecasts, given the first quarter performance. “Investor confidence in our markets depends on the timely disclosure of market sensitive information. Listed companies must promptly disclose changes to performance forecasts previously made to the market,” ASIC Commissioner Cathie Armour said.

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Running faster Chris Townsend pursues global growth as AIG reshapes to compete in a rapidly changing industry By Terry McMullan

IT WOULD BE EASY TO START AN article about AIG with a cliche. It shrugged off a near-death experience in 2008 when “too big too fail” and “the bigger they are the harder they fall” were fashionable headlines. But 10 years later the New York-based global insurer has shed the fat and joined a gym. So rather than a cliché, perhaps the most appropriate start to this article should come from a quote attributed to Jesse Jackson: “If you fall behind, run faster. Never give up, never surrender.” AIG never gave up, and now it’s running faster. Chris Townsend was chief executive of AIG Australia when the GFC struck, and earned kudos for the way he soothed the fears of local brokers, customers and staff. Ten years later he’s AIG’s Chief Executive, International General Insurance, overseeing the group’s businesses in 75 countries and responsible for some $US14 billion in net premium. His territory is split “quite evenly” between the eastern and western hemispheres. And while AIG is a major player in the United States market – it is operated separately from its international businesses – the Asia Pacific region is an area the group is looking for substantial growth. Which is why Mr Townsend chooses to base his operations in Hong Kong rather than New York. Being close to the major markets of Japan and China makes sense. “But to be honest, it doesn’t really matter where I’m based,” he tells Insurance News. “We’re not setting Hong Kong up as an international head office. The work is being done in the seven regional businesses.”

Those regions are Latin America, the UK, Europe, the Middle East and Africa, China, Japan and Asia Pacific, encompassing 25,000 employees in the 75 countries and led by a chief executive who spends a lot of time in the air travelling. “We have seven leaders across these businesses, and we manage that as a leadership team,” he says. “Then we have a product leadership team across the key product areas of casualty, property, financial lines and specialty, which for us includes all of the marine, energy, aviation and the credit lines.” Asia is a place where long-term business relationships really matter, and AIG is better placed than any other global insurer to make use of that. The group will celebrate its cen-

It’s noteworthy that Japan and China, the two economic titans of Asia, have their own operating divisions. Mr Townsend explains that Japan is handled separately because of its continuing importance to AIG, and China gets the same treatment “because I want it to be a specific area of focus and investment”. Japan, the third-largest insurance market after the US and China, has been AIG territory since 1945, when it arrived in the country on the heels of the US armed forces. While other foreign insurers find the going tough against Japan’s three giant domestic insurers, AIG today sits comfortably at number four, with an 8% market share. But isn’t the stagnant Japanese economy a problem? Mr Townsend says transitory issues don’t affect AIG’s long-term commitment to the market. “It’s always been a substantial business for us. We’ve grown our business there from pretty strong earnings. “While Japan is going slightly slower than the rest of Asia at present, you’re seeing an increasing digitalisation of the consumer lines business, which I think provides us with a ton of opportunities going forward.” He says the increasing role of Singapore as an insurance hub – AIG is the largest insurer in that market – hasn’t diminished the importance of Hong Kong, where the group has been operating for more than 85 years. “Hong Kong is now much more focused on the Greater Bay area – everything from Shenzhen through Hong Kong to Guangzhou and Zhuhai. It has a very significant population. “But both places are pretty strong regional centres, in terms of regional business, talent, and their focus on innovation

“We’re not only a lot smaller business than we were a decade ago, we’re also a much simpler business.”

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tenary next year, and many will be surprised to discover that its birthplace in 1919 was Shanghai. (It moved its headquarters to New York in 1939.) “The AIG name definitely helps us in terms of doing business in China – gaining access to a range of different people and companies,” Mr Townsend says. “Most businesses in China think very long-term, and to have an insurance company that’s been committed to China for an awfully long period of time really helps.” insuranceNEWS

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Going for growth: Chris Townsend

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“We are actively looking to fill in gaps in our portfolio all around the world, but any deal has got to be right strategically... and then it must be right on price.”

and technology. They’ve both got an awful lot going for them.” While there’s a lot of focus on the Asian markets, Mr Townsend says he expects to achieve growth in all the markets in his charge “if we’re doing the right thing in terms of focusing on our customers and solving their problems”. He ticks off the markets and their business features. “Latin America is a severely under-penetrated market and we will look to get good growth out of there longer term. It’s exactly the same for Middle East and Africa. Our business is more across the northern part of Africa and South Africa, but that business should grow at about 15% per cent going forward. Europe? “We’re under-penetrated in the SME and mid-market area, and we still have a lot of work to do in terms of the personal lines business. I think we’ll get good growth out of there. “In the UK we’ve recently acquired Validus Re, which includes a great syndicate called Talbot, which has got a $US1billion syndicate attached. “And then you’ve got Asia Pacific. There’s different drivers at play, but the summation of all of that is that there’s growth in the Asia Pacific business for the foreseeable future. “It’s a challenge to think of Asia as a homogenous region, because there’s so many different dynamics at play. Some of the economies are super-fast growing and some are more challenged in terms of economic growth. You’ve got some where you’ve got ageing populations, some with very affluent populations and some that are very young and very dynamic.” But while the AIG world is one that speaks in multiples of billions of dollars, Mr Townsend notes that the group is smaller 38

today than it was 10 years ago. After the period of post-GFC upheaval – it has had six chief executives in the past 13 years, and only two in the preceding 83 years – the group is now settling down under President and Chief Executive Brian Duperreault. A former senior executive in the group, he left AIG for Ace and then to run Marsh & McLennan from 2008 to 2012 before rejoining his old firm last year and calming restless shareholders. “We’re not only a lot smaller business than we were a decade ago, we’re also a much simpler business,” Mr Townsend says. “We have a very significant US life and retirement business, and we have a global property and casualty business, which is broken down into a North American and an international business. “From a governance perspective that’s much easier to manage than what we had previously.” He says AIG is “very focused in terms of driving good, consistent, profitable growth out of our general insurance business. I think more of that growth will come internationally than it will from the US for the foreseeable future.” Mr Duperrault has also brought a new sense of purpose to the AIG group, slowing stock buybacks and promising instead to institute a capital management strategy to “support our goal of profitable growth.” The strategy proved effective in January, when AIG acquired Validus for $US5.65billion. “We are actively looking to fill in gaps in our portfolio all around the world, but any deal has got to be right strategically, first and foremost; and then it must be right on price,” Mr Townsend says. “The Validus acquisition really was strategic. If you think about the component parts of Validus we’ve bought that we didn’t have before, it makes sense. insuranceNEWS

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“We didn’t have a reinsurance company, and we’ve now got one. We didn’t have a Lloyd’s syndicate and we’ve now got one. We didn’t have a contingent capital capability, and we’ve now got one. And we also bought a great crop business [ADM Crop Services, which Validus had acquired last year] as well.” AIG’s newly acquired contingent capital business is particularly strategic. Named Alphacat, it takes AIG into a market that’s worth about $US80 billion a year, compared with the traditional reinsurance market of about $US280billion. “To have a capability where we can deploy that alongside reinsurance really gives us an edge,” Mr Townsend tells Insurance News. It’s also an indication of the way in which new opportunities are opening up, particularly for insurers with sufficiently deep pockets. “There’s a number of factors in play,” he says. “First, technology and digitalisation certainly impacts our industry. Secondly, the way the value chain for insurance is carved up from the front and back to the retro markets is going to have to change in terms of some of the imbalance that exists there. “And third, customer preferences. People don’t necessarily want to buy insurance in exactly the same way they did one or two decades ago. “Those three driver factors will reshape our industry.” He says increasing commoditisation at many levels of the market “leads you to have to differentiate in other ways versus purely your product”. “It pushes organisations to develop services that are appropriate for a customer. And it pushes them to be much more efficient in taking costs out of the equation, which hopefully will be passed back in terms of a better outcome for a customer.


“If you can survive and thrive in a competitive commercial market like the Australian market, it will position you very well for other markets around the world.”

“I think the way technology now drives data and analytics means you get much more meaningful products and services right to the customer, rather than being part of a more homogenous group. “So they’re more specialised, more personalised, and I think it’s actually a really good thing for the customer, which ultimately is what it’s all about.” He says AIG won’t deviate from the path it has followed for the past 99 years – “that is, taking special and difficult risks and having the technical expertise to handle them.” He says the group’s strategy for dealing with cyber risks is an example of specialty service. “It’s not just the creation of a cyber product, it’s all the services in terms of risk prevention and analytics to help customers mitigate and manage cyber risk that provides a good package for the customer overall.” One of the lines that AIG pioneered was management liability, which in Australia is plagued by class actions and massive losses in

BRITISH-BORN CHRIS TOWNSEND joined AIG in the UK in 1991, and held senior positions in London and Hong Kong before becoming chief executive of AIG Australasia from 2007 to 2010. He moved to Singapore as chief executive of the insurer’s Asia Pacific operation before leaving in 2012 to serve as Asia president for Metlife, overseeing the life insurer’s operations in Australia and Asia. Mr Townsend rejoined AIG in January this year as Chief Executive International General Insurance, with responsibility for operations in 75 countries. He has spent more than half his career working in the Asia Pacific region.

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directors’ and officers cover. Is such a situation sustainable? “As a private sector organisation, you have to decide whether or not you want to commit your capital to that type of risk or not,” he says. “It’s a big world, and people only have a finite amount of capital, and they’re going to deploy that capital where they can get the best return for their shareholders. “You’ve seen it in [the Australian] market over a number of decades in terms of certain classes of business where the pricing’s inappropriate – capacity simply walks away. You’re seeing it now in areas of directors’ and officers’, where the position has become untenable for many carriers because it was not the benign class that many thought it was. “We corrected our business many years ago, and are actually very well positioned now.” Mr Townsend says insurers in Australia are well equipped to weather challenges. “I was fortunate enough to come and live and work in the Australian market in 1996, and my impression then was that if you can survive and thrive in a competitive commercial market like the Australian market, it will position you very well for other markets around the world. “That view hasn’t diminished at all in terms of the commercial environment. It’s a highly competitive market which drives you to have to explain your value proposition clearly to a broker and to a customer if you’re going to win business.” But that observation comes with some advice. “I think you’re better off picking the niches and really going hard after those niches where you can focus on something to offer the customer and you can see a value in the marketplace. insuranceNEWS

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“The [Australian] personal lines market is slightly different. It’s super-developed. It’s one of the best markets for personal lines, in terms of returns, anywhere on the planet, given the dominance of a small number of large carriers.” He says he has been surprised by the significant influx of managing general agents and the impact they are having on the Australian market. Another interesting development he mentions is the growth in the number of authorised representatives in broking. Changes in markets globally are being brought about by “the fact that there is about a hundred trillion dollars of assets that needs to find a home somewhere”, he says. “And now contingent capital for cat risk has developed into a number of other areas of business. This provides an uncorrelated investment opportunity with reasonably attractive returns for pension funds and large institutional investors. “But the industry has to make sure we’ve got good quality data to show to those investors. That will change the mix of the industry’s capital make-up.” Mr Townsend believes the growing influence of technology and data will lead to change “both in terms of the way insurers view risk, and the way customers buy on personal lines”. “You see this in the fastest developing markets like China, where they tend to leapfrog some of the traditional ways of buying insurance. “It’s all on your mobile, and it’s all the digital ecosystems where customers spend hours a day, and they can get everything done in one area. “In that sort of market, the platforms are the winners as opposed to some of the insurance carriers. Those are the sorts of dynamics that are 0 changing the industry around the world.”


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Access to GT Accident Assist – immediate and effective response to accidents; Quick and easy claims lodgement through GT Claims Online portal; Dedicated claims officers with direct contact details; Professional assessors; Your client’s choice of repairer; Regular updates so you know how the claim is processing; Speedy payment processing; Efficient claims recovery team; Legal and technical support.

That’s only fair.

To find out more visit gtins.com.au Global Transport & Automotive Insurance Solutions Pty Ltd ABN 93 069 048 255 AFSL 240714 trading as GT Insurance as agent for the insurer Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL 234708. We do not provide advice on this insurance based on any consideration of your objectives, financial situation or needs. Before making a decision, please consider the relevant Product Disclosure Statement or Policy Wording available from your broker or intermediary.

gtins.com.au


The insurance industry’s big secret The way some claims end up being paid must remain as untold stories, Mansfield Awards crowd told INSURERS HAVE A LONG RECORD OF EXCEEDING customers’ expectations when it comes to insurance claims, but they don’t want to talk about it. They’re quite satisfied that the public, politicians and probably even regulators are not aware of claims results that have been far in excess of the contract wording. While such points might assist insurers in their constant struggle to publicly defend their overall claims performance, they are aware that making customers aware of such services could end up with everyone demanding the same level of service as standard. Sounds like one of those implausible conspiracy theories that clog the internet? Perhaps, but it’s nevertheless true. Insurance News Publisher Terry McMullan made the point at the second annual Mansfield Awards for Claims Excellence event in Sydney in July. Speaking before naming Allianz Australia as the winner of the overall Gold Mansfield, he told a large audience of senior executives and claims specialists that insurers’ refusal to speak about such things as ex gratia payments and special claims decisions had forced the awards organisers to drop the idea of having an award for “service beyond the terms of the claim”. 42

“If you work in a place like Insurance News you hear from time to time how an insurance company has really gone out of its way and stretched things to make a claim work,” he said. He says while the mainstream media is full of stories of insurance claims going off the rails, “how often do we hear of the voluntary acts that make a claimant’s experience an overwhelmingly positive one”? “It might be a multi-million settlement with a company that has had a long relationship with the insurer but a claim that didn’t meet the policy terms; or full settlement for a customer whose loss has been devastating through no fault of their own, but their ability to claim is zero. “One of the most common examples of this is the wife whose ex-husband – and co-insured – burns down the family home. At least one major insurer now has full reinstatement in such circumstances as standard practice. “But, of course, you won’t find that in any policy and I can’t tell you who the insurer is.” Mr McMullan says he saw the lengths insurance company staff went to in assisting victims of the devastating Black Saturday bushfires in Victoria in 2009. Insurance claims professionals on the scene “sometimes seemed to be more informal psychologists than insurance staff, letting people pour out their distress without interrupting them or telling them they didn’t have time to listen to them, or that their policy was with another insurer”. In the weeks after the fires, insurers “shared” customers so they could be serviced more efficiently. The companies also had to rotate claims staff through the bushfire centres

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Winning team: Allianz won the SME property and casualty category and the overall Gold Mansfield. An affiliate company, GT Insurance, was joint winner of the specialty category. Left to right, Allianz’s Peter Greentree (Manager, Operations Shared Services), Nicholas Scofield (Chief Corporate Affairs Officer), Donna Stewart (General Manager, Long Tail Claims), Dolores Bartolomeu (Settlement Strategist), Karen Langer (Product Manager, CCI), Sean McCaffrey (Technical Development Manager), Marc Jones (Team Manager)

every few days to limit their exposure to stressful conditions. Counsellors were also available for claims staff. “These are examples of the unrecognised side of insurance – the very human side – that we simply don’t talk about,” Mr McMullan said. “You’ll never hear such stories at a royal commission or read them in the Daily Telegraph, because if we did tell and celebrate such stories, everyone would come to expect extraordinary levels of service that we can’t justify in most cases, and we’d inevitably fall short. “So ex gratia payments and service above and well beyond a claimant’s expectations or rights must remain a deep and wonderful secret of the insurance industry.” The Mansfield Awards ceremony, which was again sponsored by Insurance & Care NSW (icare) and Steadfast, drew a large audience of senior executives and claims personnel. A highlight of the short evening event was an address by Perth lawyer Greg Pynt, who detailed progress in helping the children in an orphanage in Bengkulu, Sumatra. The Amal Mulia Orphanage is close to Fort Marlborough, where an attack by French privateers in 1760 gave rise to a disputed insurance claim that was later adjudicated in a London court by Lord Mansfield, the British Lord Chief Justice. It was this case, Carter v Boehm, that led to Lord Mansfield advancing the concept of “utmost good faith” in insurance contracts – a concept now enshrined in insurance legislation. The orphanage cares for disabled children as well as orphans, and all money left over from running the Mans

fields Awards is diverted to support the children and staff. (Details of how last year’s surplus was spent were published in Insurance News April/May.) LMI Managing Director Allan Manning, who co-founded the Mansfield Awards with Mr McMullan, explained the range of measures used to find the award winners, involving surveys and independent data. He pointed out that other surveys by several major broking groups have supported the Mansfield Award selections. The Gold Mansfield for overall excellence in claims was won by Allianz, beating last year’s winner Chubb, as well as 0 FM Global and QBE.

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Other Mansfield Award winners were: Personal lines: The winner was Chubb Insurance. The other finalists were Allianz, RAC Insurance and TIO. SME property and casualty: The winner was Allianz. The other finalists were Ansvar, Calibre Commercial Insurance and Chubb. Corporate property and casualty: The winner was FM Global. The other finalists were Berkshire Hathaway Specialty Insurance, Liberty International Underwriters, and QBE. Specialty: The joint winners – a “first” for the awards – were GT Insurance and National Transport Insurance. The other finalists were Axis Underwriting Services, Mecon Insurance and QUS.

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Fame for claims Mansfield Awards champions reveal why they’re consistent winners By John Deex

Consistency is key: Chubb’s James Flaskett

EVERY INSURANCE COMPANY SAYS THEY’LL BE

“It is vital that we get it right,” he tells Insurance News. “We get regular feedback, and while all the signs are that we do get it right, we are continually looking to improve. “We were very pleased with the Mansfields recognition, and as we continue to invest in claims and in our people I am very optimistic we can remain leaders in this field.” Allianz holds to two key principles. The first is making it easy – for customers, Allianz staff and broker partners. The second is looking to fix the customer’s problem. “Even a relatively minor claim can be disruptive for customers,” Mr Krawitz says. “We want to help them get on with their day-to-day lives.” NTI’s General Manager Operations & Strategic Delivery Janelle Greene says her company’s vision is to be Australia’s leading specialist insurer. “The principles that guide us in claims are expertise, strong relationships with our intermediary customers and tailoring every claim to meet the needs of the client,” she says. “We take our claims service incredibly seriously, and we are thrilled to have been recognised with a Mansfield Award for the second year running. “We are focused on understanding and knowing our customers through the relationships our dedicated claims consultants build, and being expert at what we do. “Our dedicated heavy motor, mobile plant and equipment and marine claims teams, collectively have years of experience. We are always looking to deepen that capability to deliver specialist service.” Win-win relationships with core service providers are vital to NTI, Ms Greene says. “We work collaboratively. For example, working with our repairer network to get a truck back on the road as quickly as possible or managing an international marine claim with multiple stakeholders. “For us being the market leader is achieved by setting the highest possible standards and aiming to be the best of the best.” Ms Greene says NTI aims to “make extraordinary business as usual’. “It’s about getting that unique part months faster because of our great relationships with our providers, going the extra mile when a serious incident happens or leveraging our in-house recoveries specialists the day the claim gets lodged.

there for their customers when disaster strikes and they need to make a claim. It’s the moment of truth, when insurance does what it’s designed to do. But the reality is that not all claims operations perform to the same level – and a select group of insurers have earned a reputation for genuine superior claims performance. The Mansfield Awards for Claims Excellence, conceived and organised by Insurance News and LMI Group, have only been running for two years, but already certain names are dominating. National Transport Insurance (NTI) has won the specialty sector both times – albeit this year in a dead-heat with GT Insurance – while Chubb won SME property and casualty and the Gold Mansfield last year, and the personal lines category this year. And this year’s Gold Mansfield winner, Allianz, also won SME property and casualty this year and personal lines last year. So what are these companies doing that keeps them at the forefront of a good claims experience? Chubb Head of Claims Australia & New Zealand James Flaskett tells Insurance News that providing a market-leading, consistent claims service is “absolutely critical” to not just retaining business but also gaining new business. But he warns there is no “magical ingredient” in Chubb’s success; it is more a case of “relentless consistency”. “It is just doing all the things right all of the time – consistency in approach and always making sure that you have that customer focus,” he says. “To get a reputation like we have, you need to deliver service excellence across your entire claims portfolio. You can’t just do it in one area.” This means delivering claims excellence not only in something like financial lines large class actions, but also all the way through to accident and health travel claims such as lost baggage. “You have to deliver service excellence across that entire spectrum and that is really challenging,” Mr Flaskett says. “You have to understand your client and understand what is important to them, then structure your business to meet those particular needs.” Allianz Australia Chief Operating Officer David Krawitz agrees the importance of claims cannot be overstated. 44

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“The claims officer is so important – they are a fund manager, negotiator and administrator – they can’t be anything but a craftsman.”

“Even though we see extraordinary as business as usual, we do celebrate these successes and recognise the efforts of staff through sharing stories. It’s just part of our culture.” Culture takes a special place in the thinking of these consistent Mansfield Award winners. Mr Flaskett says Chubb places great emphasis on recruiting the right people, and then focusing on developing an empowered and engaged workforce. “It’s all about the people,” he says. “There is a strong induction process and an introduction to the Chubb claims service culture. We look for ways to pay the claim. Fundamentally that is our culture. “I think as long as you keep that ethos and that culture going through the people coming into your business, you drive that service-oriented culture. “One of the key company mantras is the concept of craftsmanship. The claims officer is so important – they are a fund manager, negotiator and administrator – they can’t be anything but a craftsman.” He says he and his claims team aim to get things right first time, but if Chubb does receive a complaint it makes sure it is handled correctly. “We have a robust internal complaints process where we have decisions made by people who were not involved in the original process. And if we have to issue a declinature, which does happen, we will first have covered it off with all the individual stakeholders. “Everyone is aware – the broker, the insured.” Mr Flaskett believes technology will bring major changes to claims in future – but this does not mean losing the human touch “[With technology] you can free up time so you have people focusing on those things that add value while technology takes care of all those administrative tasks where there is less value. “We are on a digital journey. We have introduced an online claims registration tool and some straight-through processing. We also have a pipeline of initiatives that we will introduce in the next 18 months – all of them ensuring that we are improving the customer’s experience while also reducing our own frictional costs. “Am I convinced about AI and chatbots? I think they 46

have a place, but you will never replace a truly great claims manager – the human touch. “The point is you want to make sure that ‘human touch’ is in the right place, that you are not wasting the resource on the wrong stuff.” Mr Flaskett believes some tolerance of “potential leakage” is necessary as automation increasingly plays a role in claims. “If you have a claim it could be worth $2500 or it could be worth $2000. If it is going to cost you $1000 to have an examiner look at it, ask for further information and adjust it, are you better off just paying the $2500? “You have to accept some tolerance for potential leakage in the pursuit of the greater service benefit in the reduction of those frictional costs. “As an industry, we just need to make sure we introduce new technologies in a controlled and sensible fashion. When we introduce new things we have pilots, checks and balances, and we keep monitoring them to make sure they are delivering the outcome we want.” Mr Krawitz agrees technology will play an increasingly important role in claims at Allianz, but warns new developments must bring true value with them. “There is no doubt technology is going to play an increasing role in the broader insurance business, including claims, but we are not interested in technology for technology’s sake,” he says. “Going back to our core principles, we always ask whether that technology will make things easier for our customers or our people. “As part of our Next Gen Claims program, we have improved the broker dashboard so that brokers can get realtime updates on a client’s claim. And we are well advanced in the development of significant improvements to our online claims experience for customers, which we plan to launch early next year.” Ms Greene sees technology being a “powerful enabler” for customers through, for example, getting a truck back on the road faster due to better interaction with a service provider. “Or it could be about making payments or decisions faster, or customers wanting to interact with us in different ways. Technology can add greatly to the claims experience to 0 support the human interactions.”

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AUSTRALIA’S NO.1 MARINE INSURANCE SPECIALIST

Marine Protect is Australia’s market leader in marine insurance. Our specialist knowledge, expertise and claims excellence runs deep in our DNA. We’re driven by innovation in product and service delivery and our dedicated marine underwriters and claims professionals are experts that offer service that’s second to none. So, whether your client needs cover for commercial vessels, they’re an importer or exporter, a transport operator needing protection for the cargo they carry, or require specialist marine liability cover, we’ve got the solution to suit their needs - and more. Find out how we can cover your world, visit marineprotect.com today.

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Insurance products are provided by National Transport Insurance, a joint venture of the insurers Insurance Australia Limited trading as CGU Insurance ABN 11 000 016 722 AFSL 227681 and AAI Limited Trading as Vero Insurance ABN 48 005 297 807 AFSL 230859 each holding a 50% share. National Transport Insurance is administered on behalf of the insurers by its manager NTI Limited ABN 84 000 746 109 AFSL 237246.


Lifting the bar Suncorp says insurers should aim to beat expectations, as the industry is examined like never before By Wendy Pugh

Change is constant: Gary Dransfield

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SUNCORP PLANS TO KEEP RAISING its game on results for consumers, as insurers face pressure from technological change, rising competition and the laser focus of a royal commission. Insurance Chief Executive Gary Dransfield says the company is continually improving processes and looking at ways it can adapt and collaborate to better meet the needs of brokers and customers. “We are mindful that we have to keep raising the bar higher around the customer outcomes that we produce,” he tells Insurance News. “Our conduct and our practices are being examined like never before and customer, community and government expectations are changing.” Mr Dransfield took the top insurance role at the end of October and has faced an eventful first year on the regulatory front and within the company. The group has accelerated investment in its Marketplace strategy, is moving ahead with a business improvement program and is facing scrutiny, along with the wider financial services sector, from the Hayne royal commission. Suncorp and Youi were to appear before the commission in a mid-year round of hearings due to consider natural disaster insurance cases, but gained a reprieve when other issues took up the allotted time. Various insurance matters will now be examined at Melbourne hearings from September 10. Mr Dransfield says the regulatory focus was already heightened before the royal commission, with its mandate to examine not only misconduct but also behaviour that falls short of community standards and expectations. The commission, set a tight timeframe by the Turnbull Government, will wrap up its work while various other reviews remain in progress. An interim report will be delivered by the end of September, with the final version due by February 1. The commission’s examination of case studies to show where financial institutions have failed customers has exposed financial advisers and funeral insurers, and proved a tough experience for executives called to appear. Final recommendations are expected to have repercussions for insurance and other sectors examined. “We run big organisations with a lot of customers and process a lot of transactions,” Mr Dransfield says. “It would be silly and unwise to say we get everything right all the time. “But we want to run really high-quality businesses that have a social licence to operate and are well respected in the community. If the commission identifies any

things the industry can do better, then that is a positive.” The Australian Securities and Investments Commission (ASIC), under new Chairman James Shipton, has separately hammered home the issue of trust. Mr Dransfield told the Suncorp Synergy Summit for intermediaries in July it is important to appreciate the positive and important role of the insurance industry. “Without trust in insurers, customers – both individuals and businesses – won’t have the confidence to take the risks that are needed for our community to work,” he says. “People would be paralysed knowing that if something goes wrong it could ruin their lives.” Claims is the biggest cost area for insurance companies, and where they deliver on their promise or are exposed to condemnation if processes don’t work as expected. Nevertheless, much of the focus on industry disruption and competition is on marketing and initial interactions with customers. “We’ve invested in claims capability over the past year in the business improvement program, both in being more efficient and also in better customer outcomes,” Mr Dransfield says. “They are not mutually exclusive. We don’t look at claims as the poor cousin. We look at claims as a really important engine both of customer satisfaction and delivering customer outcomes and of managing the business well.” Mr Dransfield says Suncorp annually reviews its claims handling. In the case of large natural catastrophes, such as cyclones and bushfires, the impacts can vary greatly depending on the terrain and the urban areas hit. “We are constantly learning how to enhance and improve the way we respond to each type of event and each permutation of each type of event, so for the next year we know our processes are more robust than they were the year before,” he says. The company is improving its digital capabilities, as an adaptation to change rather than a disruption of its processes. A zero-touch hail online system handled about 3000 motor claims during the Melbourne hailstorm last December. Mr Dransfield says hail damage to vehicles is suited to online handling, with scenarios often simpler than in other circumstances, while the number of customers affected at the same time leads to a surge in phone calls and longer queues that can be avoided. “We are very keen to make sure we have that choice of channel available, so we invest in digital for customers when it suits them to use digital, but we will still have capable people there when they need to talk to us,” he says. insuranceNEWS

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Claims handling is also a focus in the Insurance Council of Australia’s (ICA) revised code of practice, which includes changes to better help vulnerable consumers experiencing family violence, financial hardship and mental health conditions. The document will feature an opening statement that outlines core commitments, setting the standard for good corporate culture. ICA plans to seek approval for the document from ASIC. Separately, new product design and distribution obligations will put more pressure

“If the commission identifies any things the industry can do better, then that is a positive.”

on insurers to make sure consumers get the right products for their needs, while proposals to extend unfair contract terms laws to insurers have gathered momentum, despite industry opposition. Mr Dransfield says issues highlighted often relate to products that are not mainstream or involve different types of providers, and any changes affecting the mass market need to be fit for purpose. “Broadly, when I look at car and home insurance, particularly the way we do it at Suncorp, I would argue the Insurance Contracts Act provides some pretty strong protections for consumers,” he says. Nevertheless, an increased regulatory focus has put the onus on insurers to look more closely at how they perform, while the industry moves ahead with its own responses to challenges. “We are not sitting on our hands waiting as an industry,” Mr Dransfield says. “We are 0 well aware that change is constant.” 49


Revolutionising Travel Insurance to Grow Brokers’ Clients, Revenue and Commissions. 1. SIZE OF THE OPPORTUNITY Some brokers may be surprised to learn that the Australian travel insurance market has twice as many policies as all the other general insurance classes combined, yet Australian brokers only have 6% market share of $920 million travel insurance (according to IBIS Report May 2016). TravelCard CEO, Michael Tauber says, “We believe that the broker community can take its share from 6% up to what we’ve seen in other markets which is over 40%, by taking share from travel agents, credit card providers, and the online part of the market.”

TravelCard Real-Time Travel Insurance provides new ways for brokers to achieve revenue from existing clients and develop their new client portfolios.

2. REAL-TIME CLAIMS PROCESS It’s well known that a typical claims process in a traditional insurance company is up 13 steps over 45 days. Thankfully, TravelCard has transformed the claims process in Australia by using Big Data & MasterCard to pay travellers’ claims in “Real Time” - 3 simple steps and claims are paid in a matter of minutes and while on trip, so members save on out-of-pocket expenses and avoid mountains of paperwork. “With other travel insurance providers, you pay, and they may reimburse you. At TravelCard, we trust our members and believe that if we do the right thing by them they will return to purchase a policy on their next trip.” TravelCard’s Real-Time assistance means members who lose their luggage will have access to immediate funds to purchase necessary emergency items using the TravelCard by withdrawing cash at any ATM while still in the airport, taking the stress out of delayed luggage. When an unexpected natural disaster strikes, TravelCard’s Real-Time assistance is there to help members arranging and paying for medical bills while still traveling. “There’s enough to worry about when a crisis happens so, we will get our members the medical care they need and help them enjoy their travels.” Australia’s “Most Travelled Woman” Catriona Rowntree, known Australia wide as “the” travel expert and host of the TV travel show ‘Getaway,’ recently experienced the TravelCard claims service.

TravelCard were nothing but supportive, speedy with their response and quite frankly a relief to me when I needed it most. As I always advise other travellers ‘trust me on the travel insurance’, now I’m just so glad I followed my own advice. Thank you to the Angels of TravelCard

Impressively, TravelCard has a 5 Star Claims Rating from the LMI Group Claims Comparison 2018. They’ve even provided invaluable service to people who aren’t TravelCard policy holders.


ADVERTORIAL

3. BEST BENEFITS

4. EASY TO DEAL WITH

TravelCard has “Best of Breed Coverage & Benefits” in this market across all travel insurance products.

TravelCard’s Australian-Based Customer and Brokers Support Team is willing to go to any lengths to find ways to assist brokers and their clients in real time; TravelCard’s Partner Support and Claims Specialists recently travelled to Bali and provided immediate assistance to Australians stuck in Bali after a volcanic eruption.

If you hop onto the LMI Policy Comparison website, you’ll see for TravelCard’s corporate products, 170 different areas are evaluated, of which 45 are considered superior coverage, while the remainder sit in line with the market leaders. TravelCard prides itself on its Pre-existing Medical Coverage, provided without question on Corporate and new Business Class for employees’ products.*

“TravelCard provides cover for over 70 preexisting conditions at no extra charge and doesn’t reject pre-existing risks when others decline the policy holder from obtaining coverage.”

TravelCard’s Lead, Lock and Load mobile application enables broker to seamlessly refer any leads they’d ordinarily push away, a leisure opportunity, for example. The team at TravelCard would then contact the potential client, step them all the way through the sales process and provide the broker with commission at the back of that referral and link the client to that broker for life. So, every time that client renews, the broker gets their commission. “TravelCard provides a way for brokers to access new technology and do it in a very cost-effective and easy manner where we put the technology at your fingertips to make your life easy and us easy to deal with. It’s all designed to help brokers exclusively grow their share of the market.”

Their personal level of care and compassion was extraordinary, and was at a level that was unexpected, but very warmly received. Mark Marriott – Sydney

UNIQUE SELLING PROPOSITION TRAVELCARD TRAVEL INSURANCE POLICIES

CORPORATE POLICIES (Annual + Single)

BUSINESS CLASS FOR EMPLOYEES

COMPREHENSIVE LEISURE (Annual Multi + Single Trip)

Trip duration limit up to 200 days

Medical assessment is not required for pre-existing medical Cover for 72 pre-existing medical conditions conditions so long as the insured person is fit for travel

No excess on all claims

Unlimited medical evacuations costs

Emergency replacement of personal belongings following the No age restrictions (the insured delay or loss of luggage up to a person’s doctor must confirm fit maximum of $600 for immediate purchase of essential items and to travel once over 85) $2,000 in total for delay more than 12 hours

Unlimited cover for cancellation & curtailment

Luggage and Personal Effects Cover: limit $25,000

Unlimited cover for a medical escort to get you home e.g. a doctor or family member

$8,000 for rental vehicle excess when your vehicle is damaged

Australian-based Customer and Brokers Support Team

Personal liability cover: limit $12,500,000

Automatically includes cover for winter sports, adventure activities and golf

$4,000 for lost or damaged cameras and laptops

Unlimited emergency dental costs

Unlimited emergency dental costs

Up to $50,000 to cover you for miscellaneous expenses e.g. identity theft

No age restrictions (the insured person’s doctor must confirm fit to travel once over 85)

Claims are paid in 'Real-Time' in a matter of minutes and while on trip

TCA Insurance Services Pty Ltd (TCA) ABN 76 621 476 220 is an authorised representative (AR 1262773) of the Insurer, The Hollard Insurance Company Pty Ltd (Hollard) ABN 78 090 584 473 (AFSL 241436). Catriona Rowntree has been appointed as Authorised Representative (No 1262872) of Hollard through an arrangement with TCA. Any advice provided by TCA or Catriona Rowntree in relation to the TravelCard Real Time Insurance products and the TravelCard is general advice only. Please consider the Combined Financial Services Guide & Product Disclosure Statement and the TravelCard Terms & Conditions (available at www.travelcard.com.au) before deciding whether they are suitable for you. * Subject to being fit to fly at the time of travel.


Investing in the future Emerging risks such as climate change have forced insurers to pursue more ‘responsible’ portfolios By Benjamin Levy

FIVE YEARS AGO RESPONSIBLE investment was mostly restricted to the superannuation and investment fund space. It didn’t rate a mention in the insurance industry. Fast-forward to today, and many insurers have implemented environmental, social and governance (ESG) criteria across their investment portfolios, or are doing so. What changed? One of the primary reasons insurers are implementing responsible investment policies is to protect against the same risks for which they provide insurance. Responsible Investment Association Australasia (RIAA) CEO Simon O’Connor says insurers see very clearly where emerging risks such as climate change are most likely to turn into financial costs. “Using those same skills, there’s an opportunity there [around] how insurers are managing their own investments, to ensure they’re not investing in a way that exposes them to those same risks,” he says. Even though the lines are often blurred between responsible and ethical investment, it appears the drive to adopt responsible investment practices has little to do with aligning with client values. “This is all about investors managing those risks that have traditionally been called non-financial, and are usually not found on the balance sheets of companies. Yet they’re incredibly material,” Mr O’Connor says. Swiss Re says investing responsibly makes economic sense and improves risk-adjusted returns over the long term. In a new paper on the subject, it says it invests in five major asset classes: government bonds, corporate credit, listed equities, real estate and private equity funds. It announced the application of ESG principles to its investment portfolio last year, and has applied ESG criteria across all five classes – close to 100% of the investment portfolio. Suncorp approved a responsible investment policy in August last year, for similar reasons to Swiss Re. “We deploy our investment capital in a manner consistent with the long-term sustainability of our business, the environment and the communities in which we operate,” Suncorp Head of Investments Patrick Farrell says. 52

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“We deploy our investment capital in a manner consistent with the long-term sustainability of our business, the environment and the communities in which we operate.” – Patrick Farrell, Suncorp

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“What if we could directly tie a customer’s beliefs and values about sustainability or the environment or the community with their purchase of insurance?” – James Pearson, QBE 54

About 90% of its assets are managed by signatories to the UN Principles for Responsible Investment, Mr Farrell says. For Suncorp, responsible investment is now standard business practice, with clear financial and ESG opportunities. Despite the singular focus on financial returns, responsible investment options read like a list of hot-button social issues for Millennials. Insurers have invested in renewable energy, water conservation, public housing initiatives, helping people at risk of homelessness and improving education for youths. QBE’s Premiums4Good initiative commits a minimum $100 million of Australian premium to responsible investment through green bonds and social impact bonds. Manager for Responsible Investments James Pearson tells Insurance News Premiums4Good was born of a desire to make investments that would resonate with policyholders and differentiate QBE from other insurers. “What if we could directly tie a customer’s beliefs and values about sustainability or the environment or the community with their purchase of insurance?” he says. Premiums4Good is expected to appeal particularly to Millennials. IAG invests in NAB’s Low Carbon Shared Portfolio, which finances wind and large-scale solar projects in Australia. Chief Financial Officer Nick Hawkins says IAG is acutely aware of the effect climate change is having on communities, and the investment is an important step in transitioning to a low-carbon economy. Emissions-intensive industries represent less than 0.5% of IAG’s total investment assets, a company spokesman tells Insurance News. “We are adopting an approach in our equities portfolio that will help shift our book to support companies best managing climate risks and the transition to a low-carbon economy.” That complements efforts to find commercially viable opportunities in fixed-income products, such as the involvement in NAB’s low-carbon portfolio, the spokesman says. Suncorp and QBE are likewise distancing themselves from coal investment. “QBE doesn’t have a formal investments exclusions policy on fossil fuels – but, that insuranceNEWS

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said, we do not currently have any direct exposure to assets primarily related to coal extraction or processing, and have no intention to add this form of exposure,” a spokesman says. QBE is formulating a climate change investment policy for the board to consider. Suncorp is working with external managers to ensure a shadow carbon price is factored into analyses of investment opportunities. Mr Farrell says it aims to reduce exposure to companies that would be materially and permanently impaired by the transition to a low-carbon economy. Many insurers are taking a collaborative approach to responsible investment, learning from each other’s experiences. “It’s a very collaborative space and, given that we’re global, we have relationships with many of our peers, and it’s quite clear that many of the insurance organisations we speak with are very complimentary about Premiums4Good and what we’re doing,” QBE’s Mr Pearson says. Swiss Re’s paper, called Responsible Investments – The Next Steps In Our Journey, sets out its strategy and ESG considerations for every asset class. In the foreword, Group Chief Investment Officer Guido Furer says sharing knowledge and experience around ESG helps remove impediments, which the reinsurer says include the low availability and market volume of ESG investment products. Mr Pearson says it’s difficult for a single insurer to scale up a responsible investment that meets return and risk objectives while having an environmental impact. “That’s hard to do in scale, it’s one of the limitations of the market, and why we have to be very considered about how we grow Premiums4Good.” Although many insurers bear ESG criteria in mind when seeking investments, they are only now beginning to understand how to leverage it to attract and keep customers. “Responsible investment is a great way to improve engagement from customers and to improve retention of customers, and to make customers feel the money they’re spending on insurance is a worthwhile 0 spend,” the RIAA’s Mr O’Connor says.


Taking flight Fast-growing 360 Underwriting Solutions has added aviation to its suite of products By Wendy Pugh

Attracting talent: Denis Morrissey

SPECIALIST AGENCY 360 UNDERwriting Solutions has added aviation and is planning further new offerings as part of a rapid growth trajectory that started a year ago, when the business launched with the aim of providing an agile alternative for brokers. The aviation division began operation at the start of July, led by Craig Davie, who has more than 30 years’ broking and underwriting experience in the field, mostly in London and recently in Sydney. The expansion follows the introduction of an accident and health product late last year and is another addition to the group’s cornerstone commercial offering. Commercial motor will also become part of the range. 360 Underwriting Solutions co-founders and directors Denis Morrissey and Chris Lynch, both former Allianz Australia executives, will add products as they bring more specialists on board. “We have been happy to attract some really talented people in our first year who have wanted to come on the journey with us,” Mr Morrissey tells Insurance News. “We have a view that we want to solve as many of the brokers’ needs as we possibly can.” The company is growing through opportunities that emerge and fit well with their approach, and through a more long-term strategic agenda. In the case of aviation insurance, Australia has seen significant changes in the past year. Two major multinational insurers withdrew underwriting capacity from the domestic market, reducing the options available to brokers. 56

360 Aviation is sourcing capacity from London, delivering a meaningful alternative to the remaining local insurers and a couple of underwriting agencies servicing the sector at a smaller level. It will write all aspects of aviation cover including airline, general aviation with high and lower aircraft values, airport liability and associated aviation liability risks. Mr Morrissey, previously Allianz general manager commercial, and Mr Lynch, most

deal direct and we won’t deal in personal lines products.” The commercial product targeted at the SME sector aims to provide an alternative to often commoditised business packages, and is supported by a long-term partnership with CGU. Accident and health is led by Peter Banks, a career specialist in the area, who was previously chief executive of Sydney-based Accident & Health International.

“One of the promises we make is we won’t deal direct and we won’t deal in personal lines products.” recently national manager for key partners, left the multinational to start their own business in the middle of last year. They acquired underwriting agency Sura360 from AUB Group in July. The SME product had been established two years earlier and included a substantial book of business. They rebranded the new enterprise 360 Underwriting Solutions and have moved ahead with plans to develop a flexible and highly versatile model that involves partnerships with industry specialists and capacity providers in a variety of sectors. “It is commercial products for the broker market only,” Mr Morrissey says. “One of the promises we make is we won’t insuranceNEWS

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Specialists joining 360 Underwriting can develop their own operations through subsidiary businesses, in which they can take equity positions of up to 50%. “We offer opportunities for people to control their own destiny,” Mr Morrissey says. “If they have the expertise to run their own product, they have the opportunity to run their own business with us.” The core enterprise holds the Australian financial services licence and has built a team to provide services in claims, finance, legal and compliance, and human resources functions. The specialist agencies leverage the distribution capability and relationships the 360 team offers.


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Happy clients The business in March appointed Catherine Whitaker as Chief Financial Officer and in July announced four key executive leadership appointments to strengthen its operations as it moves into its second year. Ms Whitaker started her own accounting and business analytics company in Newcastle in 2016 after a 13-year stint with Insurance Advisernet, where she oversaw substantial growth while increasing governance and regulatory controls throughout the network. Andrew Borden was named Executive Director, Mid-Market Solutions, Theo Stevens Chief Information Officer, Norlie Dooma Head of Claims and Stefani Klarin National Sales Operations Manager. Mr Morrissey and Mr Lynch recently visited London, which provides capacity on accident and health, plus the aviation product, and are exploring opportunities for additional products and growth. “Ideally, we would love every product to be led by a local insurer and underwritten by the local market if we can get agreement, but if not, it is a big global insurance world,” Mr Morrissey says. 360 Underwriting is tracking ahead of expectations for the first year, with a firmer market contributing to a positive business environment. Mr Morrissey says the specialist agency and its way of doing business has been well received by brokers. “There are a lot of brokers who want to deal with us simply because of the relationships we have got with them, and I think we provide responsiveness. Our nimbleness to provide solutions just gives us that added 0 flexibility which they seem to enjoy.”

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Mega problems The world’s biggest cities are growing at a furious pace, creating a new, concentrated risk landscape By Andy Swales

EARLIER THIS YEAR MORE than 50,000 travellers were caught in a days-long traffic jam on the Chinese island of Hainan, as fog stopped holidaymakers returning home at the end of Lunar New Year celebrations. It was the latest in a spate of Chinese super-jams to make headlines, including the apparent world record set in 2010, when a 96km tailback lasted more than 10 days on a Beijing-Tibet highway. Such is life in the land of the “megacity”. As the planet’s population

(7.6 billion and counting) swells, it is also shifting, with age-old migrations from rural to urban zones accelerating. Today 55% of people live in urban areas. This is expected to increase to 68% by 2050, according to the United Nations. The urban population has soared from 751 million in 1950 to 4.2 billion this year. This growth is creating cities of almost unimaginable scale and density. By the UN’s count, there are 31 megacities – conurbations with populations above 10 million –

in 2016, led by Tokyo in Japan with 37.8 million people. In May, the UN predicted there will be 43 such cities by 2030. It says Tokyo’s population will begin dropping by 2020, while Delhi will become the most populous city in about 2028. The 2016 count shows most megacities are in Asia, including 15 in China, among them Shanghai and Beijing in the top 10. India has five, with Delhi and Mumbai in the top five. Developing nations, mostly in Asia and Africa, are expected to provide

Endless sprawl: Tokyo is the world’s largest city

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most additions to the UN list by 2030. Such rapid growth in old, established settlements throws up a host of problems. “Many countries will face challenges meeting the needs of their growing urban populations, including for housing, transportation, energy systems and other infrastructure, as well as for employment and basic services such as education and healthcare,” the UN says. It also presents an evolving risk landscape for the insurance indus-


try, raising the stakes around natural catastrophes, pandemics and terrorism, among other threats. Swiss Re Institute Chief Economist for Asia Clarence Wong tells Insurance News urbanisation will have “tangible impacts on the global (re)insurance industry” over the next 5-10 years. He says the trend – “if underpinned by suitable infrastructure and governance” – will be an economic growth driver for Asia. “However, the ‘endless expansion’ of city borders could result

in major socioeconomic and environmental issues … Thus, many Asian governments are avoiding the growth of megacities and instead focusing on urban clusters or economic corridors to mitigate these risks,” he says. “Urbanisation that is not well planned could aggravate some of the risks facing major cities, such as fire, theft, health and natural catastrophe risks. In any case, the high concentration of assets in urban areas is of particular concern if a natural catastrophe hits. The risk of pan-

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demic is also significantly higher in an urban setting.” He says large cities should engage risk professionals to manage threats “in a holistic way”. Lloyd’s City Risk Index, updated in June, measures the potential impact of 22 threats on 279 cities’ projected annual GDP. Of the top 10 most exposed cities, eight are (or are soon to be) megacities, with Taipei at No.4 and Baghdad at No.10 the outliers. Each city’s leading risk is identified. Tokyo, at No.1, has an overall risk of $US24.31 bil-

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lion, with interstate conflict the main threat, in common with Istanbul and Osaka. New York’s biggest risk is market crash, as is emerging megacity London’s. Shanghai and Manila face natural perils – tropical windstorms. “The 10 cities with the highest GDP at risk together face $US126.8 billion in potential losses to economic output each year,” Lloyd’s says. “This is almost one-quarter of total GDP at risk and more than the amount of GDP at risk in Africa, the

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“Big Data and advanced modelling technology offer the potential to turn megacities into ‘smart cities’.”

Middle East and Latin America combined. This finding reflects the increasing concentration of wealth in certain geographic regions and, therefore, the vulnerability of the global economy to disruptive events.” Insurer Allianz – co-founder of the Paris-based Megacities Institute, which in April held its first European conference on urban life – says large cities “offer opportunities for culture, trade, knowledge and industries. Crowds are drawn there by hopes of escaping rural poverty”. But “jamming so many people into tight spaces” will put a strain on infrastructure, services and general quality of life, particularly for the poorest people. “Many people in places such as Manila in the Philippines, Mexico City and Mumbai in India simply end up swapping the crushing poverty of rural dwelling for urban slums. In cities, they are exposed to health conditions reminiscent of the degradation of Dickensian London.” 60

The UN, striving to meet its 2030 Agenda for Sustainable Development, calls for “successful management of urban growth, especially in low-income and lower-middle-income countries where the pace of urbanisation is projected to be the fastest”. But even Australia’s relatively small, affluent and eminently “liveable” cities are straining under the weight of growth, as anyone who commutes across Melbourne or Sydney (mere “international middleweights” on a Brookings Institution city index) can attest. In a June report on issues around urban mobility, Allianz sees hope in the “electronic breadcrumbs of 0s and 1s scattered daily”. “Big Data and advanced modelling technology offer the potential to turn megacities into ‘smart cities’ – those interconnected digitally and where data is collected and analysed to improve the quality of life and better serve citizens,” it says. insuranceNEWS

“With Big Data, authorities and town planners can better plan and prioritise infrastructure investment and yield measurably better results. Civil engineers can also more accurately predict what’s needed to maintain assets such as bridges and roads, prolonging their life cycle.” Some cities are already smartening up. Allianz says Tokyo produces “world-beating efficiency in everything from basic infrastructure to logistics, retail, health and food services while providing a great quality of life for those who live there and visit”. “Tokyo Metropolitan Government … oversees everything from energy efficiency in buildings to zero-waste policies, often using Big Data,” it says. “But the running of Tokyo is not all left entirely to government dictates. Many companies are integrated into the delivery of smart services. The train and subway systems, an icon of Japanese precision, are run by both the government and private companies.” August/September 2018

Allianz points to tech company Fujitsu’s Spatiowl system as a “cutting-edge example”. “An integrated transportation management platform deployed in Tokyo, it uses sensors, [data processing company] Hadoop-powered Big Data analytics and cloud technology to create detailed, real-time models of traffic and people flow. “In Indonesia, toll firms are now using Spatiowl to provide drivers with real-time information on traffic congestion to encourage the use of toll roads.” Tokyo, of course, is a city synonymous with technology. Many other megacities are far from it. Allianz concedes the implementation of Big Data “implies that cities must have robust information technology infrastructure and the ability to translate the insights it offers into action. “Yet many megacities, particularly in developing countries, are struggling to deliver even basic services and infrastructure, let alone worry about Big Data.” 0


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Unfair Contract Terms: Not if but how By Andrew Sharpe

Debate as to whether Australia’s unfair contract terms laws (UCT laws) should be extended to insurance contracts has raged periodically since the UCT laws were introduced. In December 2017 the Government announced that it would extend the UCT laws to insurance. In June 2018 Treasury released a Proposals Paper outlining its proposed model. On 24 July, I took part in a symposium arranged by the Australian Insurance Law Association (AILA) to discuss the proposed Treasury model. Other speakers included representatives of Treasury, ASIC, the Insurance Council and consumer advocates. It was clear from the mood of the room, and the contributions from the floor, that many in the insurance industry are still unconvinced by the need for the reforms at all and somewhat concerned by Treasury’s proposed model. Lorraine Lenthall from Treasury opened the symposium by setting the ground rules. It is no longer a matter of whether the UCT laws would be introduced but, rather, the form which the laws will take in the context of insurance. Ms Lenthall welcomed input from all stakeholders as part of the consultation process. Main subject matter The key area of contention was whether, and to what extent, the UCT laws should apply to provisions which regulate the scope of cover. The current UCT laws exclude terms that define ‘the main subject matter of the contract’. Insurers argue that the main subject matter of an insurance contract is the indemnity which the insurer agrees to provide. As such, the UCT laws should not apply to any terms which define the scope of that indemnity. The EU legislation adopts that approach by exempting from the UCT regime terms which ‘clearly define or circumscribe the insured risk and the insurer’s liability’. Consumer advocates argue for a narrow definition of the main subject matter of

the contract so as to achieve the broadest possible application of the UCT laws. They point to the power imbalance between insurers and consumer/small business insureds and the lack of practical redress achieved by the existing concept of utmost good faith. Treasury proposes a narrow definition which limits the ‘main subject matter’ of an insurance contract to terms which describe ‘what is being insured’ - for example, a house, a person or a motor vehicle. It is not clear how that definition would apply in the case of policies which contain a varied array of covers. Would the definition of each ‘thing’ insured be exempted or only the ‘main’ thing insured? What is the ‘thing’ insured in a liability policy? If it is the ‘claim’, is it confined to the definition of the claim or any term affecting the types of claims which are covered? Meaning of unfair Treasury proposes that, in addition to the general unfairness test applicable to other contract types, a specific test be added which provides that a term will be reasonably necessary to protect the legitimate interests of an insurer if it reasonably reflects the underwriting risk accepted by the insurer provided that it does not disproportionately or unreasonably disadvantage the insured. Many insurers and insurance lawyers at the AILA symposium expressed concern about how that test would operate in practice. It would often be the case that a term may operate to disentitle the insured to cover - an outcome which would have a significantly adverse effect on the insured. When would such an outcome be considered ‘disproportionate’ or ‘unreasonable’? Which policies are affected? UCT laws apply to a contract which is: a. a consumer contract or small business contract; and b. a ‘standard form contract’.

Whether a contract is a ‘consumer contract’ or a ‘small business contract’ will depend upon the objective characteristics of the contracting parties (or at least one of the contracting parties). In addition, Treasury proposes that the definition of those terms be extended to include contracts where a third party beneficiary of the contract is a consumer or small business. In determining whether a contract is a standard form contract, a court is required to take into account a range of factors including the relative bargaining power of the parties, whether the contract was drafted by one party, whether the other party had an effective opportunity to negotiate terms and whether any terms are specific to the circumstances of the other party. As such, the determination of the insurance policies to which the UCT laws will apply will depend on the actual circumstances of the dealings between the insurer and the contracting insured. The same policy may be a ‘standard form contract’ or not depending upon the method of distribution (direct or intermediated) and the actual interactions between the insurer and the contracting insured(s). This marks a departure from other remedial ‘consumer protection’ laws affecting insurance contracts which apply only to ‘eligible contracts of insurance’ or a ‘prescribed contracts of insurance’ (characterised by reference to the policy type and/or the objective characteristics of the contracting insured). There is a strong argument for maintaining consistency with that approach. Consultation Submissions to the Treasury consultation are due by 24 August 2018. If the discussion at the AILA symposium is any indication, there is some way to go before the before there will be any consensus on the model by which UCT laws will be extended to insurance contracts. For now, the only certain thing is that the UCT laws will be extended.

Continue the conversation on unfair contract terms at meridianlawyers.com.au

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Meeting clients: BMS Group’s Andrew Godden

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Back to basics Andrew Godden is building a business with a strong focus on traditional broking By John Deex

AS CHIEF EXECUTIVE OF GALLAGHER IN Australia, Andrew Godden oversaw huge growth, major acquisitions and, by the end of his tenure, a workforce of almost 1000 people. So when he decided to join global broker BMS Group, to lead its relatively minor local operation, a few eyebrows were raised. But while BMS may have a small local presence today, it has big ambitions for tomorrow. The aim is for rapid but targeted growth, focusing on specialty lines and winning business through a dedication to personal service that others may have let slip. Mr Godden is relishing the challenge. “Some people might think I’m crazy to leave one of the larger broking jobs in Australia,” he tells Insurance News. “But I had done my time, I was proud of my contribution, [Gallagher] was in great shape and I fancied doing something different. “This is a pretty unique opportunity to be part of what is the only employee-owned large international broker I am aware of. “It has vision, an entrepreneurial culture, and this is a chance to build something.” Mr Godden has built successful businesses before. After working with NZI in Australia and the UK, and then broker Heath Lambert in Australia, he became a founding partner of Perth-based Specialised Broking Associates, which was sold to Gallagher in 2010. He is confident BMS can grow quickly. It has 15 staff, with another six on the verge of signing, with bases in Sydney, Melbourne and Perth. Mr Godden believes in the next few years it could expand to 75 staff, with a presence in Brisbane as well. “That would be a really nice size, and a meaningful contribution to the group, but without being so big that you start to lose the personal touch,” he says. “These things tend to grow legs as we get better and better and attract more and more talented staff.” But he warns against growth for growth’s sake. “It’s about trying to come up with a meaningful business that creates value for our customers and therefore for our group.” He says the employee-owned structure gives BMS an edge over competitors. “You talk to any business owner or equity holder – there is something different when you own a piece of the action and your goals are really aligned to the company’s.

“That is a huge advantage. If those things are not lined up, then success is much more difficult to achieve.” After announcing Mr Godden’s appointment last year, BMS Group Chief Executive Nick Cook told Insurance News he does not want Australian operations to be “just another retail broker”, and it should focus on “only a few specialty lines”. Mr Godden says specialising enables a more focused approach and appropriate solutions for the client. The affinity business is going from strength to strength, and financial lines, energy and construction are other priority areas.

“We have now met with many, many clients and I have been flabbergasted that some, with complicated issues, have never met their broker.” To win clients, it is a case of back to basics – an approach that is reaping rewards in the hardening market. “Our plan is to go back to old-fashioned broking, making sure you know your client, know their business and you’re finding bespoke solutions for their individual challenges,” Mr Godden says. “It’s about working the network, trying to get referrals, doing a good job. “We have now met with many, many clients and I have been flabbergasted that some, with complicated issues, have never met their broker. “Every broking company in Australia has great people, but that doesn’t mean everybody is doing the best job for the client. “If I can meet clients who have never met their broker and they are paying six-figure sums, that’s where I think we have commoditised what we do.” Mr Godden says building relationships is crucial, especially when clients need to be kept informed of potential premium increases.

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“Part of broking in this market is making sure your clients are well informed and know the things they can do to mitigate any premium increases or reductions in cover.”

“The hardening market is a great opportunity for us,” Mr Godden says. “Clients that are not being prepared by their brokers for the changing market may be in for some unwelcome outcomes. That is the thing most clients want least, nasty surprises. “Part of broking in this market is making sure your clients are well informed and know the things they can do to mitigate any premium increases or reductions in cover. “It’s an ongoing conversation, so when the renewal terms come out they are largely expected because you have involved the client and the underwriter in the discussions. “The first three clients I have been involved with here are ones with horrible-looking premium increases that just didn’t know it was going to happen.” Mr Godden believes in technological progress, but not at the expense of traditional relationship-based broking. He accepts there is a market for direct business, and that technology will have a huge influence on the way brokers operate in future. But he says it should be an enabler, not a replacement of service. “Brokers are advocates and advisory businesses and I don’t know how you do that without knowing your client. “It is a relationship business and this is what we’ll do. We’ll do a good job and we’ll ask for referrals and we’ll get work.” Mr Godden says remaining relevant is brokers’ biggest challenge. “If we are going to try to replace ourselves with technology but still get large commission rates from insurers, that is just going to run out of gas. “The insurers are going to be wondering why are they doing all the work and still paying the brokers – to do what? “We need to get back to being advocates and providing sound advice and charging for that. Just taking commission for putting an insurance policy in place is going to be challenged.” As risks evolve, brokers need to make sure they understand developments and come up with the right solutions for clients. “Everyone talks about new and emerging risks such as cyber and other valid new risks, but when someone like Warren Buffett says he is not going to underwrite 64

it until everyone understands it, I think that is a good point. “When a broker is out selling cyber insurance, we need to know and be certain what that is and what our clients’ risks are. “Are we just selling a product that an insurer has developed? I think there is a big distinction between understanding what the risks are and providing solutions, and just coming up with a product and trying to sell it, which is why we are focusing on the specialist lines we offer.” Mr Godden believes that, even as technology develops and insurers try to push into the direct space, the value of brokers has not diminished. Clients with difficult claims or issues with placement know first-hand the benefits of having a broker on their side, he says. “Insurers, by definition, act for themselves and the insurance broker acts for the client. When clients understand that, and realise that when they are in a difficult situation they need someone to act for them, that is where we really come into our own.” Mr Godden believes the general insurance industry’s reputation will hold up to scrutiny. The Hayne royal commission has yet to focus on the sector in any detail, but already stories of poor claims handling and soaring premiums have been given significant airtime and column inches in the mainstream media. “What gets missed in some of the bad news stories is all the great work our industry does more generally,” Mr Godden says. “Insurance companies and insurance brokers do a fantastic job in catastrophe situations. There are many more great stories than unfortunate ones. “As an industry we need to make sure we are better at understanding our clients’ risk and making sure the client understands what they have bought, whether it be personal lines or a more complicated placement. “But my honest view is that most of the time our industry does a fabulous job. There are many, many examples of that. “It’s a fabulous industry and it is a great career. We get to touch all aspects of commerce and understand other people’s businesses. It’s about people and relationships and getting to know your client’s business and making sure you can put them back together if the worst does 0 happen. There is always a place for a good broker.”

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Buying trouble Business acquisitions can sometimes go wrong for the most unexpected reasons By Terry McMullan

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IN AN INDUSTRY WHERE MERGERS AND acquisitions are almost daily events, it’s inevitable that things will sometimes go wrong. When the deal is done the expected synergies might not be there, key staff may quit or key customers may choose to move on. Or, simply, the two organisations just don’t “fit”. But managers who negotiate acquisitions say getting to understand what a target company has to offer for a good financial and cultural “fit” isn’t all that difficult. The due diligence process – usually but not always conducted with the co-operation of the target company – will quickly establish the health of the target and its ability to blend in with the acquiring company’s organisation. That “fit” is what Arthur J Gallagher President and Chief Executive J Pat Gallagher calls the “cultural DNA match” – a measure that he says has seen less than 5% of his company’s hundreds of acquisitions globally go wrong. “One bad one hurts us, and hurts us badly, but we don’t make many mistakes,” he told an interviewer. “We don’t get it wrong very often.” One of those rare “bad ones” has resulted in an ongoing lawsuit in the Queensland Supreme Court. It appears to illustrate well the point that the bestintentioned business marriages can turn grim when circumstances change. The lawsuit involves the six original shareholders in former Brisbane-based national Lloyd’s underwriting agency SRS, which Gallagher acquired in 2012. SRS was Australia’s largest Lloyd’s underwriting agency, and a big slice of its business came from the major international brokers operating in Australia. The acquisition of SRS didn’t cause much of a stir because Gallagher didn’t have much presence in the Australian market – at the time. But 17 months later it paid $1.01 billion to acquire the largest locally owned Australian broker, OAMPS, and that was a big deal in more ways than one. The international brokers saw Gallagher as a major competitor for the top-end and middle markets where they dominate. With a new base established in the heart of the Australian insurance industry, Gallagher’s experience and capital would inevitably make it a hefty competitor. For SRS, its owner’s OAMPS deal had few upsides. Insurance News understands the agency’s revenues plunged as major brokers took their business elsewhere. In December 2015 – within three years of selling SRS – founder Paul Lynam was declared redundant by Gallagher. Now he and the five other SRS shareholders are suing the broker in the Queensland Supreme Court for $3.6 million they claim is owed as the final “earnout” from the sale.

In essence, the SRS claimants maintain the earnout was to be calculated under a complex formula that could have yielded a maximum of $8 million. But in May 2016 Gallagher provided a calculation under which the final earnout was zero. This has led to assertions that the formula used to reach zero had never been agreed to and that Gallagher also “[failed] to use reasonable endeavours to promote and support the business…during the earnout period”. The plaintiffs allege that if these “endeavours” had been followed the earnout would have been $3.6 million. At this point the case is proceeding to trial sometime in the next few months. A strikeout action mounted by Gallagher in the Queensland Supreme Court several months ago was unsuccessful, with costs awarded against it. A second strikeout action was withdrawn before being heard.

While changing circumstances can affect the most solid of acquisitions, nothing is ever likely to overshadow the biggest and bloodiest of them all – AMP’s takeover of GIO in the heady days of the 1990s. While changing circumstances can affect the most solid of acquisitions, nothing is ever likely to overshadow the biggest and bloodiest of them all – AMP’s takeover of GIO in the heady days of the 1990s. This was a deal that had no compelling reason to happen and revealed – as one commentator of the day put it – “the worst examples of poor corporate strategy, misjudgement and hubris”. In 1998 AMP, freshly demutualised and flush with capital, made a hostile $3.3 billion bid for former government-owned insurer GIO, which had a commanding position in the New South Wales general insurance market. GIO advised its shareholders not to take the offer of $5.36 a share, and because the bid was hostile, there was no due diligence. AMP had to rely on its consultants’ estimates. What AMP’s over-confident American chief executive George Trumbull and his experts didn’t factor in was GIO’s reinsurance company.

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Finding the right fit CULTURAL FIT IS THE STARTING POINT FOR acquisitions made by AUB Group as it prefers a model where purchased businesses become jointly-owned partnerships. A shared vision and confidence around integrity, honesty and professionalism are considered key factors for the long-term success of a purchased business. “We have got to ensure to the best of our ability that we have a cultural fit and a mindset fit between us and our future partner,” Divisional Chief Executive – National Partners & Group Acquisition Fabian Pasquini tells Insurance News. “It comes down to a lot of discussion and meetings and a general feel between the two partners as to whether that is going to be an issue or not.” AUB Group has expanded rapidly through acquisitions since it started in the 1980s and has focused on purchasing brokerages, through “ownerdriver” arrangements where principals of acquired businesses sell-down their stake to the larger company. In some cases AUB may take full ownership initially, particularly where an industry veteran is retiring. Later it will look to reduce its stake as a new equity holder becomes a partner with “skin in the game” or it may merge the operation into an existing partnership. The company has more than 130 partner businesses across more than 425 locations in Australia and New Zealand, its most recent annual report says. The reliance on broking has reduced recently as it has increasingly diversified into underwriting agencies and risk services. Mr Pasquini, with the group for 19 years, has been involved with at least 60 acquisitions and also many instances where a deal has not gone ahead. “We have on a number of occasions said no, and that is not always about price,” he says. “It might just be that, at the end of the day, the strategy we as a group are pursuing does not have proper alignment with where the business we are talking to wants to go.” Warning signs from a cultural perspective, providing a red flag for deeper examination, could include staff retention issues, cases of licence breaches or a high level of complaints. Along with the cultural fit, the due diligence process requires an examination of the business structure, processes and profitability and the trajectory of future earnings. A recent short-term spike in earnings may not be sustainable. Large profit margins could indicate a lack of funds going back into the enterprise, suggesting

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substantial capital outlays will be needed over the next few years, undermining the return on investment. The process also examines what both sides can bring to the table. As a potential partner, AUB must show that the new arrangement will deliver better prospects than if the target business maintained its existing pathway. “We need to be comfortable and convinced that we can add value, and just as importantly, they need to see we can add value,” Mr Pasquini says. Price is important and has to be at the right level, but is not always the deciding factor in sealing a deal. AUB says it sometimes secures a transaction despite potential rivals flagging higher dollars. AUB’s diversification has widened opportunities for improving the bottom line and margins of acquired partners. The aim is to bring the business into the group and then open up a number of doors so it can provide additional services to its core client base. Consideration of succession issues is also important, particularly where principals may be of an age where they are looking to soon wind down. “One of the important parts of an M&A process is making sure that you start with the future in mind,” Mr Pasquini says. AUB’s focus on the partnership model means it is not pursuing hostile takeovers and has the opportunity to closely examine the operations of the equity it is acquiring. A deal won’t be completed unless proper scrutiny can be undertaken. Nevertheless, sometimes over the longer-term a business can fail to live up to expectations for various reasons. “I don’t believe we have ever got an acquisition wrong, I think what happens is that circumstances change,” Mr Pasquini says. That could include personal situations affecting principals’ lives, including health issues, or the loss of a significant client through no fault of the business, such as in the case of international M&A activity. Mr Pasquini says the group has a strong track record and during more than 30 years there have rarely been occasions where there have been partnership challenges or disputes. AUB has increased its focus on organic growth in the past couple of years but remains on the lookout for any promising acquisition opportunity that arises amid increasing competition from other players. “We are always on the alert and on the chase, but we won’t ever compromise our process and our due diligence to make sure it is, in our minds and to the best of our ability, the right fit and the right business,” he says.

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Through much of the 1990s GIO had built up a significant reinsurance business, but in the words of Peter Corrigan, the chief executive brought in to clean up the eventual mess: “GIO did not have the expertise needed to underwrite the business properly. “With hindsight it can be said that we provided naïve capacity to the reinsurance market,” he told shareholders when GIO was on the verge of collapse. “That’s a polite way of saying that we were seen as something of a mug punter by people involved in that market.” It was indeed. Through much of the 1990s GIO’s reinsurance operation was regarded far and wide as a great place to cover a bad risk at a low price. It had to end, and it came when AMP had forced its way into becoming GIO’s majority shareholder. Reinsurance losses saw GIO’s net assets of $1.5 billion in 1998 become $452 million a year later. Faced with even more reinsurance losses, GIO had no choice but to sell out to AMP for $2.75 a share. It was a forced rescue, not a takeover. The only good bit of GIO remaining, its general insurance business, was eventually sold by AMP to Suncorp for $1.3 billion. Many have argued since that the Suncorp deal was the only thing keeping AMP afloat after it absorbed massive losses from a disastrous foray into the British

The lessons of the AMP-GIO drama are obvious, and as relevant today for companies acquiring businesses as they ever were: due diligence is everything. life insurance market, where billions of dollars were lost and the demutualisation war chest was emptied. The GIO collapse led to wholesale sackings and resignations (Trumbull took home $13 million in severance pay), the destruction of some lofty business reputations and a pioneering shareholder class action. The collapse of HIH was to follow in 2001, exhausting politicians’ patience and resulting in a regulatory overhaul designed to ensure that we never again see a debacle like AMP-GIO. The lessons of the AMP-GIO drama are obvious, and as relevant today for companies acquiring businesses as they ever were: due diligence is everything.0

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Vale Terry Lane: clever, wise, caring …and the life of the party. An outstanding broker is remembered for working hard and playing hard prised when twice the expected number of mourners turned up for Terry Lane’s funeral in Melbourne on August 1. He was one of the best-liked people in insurance, and the huge turnout of industry professionals, young and old, reflected that fact. Mr Lane died in July at the age of 76 of a heart attack. He was playing golf and, typically, enjoying the company of friends – a few members of a wide and varied circle. Friendship and concern for others was the constant theme of the funeral orations. Mr Lane attracted and maintained an army of friends within and outside the insurance industry throughout a long and highly successful broking career. The warmth and closeness of his family life and the strength of his relationships with people of all ages were mentioned by speaker after speaker. Friends from his varied sporting and community interests, brokers and insurers pushed the cavernous ballroom in Melbourne’s Manningham Centre past capacity. There were many of the industry’s most senior executives, mixing with brokers ranging from young to middle-aged to retired, and quite a lot of babies and children, all gathered together to farewell a remarkable man. His many achievements in sport – he was a top-level squash and tennis player in his younger days, a lifelong keen golfer and participant in the Point Lonsdale Surf Lifesaving Club and a fanatical supporter of the Carlton AFL club – were matched by his commitment to such charitable groups as Guide Dogs Australia. But though Mr Lane devoted a lot of time to such pursuits, they were nevertheless sidelines to a professional career marked by dedication to his clients and staff, his mentoring of young brokers, a firm belief in the benefits of unrelenting hard work and an astute business brain. Speakers at the funeral spoke of his constant interest in their sporting and professional lives, of his willingness to listen and advise, and an outstanding characteris70

Shannon Morris

NO ONE SHOULD HAVE BEEN SUR-

Credit to the industry: Terry Lane with the Lex McKeown Trophy

tic that was a common theme – his love of a good time. Terry Lane’s motto, according to his son Damien, was “work hard, play hard”. Few would dispute that he succeeded at both. A montage of dozens of photographs of Mr Lane’s life showed him smiling happily, relaxing and playing with children, grandchildren, friends and industry colleagues. He started his career at Phoenix Insurance in the late 1950s at the age of 17, progressing rapidly through the ranks before turning to broking. In 1977 he was a co-founder of the Oil Agents Mutual Provident Society (OAMPS, now Gallagher), which became a major national brokerage and a listed company. Mr Lane retired – very briefly – before going into partnership with John Wigley and the insuranceNEWS

August/September 2018

late Sam Cilmi in Melbourne, later buying out his partners, naming the new company Midland Insurance Brokers and developing a significant list of clients. His sons Damien and Justin are senior executives in the company. Four years ago Mr Lane was awarded NIBA’s Lex McKeown Trophy for services to broking – an award that, typically, surprised only him. In a tribute published by insuranceNEWS.com.au following his death, Mr Lane’s personal and professional contribution to the industry was noted by one his peers, MGA Whittles Chairman John George. “In a generation of professionals, there are very few who genuinely stand out head and shoulders above others,” he said. “Terry was such a person and leaves behind him a 0 great legacy.”


Insurance Australia

Professional Indemnity I Public and Products Liability I IT Liability I Medical Malpractice I Management Liability


What goes around ‌ This year’s Sonar report warns of new threats from some familiar foes By Andy Swales

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Political tensions: Donald Trump and Vladimir Putin in Helsinki

Reuters

SWISS RE’S ANNUAL RUN-DOWN OF THE EMERGING RISKS

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that may reshape the industry in coming years features the usual mixed bag, from high-tech to low, obscure to obvious. It also features some old foes – familiar threats rearing their ugly heads again, or long-tail risks finally coming to the fore. Asbestos is a case in point. The Sonar report notes cancer caused by the inhalation of asbestos fibres almost brought down Lloyd’s 25 years ago, and “the industry is still counting losses. The latest total loss estimates for the US alone are approaching $US100 billion.” But the reinsurer questions whether lessons have been learned from the building material scandals of yesteryear. “Many countries have bans in place,” the report says. “Some have partial bans of at least the most dangerous forms of the substance. But not even all European countries have banned the use of asbestos completely.” It says 4 million tonnes of asbestos was still being used in Russia, India, China, Indonesia, Brazil and some other countries in 2013. And three years ago a UN report showed “one-third of the 900 million people living in Europe and central Asia are potentially exposed to asbestos at work and in the environment”. The long latency of asbestos-related cancers makes for a rolling crisis. “The latest statistics recorded 15,000 deaths annually due to asbestos over the past three years. These numbers take into account only those who were exposed to asbestos 40 to 50 years ago. People currently inhaling the fibres are not included. The tens of thousands breathing in asbestos today could develop cancer and claim insurance coverage 40 to 50 years down the road.” Swiss Re concludes that “wherever possible, asbestos should be excluded from (re)insurance contracts”. Nick Sordon, Head of Casualty for Swiss Re Australia and New Zealand, tells Insurance News the risk management community has a “consistent focus on property risks and the exposure from natural catastrophes”, but asbestos-related casualty losses “highlight that risks arising out of products can be extremely long-tail with very significant latency exposures”. He notes the lack of a worldwide ban and says: “We even saw recently an incident where some building materials were imported into Australia and were discovered to contain asbestos. Therefore, in a global economy, it’s important that the risk management community is informed and aware of the practices of global trading partners when it comes to hazardous substances or products.” On the subject of potentially deadly building materials, flammable cladding also makes this year’s list of emerging threats – hardly surprising after last year’s Grenfell Tower tragedy shocked the world. However, Insurance News has been banging the drum on this subject for at least three years – long before the London disaster bumped it into the mainstream media spotlight. As Swiss Re notes, Grenfell was “just the latest example of a risk that had emerged much earlier and is still inherent in many of the world’s buildings … pre-dating the Grenfell event were three separate fires engulfing skyscrapers in the UAE”. Closer to home, we had the Lacrosse apartments fire in Melbourne in 2014. This and other blazes have prompted audits across the country to identify at-risk buildings. In May, for example, a cladding taskforce in Queensland flagged 71 state government buildings that may feature combustible material and must be investigated further. August/September 2018

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“What has seemingly been an acceptable product, in widespread use, has now been revealed to be a huge exposure through some catastrophic building fires.”

Victoria’s cladding taskforce last year identified 1369 buildings as likely featuring the most dangerous kinds of aluminium cladding with a polyethylene core or expanded polystyrene. Of those buildings, 579 had not begun construction and a further 129 were half-built. “There are potentially tens of thousands of buildings around the world wrapped in combustible cladding,” Swiss Re says. “Dubai Civil Defence estimates roughly 30,000 buildings in the state have combustible cladding. Other countries have also identified several thousand buildings that could be exposed to this kind of risk. This presents a smouldering danger in the insurance industry’s books.” Swiss Re notes Australia is among jurisdictions leading the way with tighter regulations, and says “more action can be expected. Ongoing shifts in regulations require insurers to be alert. Risk assessment and underwriting policies may need adjustment to the new regulatory requirements.” Mr Sordon sees flammable cladding as “another example of the dormant and pervasive nature of product exposures. What has seemingly been an acceptable product, in widespread use, has now been revealed to be a huge exposure through some catastrophic building fires.” Another product risk “coming back to bite us” stems from flaws in old hardware and software that may remain dormant or undetected for years before kicking in or being deliberately triggered. Swiss Re warns of a “strong likelihood of undetected and unmitigated cyber risks, which may culminate in large losses. They may arise directly from software and hardware failure. Or they could spring from pre-existing vulnerabilities sought by hackers as an entry point to ‘weaponise’ the targeted systems and trigger mayhem, or abuse them to enrich themselves.” The WannaCry ransomware attack in May last year presents a stark example. “Many organisations were using old Windows operating systems that were no longer serviced from the vendor… or did not have the available security updates installed. “This kind of negligence allowed the ransomware to spread more easily. The attack was estimated to have affected more than 200,000 computers across 150 countries, with total damages ranging from hundreds of millions to billions of US dollars.” The report says hardware flaws can have a very long tail risk, “allowing for system failure and inviting hacker attacks. This is partic74

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ularly relevant for large and complex industrial processes and critical infrastructures.” Legacy flaws pose an underwriting risk around cyber cover, and an operational risk for insurers that still rely on old IT systems. The most high-impact, short-term threats in this year’s Sonar report are geopolitical risk and the “erosion of risk diversification”. On the former, Swiss Re flags a new paradigm in the geopolitical landscape, as “power drifts to Asia, democratic influences decline and the relevance of global governance institutions erodes. This coincides with new forms of diplomacy and business attitudes. If you add the emergence of populism as a political force to this mix, the geopolitical risk landscape has become far more unpredictable and difficult to navigate.” The reinsurer says: “Heightened geopolitical tensions between the major powers … could lead to conflict and, in an extreme case, trigger a major war.

Natural consequences THIS YEAR’S SONAR REPORT FEATURES SEVERAL EMERGING risks linked to the environment – or, to be more precise, our enduring tendency to trash the environment. Swiss Re warns of plastic nanoparticles that are ingested by sea life and, further up the food chain, humans, posing health risks and questions of liability for plastic producers. It also flags the erosion of “ecosystem services” – the benefits such as food, clean water and energy that humans gain from natural ecosystems. Impacts on the insurance industry may arise from civil unrest, agriculture losses and increased damage from hurricanes and storm surges as the reefs that protect coastal areas weaken and die. Changes to environmental liability laws are another emerging risk, with Australia listed among a group of Asia-Pacific nations, led by China, cracking down on polluters and “substantially altering the risk landscape for insurers”. It will require the industry to apply new coverages and wordings, and “ensure existing [environmental liability] protection does not embrace fresh liabilities without securing appropriate premium increases”.

August/September 2018


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Emerging risk themes by potential impact and timeframe 0–3 years

A brave new world? – Emerging geopolitical risk

Towering infernos – combustible cladding

A slow poison – the erosion of risk diversification

You pollute it, you own it – environmental liability and insurance

The dangers of shiny objects – tech hypes, fails and fraud Funny money? – Do we need to worry about cryptocurrencies? Who’s on watch – colliding ships Faking it – the business of counterfeit medicine

> 3 years Asbestos reloaded – $US 100 billion in losses and counting Coming back to bite us – lurking cyber risks Algorithms are only human too – opaque, biased, misled

Paradise lost – the price of ecosystem services

Property

Life & Health

Inked in – the risk of tattoos

human skills?

Fed up? – Uncertain future of monetary policy regimes Potential impact Operations (incl. legal and regulatory)

High

Medium

Low

Financial markets

“Even if not directly invested in the conflict locations, insurance will be affected through turmoil in financial markets and in operational spheres. Global multilateral institutions become less and less relevant: established sets of legal rules, norms and practices may no longer be applicable. The uncertainty fundamentally hurts the ability to run a global business.” The erosion of risk diversification runs along similar lines. Swiss Re calls it a “slow poison”, brought about by growing national protectionism and international regulatory fragmentation, which threaten the industry’s model of providing “financial protection from risks across the globe by deploying capital across geographic borders and lines of business”. “Without international diversification, the reinsurance business model would be much less efficient than it is today,” Swiss Re says. “To illustrate the economic value of international diversification, the higher need for capital in a geographically undiversified situation would lead to higher capital costs, constituting the lost benefit if international diversification were abolished. “Diversification allows (re)insurers to hold less capital to cover the same risks with the same certainty. Without any international diversification, reinsurers would be required to hold more capital, 0 driving up premiums by at least 8%.” 76

Your printed heart – longer lives for artificial organs?

Dumbed down – is digitisation undermining

Most affected business areas Casualty

The plastic in our veins – health risks from tiny particles

Eyes wide shut – the world is sleeping less

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Profiling risk THE SONAR REPORT FEATURES 18 EMERGING RISK THEMES rated from high to low impact and categorised according to likely timeframes and the insurance business areas they will most affect: property, casualty, life and health, financial markets and insurer operations. The reinsurer identifies emerging risks through its proprietary Sonar tool – an internal crowdsourcing platform that “allows for collecting input and feedback from underwriters, client managers, risk experts and others across the company”. It says the themes identified are “meant to trigger an informed dialogue of what might lie ahead for the insurance industry and society”. But it does not claim to present a definitive picture of what lies ahead. “The Sonar report is not about forecasting the future, but rather about preparing for its potentialities,” Swiss Re’s Group Chief Risk Officer Patrick Raaflaub says. “Sharing knowledge through proactive risk dialogue across stakeholders can help the (re)insurance industry create a proactive and pre-emptive risk management culture that enables disciplined risk-taking. Ignoring emerging risks is not an option.”

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FUTURE MOBILITY IS HERE, NOW DRIVING CHANGE Customer lifestyle needs are changing. Current mobility is dominated by individual motor transport and mass transport; however technology is being rapidly developed to meet customer expectation and demand for increased connectivity and real-time data. New initiatives like Rideshare and Carshare are driving the rise of the mobility share economy with low transaction costs. The future will see increased uptake of Intermodal Mobility where an aggregator integrates different transportation modes to offer a seamless journey connecting public and private transport services of different providers. Insurance issued by Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL: 234708. We do not provide advice based on any consideration of your objectives, financial situation or needs. Policy terms, conditions, limits and exclusions apply. Before making a decision please consider the relevant Product Disclosure Statement (PDS) available on our website allianz.com.au or by calling 13 1000


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“The way we travel from A-to-B is undergoing a significant transformation. Changing customer lifestyle needs, technological advancements and regulatory trends are fuelling a new ecosystem of mobility; one that will change the relationship we have with the cars we drive, attitudes towards ownership, how we pay for commercial services and how, as an industry, we price risk.” David Hosking, Chief General Manager Broker and Agency at Allianz Australia.

FUTURE JOURNEY Vehicle technology is advancing. Connected and electric vehicles are paving the way for a future of fully autonomous vehicles. Four key phases are driving the mobility evolution at an increasingly rapid pace with Highly Automated vehicles already in market.

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With the average age of vehicles on the road at eight years, mobility is undergoing a phased transition that sees a mix of vehicles all on the road at the same time, as well as a broad variety of costs and cover needs. Leanne Hendry, General Manager Domestic Motor says that “while new technologies focus on reducing accidents, it may also mean increased costs of repair in the short term. Australia’s unique cultural connection to its cars, as well as its geographic spread and scale may mean greater adoption of automated vehicles; it may also result in higher cost of service compared to more densely populated countries. The full impact of these changes will not be realised immediately but Allianz remains close to the market, innovating our services in line with changing needs.”

OUR INSURANCE SOLUTIONS Allianz currently provides a range of coverage options for motor from single vehicle domestic motor policies, all the way through to commercial fleets. We can offer fast track assessments, managed repair costs and repair guarantees; minimising customers’ time off the road as well as the impact of claims on future premiums. We can assist our brokers and their customers in providing relevant insurance solutions for today’s market.

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In addition, our One Allianz partners, GT Insurance and Dawes Insurance, provide specialist coverage for the heavy transportation industry and prestige motor vehicles.

“Change and transformation is inevitable. Allianz is evolving with the customer, evolving our products and services to meet the market and we will work with our brokers and partners to negotiate the future of mobility, together.” says David Hosking. To learn more about our Motor Insurance products and services, speak with your Allianz representative today.


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Easy access: Suncorp app helps customers manage finances

Casualty expertise: StarStone joins with Lloyd’s syndicates in new consortium

SUNCORP HAS LAUNCHED AN APP THAT PROVIDES

SPECIALTY INSURER STARSTONE HAS UNVEILED A

an improved online experience for customers while also providing tools and services to help people manage their financial lives. The Suncorp App is part of the accelerated investment in the Marketplace strategy, which includes a more streamlined digital offering, new third party partnerships and a customer rewards and recognition program. Customers of the AAMI, Apia, GIO, Shannons, CIL or Suncorp brands can view and manage their insurance policies and accounts, access a range of other services and explore possible discounts and rewards. A virtual assistant, called Scout, is on hand to answer simple questions such as “when does my car insurance expire?” “Managing our financial wellbeing is a big part of our lives, whether it’s saving for a goal, organising bills or getting a grasp on our spending,” Chief Executive Customer Marketplace Pip Marlow says. “We want to make this an easier process for our customers by giving them a central place to view their financial profile.” The app’s Dollar Tracker categorises spending across transactions and purchases, giving customers a better understanding of where their money is going and savings habits. The rewards program provides eligible customers discounts from more than 100 partners, including David Jones, Myer, JB Hi-Fi, Coles, Woolworths and Event Cinemas. Suncorp is also expanding its partnerships with providers that can offer additional services that are likely to be useful to its customers. The app’s Property Explorer links to information on specific addresses and suburbs, including valuation estimates and flood, fire and theft risk information. It also offers access to outside services such as building inspections, conveyancing, quotes for tradespeople and energy plan comparisons. Tools under the vehicle tab help customers buy or trade-in a car, while the app flags more resources on the way to help with car maintenance needs and questions. Ms Marlow says the app will help customers feel more informed and confident to make financial decisions as their 0 priorities and goals change.

new casualty consortium targeted at the Australian and New Zealand markets. The consortium will initially offer $50 million capacity and focus on mid-market casualty risks not usually underwritten in London. StarStone is supporting the underwriting venture with a 20% lead line, with equal shares from four Lloyd’s syndicate partners providing the remaining capacity. “We have identified clear market and broker demand for a solution that combines Lloyd’s expertise and local knowledge in Australia and New Zealand,” StarStone Australia Managing Director Robin Barham says. StarStone Australia Casualty Underwriter Mark Hunt, who has more than 30 years’ insurance experience, will lead the consortium. Mr Hunt began his career as a liability claims adjuster for Syndicate 386 at Lloyd’s and held a succession of senior roles at various syndicates at the market. He moved to Zurich Australia’s casualty department in 2011 before joining StarStone this year. StarStone, which has been building its presence in the region in the past couple of years, will provide claims support for the consortium through its established network in Australia and New Zealand. Mr Hunt says the consortium will support a tailored and client-centric approach that will allow brokers and customers to transact deals as if they were in the underwriting room at Lloyd’s in London. “I believe the collective expertise of those involved in this consortium will significantly increase the local capabilities and profile of Lloyd’s within the casualty space,” Mr Hunt says. StarStone has expanded in Australia, Europe and the US since forming as Torus Underwriting in 2008 with offices in London and Bermuda. The group, which changed its name when it was acquired by Enstar in 2014, provides a diversified range of property, casualty and specialty insurance globally. The new consortium will sit alongside StarStone’s existing 0 operations in Australia.

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Industry backs White Owl fundraiser A sell-out crowd of 300 including brokers and insurers attended the White Owl charity fundraiser in Melbourne’s Etihad Stadium, raising about $85,000. The money will be shared equally between the Black Dog Institute and Australian Prostate Cancer Research. Tickets to AFL games, signed sports jerseys, Boxing Day Test cricket tickets, Flight Centre vouchers and wines were among the many silent auction items on offer at the fundraiser in June. The items were donated by AIG, CGU, Liberty, QBE and Zurich. The charity has raised more than $200,000 since its establishment three years ago following the loss of two close mates to prostate cancer and suicide. Marsh Placement Leader Scott Eccleston, who co-founded the charity, says White Owl aims to raise awareness of men’s health issues.

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Axa celebrates Bastille Day, World Cup triumph Bastille Day celebrations took on added meaning for Axa Corporate Solutions this year. The annual party, which took place in Sydney, doubled as an occasion for the French insurance giant to cheer the national football team’s success at the World Cup in Russia. In the company of brokers and staff, Chief Executive Hubert Jumel started proceedings with a brief history of how Axa grew from a small provincial mutual to a global insurer. In fitting style, guests enjoyed vintage French wine, champagne, canapÊs and cheese.

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We are at your side At your side helping you conduct your business, today and in the future. Whatever happens, wherever your business takes you.


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BHSI goes west More than 80 broker partners joined Berkshire Hathaway Specialty Insurance (BHSI) to celebrate the launch of its Perth team, which will spearhead the insurer’s Western Australia expansion plans. Newly appointed Australasia President Mark Lingafelter was introduced to the brokers at the June event. Anthony Prindiville, who leads the Perth team’s casualty underwriting business, and outgoing President Chris Colahan, were also at the launch. BHSI announced in March the opening of a Perth office to underwrite casualty, property, mining, energy, construction, power, marine, transport and logistics, healthcare liability, accident and health, and executive and professional lines.

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CQIB awards recognise top insurers The Council of Queensland Insurance Brokers (CQIB) hosted another successful Queensland Day celebration to honour the state’s top insurers. About 350 members and guests turned out for the annual event at the Brisbane Convention and Exhibition Centre in June. QBE took home the coveted CQIB all-rounder prize, with the runner-up spot shared between Allianz and CGU. Underwriter Melissa Denison from QBE’s Townsville office won the Mick Lambert Barker Award for outstanding service to CQIB members. CGU and Allianz shared the claims service award, GT Insurance topped the underwriting agency category and CGU won the domestic insurance prize. The Vero-sponsored Peter McCarthy young professional of the year award went to James Dunstan from North Queensland Insurance Brokers.

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McCabe Curwood has depth of experience across all classes of insurance. We deliver proactive, creative, value-driven solutions for our clients.

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Amanda Kmetyk

Andrew Spearritt

Francesca Menniti

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Brisbane expo plays to full house About 400 brokers and visitors attended the Underwriting Agencies Council (UAC) Brisbane expo in July, which showcased a myriad of solutions from 80 exhibitors. The new UAC Events app was a hit with brokers as it helps record CPD points and obtain information about exhibitors. Champion cyclist Anna Meares, national flag bearer at the Rio Olympic Games, brought a touch of star power as lunch guest speaker. The National Insurance Brokers Association presented its Queensland broker of the year award to Steven Hill of Capital Innovation Australia and young professional broker award to Steve Purser of PSC Insurance Group at the event.

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YIPs celebrate successful year The Young Insurance Professionals (YIPs) held a series of end-of-financial-year functions around Australia and New Zealand. During the 12 months membership grew to more than 8000, a new sponsorship panel was engaged, and the group’s 11th branch opened in Wellington. More than 250 guests celebrated with YIPs at The Argyle in Sydney and raised funds via raffle tickets in support of KidsXpress. In Western Australia, a stylish event at the Market Grounds in Perth drew a fantastic turnout from a broad cross-section of the industry. Members in Auckland marked the group’s fifth anniversary with a sell-out event at The Jefferson whiskey bar and in Wellington, members celebrated their inaugural year in style.

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Allianz sends golf champs off to France Queensland representatives Dustyn Brown and Kris Minns from Regional Insurance Brokers will head to France to attend the Ryder Cup after winning this year’s Allianz Blue Eagle Golf Tournament. The team held a comfortable lead throughout the round and took out the final by three points ahead of Victorians Josh Jellett and Michael Ciavarella from Garden State Insurance Brokers. Mr Brown, who also won the event in 2015, says it was the best round of golf he has played. The final was held in Sydney at The Australian Golf Club, inaugurated in 1882 and the oldest golf club in the Commonwealth. Western Australia’s Daniel Curnow and Alan Knell of Centrewest won third place after a countback, while fourth position was awarded to the New South Wales team of Tom Saddington and Craig Olofinsky of Brookvale Insurance Brokers. The first prize includes Flight Centre vouchers, four nights in Paris and three nights in Chantilly. A Queensland team was also the winners of the Allianz Young Eagle Program, where participants compete in a simulation of running a general insurance company. Seven teams took part in the interactive event, which aims to provide a unique training experience for promising young industry participants. The winning team, which included Chris Traill, Nathan Trembath, Cassandra Akenson, Stephanie Fox, Jack Hills and Ken McGovern, achieved the highest return to shareholders by the end of the exercise.

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Premiums4Good™

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QBE is now using insurance premiums to help make a real, sustainable difference to our communities. We are investing $100million a year on social and environmental initiatives. Simply by choosing QBE Insurance, your customers will be helping create positive change. Every policy purchased will contribute to the global Premiums4Good investment pool that we’ll invest towards social impact bonds, green bonds and other social investments. Plus, if your customer’s annual premium is more than $100,000, they can choose to have QBE invest an additional 25% of their net premium towards Premiums4Good. To find out more, speak with your QBE representative or visit qbe.com.au/premiums4good/corp


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Lloyd’s networking night pulls in crowds Not-for-profit Lloyd’s Development Group hosted its latest networking outing in Sydney as guests enjoyed signature duck pancakes along with champagne, wine and beer. The group’s vice-chairman, Liberty International Underwriters Senior Underwriter Sara Soares, and Lloyd’s General Representative in Australia Chris Mackinnon joined in the two-hour catch-up. StarStone Underwriting Australia Managing Director Robin Barham and Katrina Savell from gold sponsor Wotton+Kearney were also present. The guests included representatives from GSA, QBE, Berkshire Hathaway, Zurich, Steadfast Re, Pen Underwriting and Swiss Re. They had earlier attended a seminar by author Andrew Main, who retold the story of the collapse of HIH. The seminar is part of an educational series organised by Lloyd’s Development Group.

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Claims teams honoured at Mansfields More than 200 industry leaders, claims professionals and service providers attended the glittering annual Mansfield Awards presentation ceremony. Allianz Australia won the Gold Mansfield Award for overall excellence in claims-handling, and finalists were FM Global, QBE and last year’s inaugural winner Chubb. Allianz also won the Mansfield Award for SME Property and Casualty and was a finalist in the Personal Lines category. The awards, named after the English Lord Chief Justice who introduced the concept of utmost good faith to the insurance process in 1766, are organised by Insurance News and LMI Group, and made possible by the support of sponsors Insurance & Care NSW (icare) and Steadfast. The event took place at Sydney’s Establishment Ballroom in July.

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maglog

DRIVING IN OUR CITIES HAS become a tiresome chore. More densely packed suburbs, road infrastructure that hasn’t kept pace with the growing number of cars and people, and too many cars that can climb mountains but don’t suit the suburbs are all reasons why the fun has gone out of driving. Our crowded cities must also be more dangerous. I don’t know if that’s really true, but I’m trying to figure out what other reason there could be for Justyn and Ammanda to be driven three blocks to school rather than walk. Danger, apparently, lurks around every corner for our kiddies, so twice each weekday suburban streets are clogged with seven-seat SUVs jostling for the same small piece of asphalt outside the school’s main gate.

OUT ON THE MAIN ROADS, vehicles move along in bunches controlled by linked traffic lights. Things get messy when someone wants to turn right into a side street, blocking the right lane, or the double-lane section suddenly reduces to a single lane to traverse a bridge built in 1892. Watch drivers in our main cities attempting to squeeze two lanes of traffic into one and you can almost see the frustration rippling above their cars like summer heat. Side streets with parked cars down both sides remind us that councils approve the building of multi-storey apartment blocks to replace single houses yet only require developers to provide one vehicle parking spot per residential unit. This ignores the fact that these days practically every adult owns a vehicle, so the surplus gets parked on the street. 98

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Sam Pentecost Contributor

Such streets were intended to provide residents with access to their homes from the main road, but these days they can be a strategic rush hour route from A to D, cutting out the traffic lights at B and the bus stop chaos of C. With so many vehicles having maps on the dashboard, anyone can be a rat-runner. And, of course, there are also people going from D to A who are equally keen to cut out C and B – everyone from mums on a cross-suburb school run to a cement truck trying to stick to an impossible schedule. So that one-time cute little street with the nice trees is now a nightmare with a single lane between the parked cars that requires everyone to duck and dive their way through, accelerating and braking into gaps as opposing traffic with a territorial advantage advances. The result is unhappy, stressed and impatient drivers. It’s become too darned competitive, crowded and combative. But it’s not going to change – not overnight, anyway – so, like global warming, we’re going to have to adapt.

THE ONLY PLACE I CAN THINK of where the crush and the rush of too many people is handled calmly is Japan, a country that has never allowed its traditions of courtesy to shrivel into disuse. Japanese people seem to get where they want to go with minimal fuss by obeying all the rules designed to keep them moving, whereas we Australians are prone to falling back on the excuse of having convict forefathers and treating rules like something that only apply when they’re convenient. So that devil-may-care individualinsuranceNEWS

ism is going to have to go, replaced instead by the courtesy and consideration for others that was prevalent in Australia 50 years ago. For example, when your grandad was driving down a narrow street and a car coming towards him stopped to let him pass, he’d lift his hand to acknowledge the courtesy of the other driver, who would in turn raise a finger from the steering wheel in a gesture that meant “you’re welcome”. Some people still do it – everyone should. When cars have to squeeze from two lanes into one, we should think of the line of traffic as a zipper and leave space for the car alongside you to slip in front. The other driver should give you a wave as he or she flits into the gap, so your assistance is acknowledged. You’ll also find the traffic keeps moving. When your kids hit the age of seven, walk them to the nearest public transport or buy them a bike and teach them how to safely make their own way to and from school. And be aware a mobile phone for the kid is way cheaper than an SUV. Road courtesy is really based on two things: treating others the way you’d like to be treated, and co-operating with strangers to make things work better. You’ll need to do a bit of hand and arm waving or head-nodding to thank someone who helped you when he or she didn’t have to, but remember that if we were all of us more considerate we’d be less stressed and we’d also probably get to our destinations faster and safer. And if enough of us do it, maybe we’ll encourage more people to join us. As my dear old mum used to say, 0 courtesy is contagious. 

August/September 2018


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