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WHAT DRIVES ALLAN FELS?

He’s friendly and authentic – and one of the insurance industry’s fiercest critics

December 2018/January 2019


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Contents 6 Newsmakers »

66 2018 Insurance TV Ad Awards »

10 Caught in the net » Commissions have been swept up in the royal commission, posing a major challenge to the way insurance brokers operate.

14 From basics to ‘everyday brilliance’ » QBE sets out its core priorities as it takes the next steps towards transformation.

Lead Agency Managing Director Andrew Silcox and his team judge the TV ads that got across their message – usually with emotion or humour (or both).

72 Here’s why we do it the way we do it » The recent Insurance News survey threw up a wide range of assertions and questions that deserve to be answered.

74 Risks on the road »

20 Still swinging » The industry put up some good numbers in a ‘bounce-back’ financial year, analysts say.

24 The top 5 issues for Australian insurance » The royal commission has thrown up challenges for industry leaders, while climate change, technology and people issues are also high on the agenda.

30 The top 20 influencers in general insurance » Our annual look at the people who most stand to influence the insurance industry’s direction through 2019.

From kangaroos to credit hire – an insurer casts an expert eye over emerging risks in the fleet insurance business.

76 Safe travels » A community care group has won plaudits for its fleet risk management.

companyNEWS 78 Set for growth » Australia key in Sedgwick plans.

78 Specialty merger »

38 Resolution solution » Financial services has a shiny new one-stop dispute authority. But will it deliver for industry and consumers?

42 Positive change »

Liberty incorporates Ironshore.

78 Faster and stronger » Zurich simplifies leadership team.

Support for action to tackle global warming is growing, giving a leading climate expert cause for optimism.

peopleNEWS 81 NT conference enjoys strong support »

46 Cyclonic impact » David Henderson is bringing wind engineering expertise to IAG’s natural perils team.

82 UAC hosts first Canberra expo » 85 BHSI hosts broker events » 86 GSA event scores charity cash »

50 Bay watch » Tsunami experts are stepping up their efforts to understand and mitigate the threat to Australia’s coast.

88 AILA young professionals celebrate year-end in style » 91 YIPs hear from AIG executives »

56 No regrets » Consumer advocate Allan Fels has been one of the insurance industry’s leading critics – and he makes no apologies for his tough stance.

92 Celebrating safety » 94 CGU up for the Cup » 96 Hundreds attend IA conference »

60 Recycling risk » Fires in waste storage centres have turned up the heat on premiums.

62 Sure thing » At its one-year milestone, Insurtech Australia is excited to see start-ups gaining traction at home and abroad.

Cover: Allan Fels Image: Joseph Feil/Blue Tree Studios

December 2018/January 2019

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June/July 2018

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newsmakers at

insuranceNEWS.com.au is a free daily online news service for the general insurance industry. The website has more than 25,000 subscribers. In October/November we published 493 articles online. These were made up as follows:

73 69 66 LOCAL

CORPORATE

Profits lift as market hardens Insurers and reinsurers produced a combined $3.9 billion net profit in the year to September, up 28% on the previous 12 months as underwriting results and investment income improved, the Australian Prudential Regulation Authority (APRA) says in latest quarterly statistics. September-year profits are at their highest level since 2014, historical trends for the past five years show, and come amid a broader hardening trend reported in the insurance market after a long period of depressed pricing. Gross written premium increased to $47.2 billion from $45.1 billion, while gross earned premium rose 3% to $46.4 billion and gross incurred claims fell 7% to $30.9 billion. The APRA statistics for the

latest period are based on data from 85 primary insurers and 10 reinsurers licensed to operate in Australia. Investment income rose 25.1% to $2.5 billion, buoyed by higher unrealised gains from interestbearing investments. “However, it remains at a historically low level,” APRA says. Net profit for primary insurers rose to $3.7 billion from $3.1 billion a year earlier, while reinsurers achieved a profit of $197 million compared to a prior loss of $43 million. Overall return on net assets for both sectors was 14.2%, up from 11% a year earlier. Insurers’ profits up 28% as premiums firm, 22 November

REGULATORY & GOVERNMENT

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LIFE INSURANCE

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THE PROFESSIONAL

INTERNATIONAL

ANALYSIS

DAILY

BREAKING NEWS

We are minded to use the enforceable undertaking tool less and court enforcement action more. – Australian Securities and Investments Commission Chairman James Shipton tells the Hayne royal commission the days of negotiated settlements with erring financial services companies are coming to an end

Complex problem, simple fix Wind-driven rain entering homes around windows and doors is a major source of cyclone damage, even when building exteriors are mostly unharmed, new insurance research shows. James Cook University’s Cyclone Testing Station found 70% of strata property claims include damage caused by wind-driven rain, while the percentage of claims costs for which this accounted varied from 2-60%. The study was commissioned by IAG and Suncorp and analysed strata and house claims from cyclones Marcia and Debbie. Videos taken by residents during Debbie showed “considerable volumes” of water coming through windows and sliding glass doors, under swing doors and through light fittings.

“The rain caused damage to vulnerable elements such as plasterboard wall linings and ceilings, floor coverings and personal belongings,” James Cook’s report says. “In multi-storey buildings the rain percolated down through the building for a number of storeys below the original point of entry.” A wind-driven rain simulator found homeowners can keep water at bay using a strip of plastic sheet taped inside windows or sliding doors. The report calls for increased awareness of the issue in the design and construction industry, and among residents. Cyclone damage: a major problem with a simple solution, 12 November

More than 28,000 news articles – including 308 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

insuranceNEWS

December 2018/January 2019

Getting wet: driving rain can enter buildings through windows and doors


Potentially disastrous An intense cyclone hitting Perth and a massive volcanic explosion covering Bali and Lombok with thick ash are among one-in-100 year Asia-Pacific catastrophes that risk being underestimated, modeller RMS says. The firm has released a list of 10 potential catastrophes that includes a 7.5 magnitude earthquake directly hitting Wellington accompanied by massive liquefaction on roads and the docks, as well as some localised changes in coastal land levels. The Perth scenario suggests a transitioning cyclone could make a direct hit at category three intensity, bringing torrential rainfall and damaging winds. RMS Chief Research Officer Robert Muir-Wood says the list reflects credible catastrophes that are not repeats of disasters already seen, and that may be less well anticipated. “We are all subject to the proximity or framing bias, whereby because a major catastrophe has already happened we become totally focused around the repeat of that iconic event,” he told insuranceNEWS.com.au. “We need to think sideways around catastrophes, learning from the events that have previously happened, but then seeing how we can apply that learning to other classes of events.” Perth, Wellington, Bali make 1-in-100 disaster list, 30 October

NIBA’s big worry Insurance brokers should not be “tarred with the same brush” as financial services sectors exposed at the Hayne royal commission, the National Insurance Brokers Association (NIBA) says. In its submission to the policy questions document following last month’s insurance hearings, NIBA draws attention to the small number of complaints about brokers, and the lack of regulator concern about their conduct. Figures from the Financial Ombudsman Service (FOS) show that out of 8603 general insurance complaints last financial year, only 181 related to brokers.

“FOS has not indicated to NIBA that it has any significant concerns with insurance broker conduct or complaints,” the submission says. NIBA says the Insurance Brokers’ Code of Practice, which is under review, is operating “soundly” and nothing at the royal commission hearings suggested brokers are not meeting their obligations to customers. “Insurance brokers should not be unfairly tarred with the same brush as others in the financial services industry,” it says. D  on’t group brokers with problem-makers, says NIBA, 30 October

Crisis leads to action Demand for product recall cover has risen since the needles-in-strawberries crisis in September, broker Gallagher says. Food producers have acted to protect themselves against sabotage and related dangers, spooked by the high-profile tampering incident and subsequent fallout. “I think it’s probably fair to say the thought that somebody could damage your product in this way has just changed everyone’s views on how to protect themselves against it,” Gallagher’s National Head of Food Production Stephen Elms told insuranceNEWS.com.au. “So we are seeing a massive uptake in product recall policies.” A former farm supervisor from Queensland was arrested and charged last week for allegedly putting needles in the fruit out of spite. Her alleged actions are believed to have inspired copycat incidents elsewhere in the country. The strawberry scare came during the peak selling season, and many unaffected

farmers were forced to sell produce at a loss as consumers shunned the fruit. Many insurers have placed more stringent criteria on product recall coverage. They want clients to demonstrate their risk management processes before taking on the business. S  trawberry crisis shakes up product recall market, 19 November

Leading on premium rises Australia’s commercial insurance market was the world leader for premium rises in the third quarter, according to global broker Marsh. It says the composite price for renewals was up more than 13%, outstripping other regions featured in Marsh’s Global Insurance Market Index. The rise is consistent with the preceding quarter and builds on steady increases since the start of last year, following a long period of decline. John Donnelly, Marsh’s Sydney-based Global Placement and Specialties Leader Pacific and Placement Leader Asia, says further rises are expected as insurers look to recoup their losses. “Our expectation is that in quarter four and beyond there will be an acceleration of rate increases,” he told insuranceNEWS.com.au. The report says pricing increases continue across all major product lines, while financial and professional liability pricing “continues to increase at double-digit rates, on average”. “Casualty pricing increased in the low to high single digits for all product lines, on average, although competition in the marketplace is starting to increase, which should serve to stabilise future movements.” Worldwide, Marsh says average commercial insurance prices increased by about 1% in the third quarter, marking four consecutive quarters of gains. Local market leads the world in commercial premium rises, 22 November

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newsmakers at

El Nino: a 70% summer bet The Bureau of Meteorology has again warned of the possibility of an El Nino event in the next few months. The latest update has declared a 70% chance of an El Nino developing this summer – triple the normal likelihood. This means the risk of wildfires and heatwaves is dangerously high this summer,

From the

regardless of whether or not an El Nino occurs. In addition, the bureau has also raised awareness of a positive Indian Ocean Dipole, in which increased convection causes a reduced chance of rain in Australia.

PUBLISHER

B  ureau issues another El Nino alert, 26 November

QBE adopts customer-centricity QBE’s staffing restructure, which is aimed at bringing the insurer closer to its customers, is part of a wider industry trend, according to a leading industry commentator. As reported in a Breaking News bulletin last week, more than 50 QBE managers in Australia are believed to have been laid off as part of the restructure, including regional managers and key broker relationship executives. QBE says the new staffing structure is the result of a “clear plan” to create a stronger and simpler business with a renewed customer focus. It says while some roles no longer exist, many have also been created and the net headcount reduction is 15. KPMG Insurance Partner Scott Guse says similar changes have taken place at IAG and Suncorp. IAG undertook significant structural changes last year with the creation of a single Australian and New Zealand division with a focus on “customer-centricity”, and Suncorp’s Marketplace strategy also aims to put the customer front and centre. “Any industry goes through cycles where there is a restructure of the working environ-

PUBLISHER: TERRY McMULLAN Email: publisher@insurancenews.com.au MANAGING EDITOR: JOHN DEEX Email: editor@insurancenews.com.au ADVERTISING: MADISON SEYMOUR Email: advertising@insurancenews.com.au SUBSCRIPTION ENQUIRIES: www.insurancenews.com.au/subscribe Email: admin@insurancenews.com.au ADDRESS: Insurance News Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 PO Box 116, Ivanhoe VIC 3079 Australia

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ment, and insurers are under a lot of cost pressure at the moment,” Mr Guse told insuranceNEWS.com.au. “Focusing on the customer has never been more important, and QBE is not alone in this respect. The royal commission has ramped up the pressure and forced insurers to look closely at how they treat customers.” QBE’s “2021 ambition” includes three main goals: to be the No.1 choice in commercial lines; to build strength in personal lines; and to be innovative in SME. Australia and New Zealand Chief Executive Vivek Bhatia told insuranceNEWS.com.au the views of brokers played a crucial role in the staffing restructure. “All of them came back and said, ‘Make sure you’re easy to do business with and make sure there is clarity in terms of us having a conversation with people who are empowered to make decisions’.” The new divisional structure, effective immediately, comprises 11 Australian and New Zealand teams answering to Mr Bhatia. Q  BE revamp follows customer-centric trend, 19 November

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 Email: kriss@insurancenews.com.au www.insurancenews.com.au/magazine

insuranceNEWS

December 2018/January 2019

It may seem a little unfair to end the year with a cover story on one of the industry’s most strident critics, but then again… Allan Fels has always fascinated us at Insurance News, even as he confounds and downright irritates insurers. A charming and erudite advocate for the consumer, he presents a very different demeanour when it comes to discussing his relationships with the insurance industry in recent years. When the New South Wales Government backflipped over the abolition of the emergency services levy, Fels underwent an equally extraordinary role reversal that maintained his “keep them honest because they’re probably not” oversight of insurers. It was somehow like the whole ridiculous thing was the insurers’ fault. They wasted tens of millions of dollars preparing for the new emergency services regime and have recently been subjected to the additional indignity of Fels expanding his public reach with statements about insurance practices that are not directly related to his oversight role. The insurers are incensed that he uses data they have to give him to engage in what they say are flawed attacks on their practices. So we have interviewed him. Fels is a stern critic of some of the industry’s practices, which he says disadvantages consumers. He wants insurers to be forced to show customers their previous premium, for example. Fels is resolute and respected, and pushing back isn’t the best or only way to deal with him. Hopefully our interview will help to raise the level of understanding. Terry McMullan

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 certified paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.

ISSN 1837-4972


INSURING AMBITION SINCE 1861

82

%

OF BROKERS

HAVE THE AMBITION TO DRIVE THE INDUSTRY FORWARD THROUGH INNOVATION

The CGU Broker Ambition survey shows that 85% of Aussie brokers say their business is very ambitious. Brokers have big plans to innovate (82%), add more value to their customers (75%), bring positive change to the community (62%) and grow their business (70%). CGU has been backing ambitious brokers for over 165 years — visit www.cgu.com.au/for-brokers to find out how we can back you.

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Caught in the net Commissions have been swept up in the royal commission, posing a major challenge to the way insurance brokers operate By Wendy Pugh

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December 2018/January 2019


INSURANCE BROKERS HAVEN’T BEEN A FOCUS OF THE Hayne royal commission, but fears that they could be hard hit by the outcomes are in danger of being realised. The headlines have belonged to horror stories from the leading banks and financial services companies. Nothing has been said in the hearings about general insurance brokers and their remuneration. Nor were brokers mentioned in the customer case studies that stirred anger and disillusionment during the insurance-focused sixth round hearings. Their performance has not been highlighted at all. Nevertheless, a policy questions document released after the insurance hearings asks whether brokers should be banned from receiving commissions, re-opening a battle already fought and won earlier this decade. Specifically, the document asks: “Should monetary and non-monetary benefits given in relation to general insurance products remain exempt from the ban on conflicted remuneration? If so, why?” The Australian Securities and Investments Commission (ASIC) has raised the heat with a submission saying the ban should be extended, while consumer groups are also calling for an end to the exemption. The National Insurance Brokers Association (NIBA) says a shift from commissions to fees would reduce access to personal advice and claims advocacy, raise prices, reduce competition and innovation and have devastating effects on brokers. “It would decimate the broking industry,” Chief Executive Dallas Booth told Insurance News. “To make a change like this there would have to be clear evidence of a problem [in broking]. There is no evidence.” NIBA argues that if brokers had been representing consumers, many of the significant issues around claims-handling and lack of consumer understanding highlighted in the royal commission in the direct and agency areas would most likely have been avoided. The Insurance Council of Australia also warns against potential harm from any blanket ban on commission payments. “A move towards a fee-for service model will significantly affect the viability of intermediated sales and will have significant implications for the competitive landscape of the industry,” it says in its submission. “This will also reduce access to insurance for some consumers and diminish choice in the way consumers purchase insurance.” Insurance didn’t feature in the interim report, so Royal Commissioner Kenneth Hayne has not indicated how he may decide the issue, while laser-like questioning by counsel assisting over various cases of misconduct hasn’t identified concerns with insurance broking practices. The royal commission did look at intermediated sales problems related to add-on products sold through car dealerships, while it has also questioned how remuneration is paid across financial services and the way it can provide incentives for poor behaviour.

insuranceNEWS

When it comes to add-on problems, the discussion paper asks: “If the ban on conflicted remuneration is not extended to apply to general insurance products, should the payment of commissions for the sale of add-on insurance by motor dealers be limited or prohibited?” Evidence at the hearings highlighted that customers were pressured at dealerships to buy products that in many cases offered little value. Insurers have since refunded around $120 million for the deficient cover. Counsel Assisting Rowena Orr told the royal commission the conflicted remuneration exclusion led to insurers competing on commission payments to gain dealership distribution, instead of competing on the price or value of products offered to consumers. From 2013 to 2015 ASIC found insurers paid more than $600 million in upfront commissions to car yards, collected $1.6 billion in premiums, but paid out only $144 million in claims. Are commissions paid to distributors such as motor dealerships and travel agents the reason the royal commission is looking so closely at the issue, even though brokers have done very little wrong? NIBA has no doubt that’s what is happening. ASIC makes the case that conflicted remuneration generally leads to consumer harm across a wide range of retail financial services, and it recommends extension of the ban to general insurance. It cites the add-on insurance problems in its submission, while not specifically addressing any critical issues in the broker channel or impacts on that sector from the proposed change. “There is a risk that a ban on conflicted remuneration could result in a drop in the level of sales of some products and a reduction in competition if insurers who are largely dependent on intermediaries exit the market,” it says. “These effects are likely to be short-term as insurers would need to innovate and develop new business models.” Brokers are up against some persuasive advocates for a ban. The Financial Rights Legal Centre says nothing short of a total prohibition on conflicted remuneration will remove the risks of poor consumer outcomes. And the Consumer Action Law Centre considers conflicted remuneration is a root cause of many problems exposed at the royal commission and points to the motor dealership failures and pressure selling of cover through bank branches as clear cases for removing the insurance exemption. “A blanket ban would simplify the law, reduce the risk of regulatory arbitrage and close the loopholes which have been created through industry lobbying,” it says. Brokers last faced such a clear threat to their payment arrangements during debate on the Future of Financial Advice (FOFA) reforms, sparked by scandals in the financial planning arena. Mr Booth says NIBA’s submission during the FOFA debate “was that, in theory, the principle [of banning conflicted remuneration]

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had validity. But in practice, in general insurance broking, commissions have not distorted the sale of general insurance products or led to poor consumer outcomes.” Legislation including a ban on conflicted remuneration was passed in 2012, with exemptions for general insurance. The exemption included soft-dollar payments such as for conferences, trips to events and other benefits. The life sector has since faced further regulations aimed at reducing incentives to unnecessarily switch clients to new policies. New commission caps and “clawback” amounts were introduced in January and the system will be reviewed in 2021. The royal commission has heard evidence suggesting there is room for further tightening of regulation around financial planning, mortgage broking superannuation and life insurance. A background paper written for the royal commission by Cornell University Professor Sunita Sah says succumbing to conflicts of interest trends is not necessarily a deliberate favouring of self-interest, with advisers often naïve to biasing effects. “Rationalisation plays an important role,” she says. “It is relatively easy for advisers to, for example, persuade themselves that the products they receive commissions for really are the best and the clients they recommend investments for really will benefit from those investments.” In the interim report section that looks at conflicted remuneration arrangements outside general insurance, Royal Commissioner Hayne says he expects appeals will be made based on history and the need to maintain the availability of advice by preserving existing models. Those making that case will need, he says, to offer evidence “that shows the costs of doing away with payment by commission will outweigh the benefits of improving the overall quality of advice that is given”. NIBA maintains commissions are not swaying judgements about the most suitable insurance products, and it provides plenty of detail in its submission on the consequences of abandoning current arrangements. “General insurance is an annual product reviewed every year,” Mr Booth says. “There are no trailing commissions. Commissions are broadly the same across all insurers, so there is no great incentive to place cover in one place or another.” Brokers have a good track record with the Financial Ombudsman Service and ASIC regulatory costs applied in a levy regime for the sector are lower compared to financial advisers, NIBA says. It says issues highlighted at the royal commission are related to personnel such as financial advisers and mortgage brokers, while in other cases intermediaries accused of misconduct were agents of insurers and were operating in a different cultural, legal and regulatory environment. 12

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Commissions remunerate the broker for their role in both arranging insurance and in assisting clients with claims when something happens, processes that can involve extensive hours. The submission says fee arrangements could lead customers to avoid the level of service and advice they should have and could lead to less insurance competition if the role of brokers is reduced. “Direct market insurers will probably strategically take advantage of such a change. They could infer that they can offer a cheaper product to consumers, but this would generally be associated with a lower level of insurance cover.” NIBA says a large proportion of small business insurance is purchased through brokers. It is the most price-sensitive sector of the market and would be the most affected if commissions were banned. Impacts on the broker community would also be hardest felt in the smaller end of the market where firms are often locally owned. “Typically, large international broker income is derived more from fees than commission, based on their larger corporate client base. By contrast, the smaller broker is very dependent upon commission,” the submission says. AUB Group Chairman David Clarke says the financial services revelations at the royal commission have shocked all those with even a passing interest in the topic. “To date there have been no adverse findings in relation to general insurance brokers, and that is something that we should acknowledge as a positive outcome,” he told the group’s annual general meeting last month. “However, part of the way insurance brokers are remunerated is through commission, and although it is too early to predict, commission payments in any part of financial services may be considered inappropriate by the Commissioner.” The group’s brokers have been over many years moving to at least in part being remunerated on a fee basis and the trend may quicken, he said. NIBA says the role of insurance brokers is often not well understood, and in the past the sector has regularly risked being swept up in catch-all financial services regulatory responses that threaten “solutions” to problems that don’t exist. Brokers successfully fought the battle over commissions when the FOFA reforms were introduced and have achieved separate treatment to financial advisers in a range of areas. Whether the sector can convince the royal commission that its separate status should continue on remuneration remains to be seen. NIBA says any recommendation that the commissions ban be extended to general insurance could not reasonably be justified and brokers should not be “unfairly tarred” with the same brush as others in the financial services industry. “Analysis would have to be done to prove that the proposed change will be of benefit, not detriment, to the community. Nobody 0 has done that analysis,” Mr Booth says.

December 2018/January 2019


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From basics to ‘everyday brilliance’ QBE sets out its core priorities as it takes the next steps towards transformation By John Deex

Managing change: Vivek Bhatia

14 insuranceNEWS

December 2018/January 2019


THE PHONE CALLS TO INSURANCE NEWS’ offices started almost before the desks at QBE had been cleared. More than 50 QBE managers had been laid off, sources said as the rumour mill kicked into overdrive. But there was a bigger story than simply who would stay and who would go. QBE was unveiling the next stage of its strategic framework and transformation plan, under which it aims to become stronger, simpler and closer to the customer. The insurer had already announced a new divisional structure, with its Asia-Pacific division set to be carved up from January 1. The local division will incorporate the Pacific and India, with Australia and New Zealand Chief Executive Vivek Bhatia taking on the larger role of Chief Executive Australia-Pacific. Now the insurer has restructured its local operations and set out its “2021 ambition”, which includes three clear goals: to be number one in commercial lines; build strength in personal lines; and be innovative in SME. That’s a big call, but Mr Bhatia is following a carefully prepared plan. In an interview the day after the departure of a slew of senior staff, he told Insurance News that “structure follows strategy”, and the staffing changes are part of a drive to make QBE easier to do business with. He thanks his divisional predecessor Pat Regan – now QBE’s Group Chief Executive – for kicking off the “Brilliant Basics” framework that has been key to the insurer’s transformation program. Mr Bhatia left New South Wales state insurer icare to re-join QBE at the start of the year, having had a previous stint from 2003 to 2007. And he has used this year to build on the foundations Mr Regan put in place. “Over the past 10 months we have focused on delivering on the promise that we have made to the market and ensuring that we can accelerate the Brilliant Basics foundations towards what we are calling ‘everyday brilliance’,” he says. “As part of that we wanted to sit back and refresh our strategy and our vision in terms of what it is we want to be known for as a business. “We want to bring deep insight and expertise to the table when we talk about insurance. We want to be an organisation that is easy to do business with. And we want to create shared value within a partnership mindset.

“That underpins and defines our strategy going forward. “Then it is about what areas you want to focus on, what product lines you want to double down on, what are the ones you want to grow selectively or sustainably, and what are the ones you want to protect and maintain from a market share perspective.” Mr Bhatia says he and his team have “taken the opportunity to sit back and reflect on all the lines of business and put forward what we believe are our bold moves and what is our core purpose for the next three years”. Consultation on such matters was carried out with QBE’s external partners – and brokers came back with a very clear message. “All of them said make sure that you’re easy to do business with and make sure that there is clarity in terms of us having a conversation with people who are empowered to make decisions,” Mr Bhatia says. “Our model and our changes are all geared towards that. It is really important for us to understand how we can serve the broker market better, so that they can serve the

“We sat down with them, and some decided to stay, while some decided to leave. At the end of the day we respect individual prerogatives. “As organisations change and the role scope or scale changes, we owe it to our people to let them make a decision for themselves. It’s our role as an employer to support them through that process, and do it in the most respectful and dignified way. “These people have significantly contributed to the organisation and I have a huge amount of respect for them.” As for the three priority areas, Mr Bhatia talks first about commercial lines. He says when he left QBE 11 years ago, it was “the pre-eminent choice in commercial lines”, but this is not necessarily the case any more. “I think that we have always been a toptwo player in the commercial lines space,” Mr Bhatia says. “But if I ask brokers they say QBE 10 years ago was distinctively, by a long distance, the number one choice in commercial lines. “Today we are part of a leaders’ pack. We are very proud of what we do and our partners like what we deliver for them, but we want to regain that pre-eminence. We want to make sure that we are again the number one choice in the markets that we play in.” Being straight with brokers about the insurer’s risk appetite and not “giving them the runaround” is crucial, Mr Bhatia says. “One of the key things we learned from the feedback was to make sure your appetite is clear – what you want to write, what you don’t want to write. “Make sure you are up front in communicating that to brokers so they are not second-guessing and finding out two weeks later that we don’t want to write it.” When Mr Bhatia talks about commercial lines, he means predominantly the mid-market. “From a top-end perspective we are not the number one player and we don’t aspire to be,” he says. But SME is vitally important, with innovation in that segment another of QBE’s key targets. Mr Bhatia says the company is “a top-two player” in SME, and is proud to be. “It is what we classify as our bread and butter product. We are very proud of the SME heritage that we have – SMEs are the heartland of the country.

“We wanted to sit back and refresh our strategy and our vision in terms of what it is we want to be known for as a business.”

customers better. That has been the underpinning principle. “We want to make sure that as an organisation we have the right people in the right roles in the right structure to be able to deliver the customer promise.” Hence QBE’s drive to simplify its local structures and remove duplication to deliver customer outcomes in the most efficient way. Inevitably, changes in direction involve the loss of experienced staff whose roles no longer match the organisation’s aspirations. Mr Bhatia says the valued staff affected by the change were treated with the utmost respect. “We gave them a choice about doing a different role in a different way, or the opportunity to leave to take the next step of their journey. insuranceNEWS

December 2018/January 2019

15


Vivek Bhatia on: BANNING COMMISSIONS: “I have no fixed view, as long as the customer receives value, and there is no compromise and no conflict. “When it comes to remuneration models, no matter what the construct is, what we need to avoid is conflict. “Brokers act on behalf of the client, and if they act in the best interest of the client then the remuneration should not play a part. “Most people I work with on a daily basis will stand and put a very strong point of view on behalf of the client, no matter whether there has been a commission paid or a fee. I don’t see conflict in our model.”

“Why is that important? Because that makes it sustainable. Otherwise you see organisations chop and change, pull out of things, and then create false demand/ supply gaps. “If we focus on making sure that we are charging the right price for the right risk and the exposures that come with it then we will create a more sustainable market and get away from the swings that we have seen in the past. “You know that cycles will come and go. However, we hope that they are not sharp and we are not trying to do a race to the bottom, which has been the case in the last few years.”

INDUSTRY INEQUALITY: “I take a personal view on this. I have a daughter and a son and I want them to have equal opportunity, not one more and one less. “The only way that we do that is if we make a really strong concerted effort to take out the inequity that has been there in the past. So we have to, with resolute focus and drive, work towards addressing that. “It won’t happen on its own. I am of the view that it needs to be a core priority of leaders. “Pat [Regan] is doing that at the top of our organisation, having joined the Male Champions of Change. “Rome wasn’t built in a day, and this is not going to happen overnight. But I think we absolutely need to persevere and not take our eyes off it. We must only feel good about it when there is no pay inequity and there is equal opportunity for everybody.”

INNOVATION: “Over the last couple of years, we have invested in five insurtechs through our QBE Ventures fund. “I have sat on committees where we have looked at different start-ups, and spent a week in Silicon Valley earlier in the year meeting a couple of dozen start-ups in different areas from pricing, to cyber security, to claims to analytics, to drone technology. “We have gone from having zero data scientists to having 25, just locally, ensuring we are looking at not just our own data but also what secondary and tertiary sources of data are there that we can bring in to help assess risk properly. “On the claims side we are focusing on analytics in terms of fraud but also in terms of triaging and helping people get the support up front and getting our supply chain efficient. “There has been a huge amount of focus around us being innovative in investing in and partnering with these start-ups. “It has been a very interesting learning experience for us because they work differently to large organisations. “Historically QBE was probably not considered an organisation that does a huge amount of innovation but I think once you open the hood and look into what is happening with QBE you will find a different look, and an organisation that probably doesn’t talk too much about innovation but is doing a whole raft of things to change the way we operate and how we can deliver services better.”

THE MARKET: “In commercial property, commercial motor, strata, and some other areas, we have had a soft market for too long and we have veered away from technical rate which means we are not able to deliver a satisfactory return on capital in those portfolios. “Over the past 18 months or so there has been some correction in that. There is still further correction required in some of those classes of business. “Rates need to harden more for us to get to a space where those particular portfolios are actually delivering a satisfactory return.

16

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December 2018/January 2019

“We want to make sure that we are continuously challenging ourselves to innovate so we are creating better solutions for them through better products, more simple coverages, sharper pricing, and better delivery underpinned by great claims capability.” Then there is personal lines, which isn’t traditional QBE territory. In September the company flagged its ambition to grow this side of the business when it announced the appointment of former Youi chief executive Frank Costigan. While QBE traditionally dominates the commercial space, in personal lines it is dwarfed by the giants of IAG and Suncorp. But Mr Bhatia says it is a market leader in compulsory third party (CTP), priding itself on innovation in this area. It also has close to a 10% market share in home insurance, where “we are a bigger player than most people give us credit for”. QBE also has some direct personal lines offerings, making up about 5% of its overall premium, but growing personal lines does not necessarily mean growing direct. Mr Bhatia says the insurer considers itself a partnership-based organisation, and this applies to personal lines as well as commercial. So distribution through brokers and banking partners is key. “As an organisation we do most of our business through a partner and that focus has been very clear for us,” he says. “Our focus is going to be growing personal lines – but not necessarily growing personal lines direct. “We think that there is a lot of opportunity for us to really partner with brokers and financial institutions and affinity groups to be able to deliver easy-to-understand personal lines offerings at the right price, with a fantastic claims service.” One question that has to be asked: are brokers really all that interested in personal lines? “We have worked with brokers big and small to be able to take personal lines to them,” Mr Bhatia says. “If we are easy to do business with and we are efficient, then it is not that much work for a broker to place [personal lines] as a sideline business. “There are people who are very happy to use a broker to place personal lines along with their commercial business. “When it comes to bank distribution, we are in the top end of that market.” Whether it’s personal or commercial lines, Mr Bhatia says QBE has a laser-like focus on claims performance.


QBE’s DNA VIVEK BHATIA HAS ANOTHER AMBITION – to make the insurer the industry’s “employer of choice”. “The only way we are going to be distinctive and the number one is if we create an environment within our organisation where people have the ability to do their best,” he tells Insurance News. “We need to ensure that we invest in our people and give them the opportunity to be able to grow. “We want to become the employer of choice in the market. It is a core personal aim of mine.” Earlier this year the QBE DNA initiative was introduced, based around seven “cultural” hashtags: We are customer-centred – we put ourselves in our customers’ shoes #Outsi​deIn We are technical experts – we are expert at what we do #KnowYourStuff We are diverse – we value different points of view and experiences #MixItUp We are fast-paced – we have a sense of urgency #RampItUp We are courageous – we speak openly and have the support to do so #DoTheRightThing We are accountable – we deliver on our promises #OwnItNow

18

We are a team – we are at our best when we are working together and building on our strengths #Together “It has been extremely well received,” Mr Bhatia says. “It has a huge amount of resonance, not just with the younger people but all age groups.” Another source of pride was a recent advertising campaign aimed at reducing road accidents in South Australia. “We entered the SA [CTP] market, which has the highest accident rate, a couple of years ago,” Mr Bhatia says. “This year we worked with the State Government on a road safety campaign. That has been close to my heart. “We worked with schoolkids to create a TV campaign which is a bit of a tearjerker. We asked all of the school students to go to their parents and write a pledge about being safe on the roads – no phones, keeping a safe distance. “It really hit home. It’s quite fascinating for us – it’s the pointy end of what we call social responsibility. “As an insurer we take that extremely seriously and we believe we have a role to play in keeping people safe.” The campaign can be viewed at https://www.qbe.com/au/besafe

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December 2018/January 2019

Delivering on the promise is what insurance is all about, he says, and insurers cannot afford to let people down. “When we sell insurance we are not selling something that is tangible, that we walk away with and feel very happy about – like an iPhone or a laptop or a car. “But when there is a claim we want to make sure that the organisation is rock solid and fulfils its promise. That is what insurance is – a promise to be there. “Claims capability is something we are hugely focused on investing in, in terms of how we make sure that we are the undisputed number one in claims. That is non-negotiable.” What is good for the customer is good for the company, he says. They cannot be at cross-purposes. In fact, if companies are not delivering value to the customer, they won’t exist for long. “It is not sustainable,” he says. “We come good when it comes to the claim. “We have about 1000 people onshore and a few-hundred offshore dedicated to claims, and when you go and sit among them, all they want to do is help the customer, whether that’s the broker or the end client. “People who work in claims are trying their best to help the person on the other end, not saying, ‘How do I pay this person less or how do I deny the claim?’ That is not a mindset that our people have.” Mr Bhatia says his time at icare was “humbling” and a great learning experience when it comes to empathising with clients. “We were dealing with people who had an injury and ensuring that we had the utmost empathy with how we dealt with it. “That level of ‘groundedness’, and that strong empathetic way of customer service delivery, is something I hold very close to my heart. “When we speak to our people at QBE, inherently that is there. “Sometimes we put a lot of processes in place that prevent people from doing what they want to do, which is be there for the customer. “My job is to make sure we can unshackle some of those things. Take out inefficiencies, duplication, remove confusion and give clarity and empowerment for them to do what they really want to do.” QBE has been through a period of remediation, at home and abroad, and Mr Bhatia says that phase is now over – QBE is looking to the future in “optimisation mode”. With the foundations in place, he believes “everyday brilliance” is just around 0 the corner.


Still swinging The industry put up some good numbers in a ‘bounce-back’ financial year, analysts say By Andy Swales

LEADING ANALYSTS HAVE conducted the Australian insurance industry’s annual health check, and the prognosis is pretty good. There are – as ever – threats on the horizon, not least possible regulatory changes following the Hayne royal commission. But, as KPMG Insurance Partner Scott Guse notes, the 2017/18 financial year produced a “very creditable showing” on profit. “Favourable net perils experience and higher than expected reserve releases contributed to this result, which reinforces our view that the sector is on a cyclical upswing.” Finity describes last financial year as a “bounce-back” period and predicts the market will “continue to harden and profitability for the industry is estimated to remain sound”. The KPMG General Insurance Industry Review shows industry profits gained 4% to $5.01 billion, continuing an upward trend, albeit slowing following a 25% increase the previous year. The news on gross written premium was – at first glance – less impressive: “headline” GWP fell 1% to $42.74 billion. However, this was largely driven by the “one-off impact of regulatory changes to NSW compulsory third party (CTP) insurance, which became effec20

tive on December 1 2017. This reform has resulted in lower premiums for customers and an expected improvement to the claims experience, but it is also expected to lead to reduced margins for the insurers, combined with reduced volatility.” The report notes GWP was up in other consumer and commercial classes, “driven primarily by rate increases, as the industry continues with repricing for claims cost inflation”. KPMG’s key ratios tell a tale of continued improvement. The all-important profit margin was up to 16.2% last financial year from 16% the previous year – marking a third year of growth since the slump to 11.3% in 2014/15. This is built on continued improvement in the loss ratio (down 0.8 points to 62.7%) and expense ratio (down 0.2 points to 24.6%). “The cost discipline of insurers is continuing,” KPMG says. “This [expense ratio] improvement demonstrates the continued move to automation, outsourcing and more ‘cost-effective’ distribution channels, and comes despite a number of insurers continuing to invest to deliver future costs savings.” The report notes action in this area from the industry’s major players. “Suncorp reported net benefits of $40 million from its business improvement proinsuranceNEWS

On trend KPMG’S REPORT IDENTIFIES 10 EMERGING TRENDS FOR THE insurance industry, with technology advances accounting for half. “Technological advances globally continue at pace,” the report says. “However, to date, we are seeing varied levels of progress by the established Australian insurers. “The use of technology is critical for insurers, not only to enhance digital capabilities and to automate businesses, but also to improve product offerings and enhance the customer experience.” It warns the industry can “no longer do ‘more of the same’ and expect to succeed. Customers, investors and employees demand innovation from insurance organisations.” It urges action in digitalisation, the insurtech space, blockchain, artificial intelligence and the Internet of Things. The other five notable trends are climate change, class actions and their effect on directors’ and officers’ cover, the IFRS 17 accounting standard, royal commission fallout and outsourcing.

2018 highlights The positives

The negatives

Net earned premium

Gross written premium

Underwriting result

Capital ratio

Insurance profit

Investment income

Insurance margin Loss ratio Expense ratio Source: KPMG

December 2018/January 2019


“Rate increases, particularly in private motor, assisted the top line, while benign weather and low cat activity improved the claims line for a number of classes.”

2018 results snapshot Gross written premium 2017/18 2016/17 2015/16

$42,746m $42,971m $40,898m

Insurance profit

Loss ratio

$5,010m $4,835m $3,889m

62.7% 63.5% 66.0%

Expense ratio

24.6% 24.8% 26.2%

Capital ratio

x1.82 x1.85 x1.74

Source: KPMG

gram, focused on digitalising customer communications and interactions, optimising sales and service channels, and redesigning claims supply chain processes to drive efficiencies. “IAG has reported a broadly cost-neutral impact [last] year from its optimisation program, with meaningful benefits expected to emerge in future periods.” On the investments side, KPMG says low interest rates continue to affect results. “Investment income allocated to insurance funds was $1.12 billion, down from $1.32 billion in 2016/17 on the back of the continued depressed interest rate environment and conservative investment portfolios. With these low returns, some insurers have looked to diversify investment portfolios.” However, Finity’s Optima report on 2017/18 notes a “small uplift” in investment

returns, albeit from a “very low level”. It says the industry’s return on equity last financial year hit “that magic 15% target for the first time since 2014”. Finity Principal Andy Cohen says a host of factors aided the result. “Rate increases, particularly in private motor, assisted the top line, while benign weather and low cat activity improved the claims line for a number of classes. “In private motor, which accounts for one-quarter of industry net premium, insurers seem to have put the brakes on the strong claims inflation seen in recent years. Coupled with the rate increases achieved, this class has almost returned to target profitability. “Last but not least, prior-year reserve releases in long-tail classes were yet again very strong, with CTP alone insuranceNEWS

Down the line FINITY’S OPTIMA REPORT PROVIDES A BREAKDOWN OF performance and prospects across key personal and commercial business lines. The standout – and not in a good way – is directors’ and officers’ cover. It recorded 20% premium growth last year and similar is expected this year, but that’s not enough to drag the business into profit. Finity says June 30 renewals saw rate rises of 10-400%, but several more years of this will be required unless there is an improvement in the claims environment. The surge in class actions, given impetuous by the royal commission, suggests this is unlikely. In private motor and householders, premium growth is expected to moderate this year (from 7% and 5% respectively to 4% in both), leaving them “at or just above target” profitability, which means in the 15-20% ROE range. Claims inflation stemming from “a number of sources” is identified as the key risk in motor, while affordability issues and weather impacts are flagged for home insurers. CTP premium is expected to be flat this year, having fallen 15% last year, with profitability good (20%-plus ROE), albeit due to reserve releases. Commercial motor is expected to move from loss-making to poor profitability (0-5% ROE), and is tipped to grow longer term as the sharing economy moves more vehicles into the commercial space. Commercial property is expected to remain loss-making despite two years of rate increases.

December 2018/January 2019

21


Insurance companies’ share price performance since July 2011 240 220 200 180 160 140 120 100 80 60 40 20

QBE

IAG

SUN

GMA

3-Sep-18

3-May-18

3-Jan-18

3-Sep-17

3-May-17

3-Jan-17

3-Sep-16

3-May-16

3-Jan-16

3-Sep-15

3-May-15

3-Jan-15

3-Sep-14

3-May-14

3-Jan-14

3-Sep-13

3-May-13

3-Jan-13

3-Sep-12

3-May-12

3-Jan-12

3-Sep-11

3-May-11

3-Jan-11

0

ASX 200

Source: KPMG analysis

contributing another $1 billion to the bottom line.” Finity puts the insurance margin for 2017/18 at 16%, up two points on its 2016/17 figure and bringing the industry to target for the first time in four years. But it warns underlying profitability is “significantly lower”, with the overall result lifted by the reserve releases, good weather and a favourable yield curve. Finity puts the loss ratio at 65%, down 2.5 points on 2016/17, mainly due to benign weather, with Insurance Council of Australia-declared catastrophe losses at $600 million, down from $2.9 billion the previous year, when Cyclone Debbie hit. The Optima report says industry premium growth was about 4%, similar to the previous year despite the impact of New South Wales CTP reforms, consolidating a “rebound from 22

the low-growth environment of the two preceding years”. Both KPMG and Finity offer relatively upbeat forecasts for the year ahead, albeit with a warning of possible headwinds. “Excluding the impact of regulatory changes in NSW CTP, industry GWP has grown in 2017/18 which is largely ratedriven,” KPMG says. “These rate rises are expected to continue [this year] across both personal and commercial classes. This hardening market is in line with our predictions 12 months ago, and while it has contributed to an improved result this year, we continue to see the industry achieving returns below the results achieved in 2012, 2013 and 2014, so there is still a way to go.” KPMG flags another challenging year on the regulatory front. “Significant [royal commission] findings have already insuranceNEWS

been reported in relation to other industries, which will apply to the insurance sector, and [the year] looks set to herald ongoing regulatory challenges,” Mr Guse says. “But it is not just the royal commission – insurers must also continue to embed operational changes arising from changes to statutory schemes including NSW CTP and NSW workers’ compensation, while also focusing on the implementation of the long-awaited global accounting standard IFRS 17.” Finity says price increases pushed through in personal and commercial short-tail lines lifted profits last year and bode well for the year ahead. It sees potential for further “modest” margin gains, driven by hardening rates in commercial, consolidation of profitability in home and personal motor, and further expense improvements.

December 2018/January 2019

Profitability is expected to remain sound “albeit a little below target – with margins and ROEs in the 10-15% range for the next three years”. “It’s not all plain sailing,” Mr Cohen says. “Interestingly, while we have seen rate increases come through in commercial lines, the combined operating ratio… for this group of classes has not moved since [2016/17] and remains stubbornly stuck at 95%. Additional rate increases are needed in a number of commercial lines classes if ROE targets are to be met. “Although the outlook for overall industry profitability is good, headwinds to watch out for are numerous and include reduced scope for reserve releases, regulatory impacts from the royal commission, the return of strong claims inflation and 0 class actions.”


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The top 5 issues for Australian insurance The royal commission has thrown up challenges for industry leaders, while climate change, technology and people issues are also high on the agenda Insurance News asked some insurance leaders to list the major issues they’re facing and how they are influencing the industry.

1

DOING THE RIGHT THING/ RESTORING TRUST

Mark Searles, Chief Executive, AUB Group: This isn’t an “issue” so much as a fundamental licence to operate, but – like many others – we’ve been following the royal commission closely and speculating as to what will come out of it. One thing is very clear, and that’s the need for the whole industry to remember its primary obligation: to serve clients. That’s certainly what we do as brokers – acting explicitly in the interests of our clients and doing the right thing by them. We expect the industry as a whole to face increased scrutiny, and we really welcome that. Mark Lingafelter, President, Berkshire Hathaway Specialty Insurance (BHSI) Australasia: For BHSI it is particularly important as our business scales up that we continue to put the customer first and be prepared to go the extra mile. This was a great feature of BHSI when the business was initially started, and in a crowded market with too much supply it was a necessity. After almost four years BHSI has been fortunate to grow and scale, and is seeing an increased flow of opportunities and a growing number of customers. However, it is more important than ever that we maintain our “day one” commitment to the customer. While current market conditions provide opportunities, we realise that we need to show up with the same humility and commitment to outstanding service and claims expertise in order to sustain our customers and brokers’ support over the long run. We are working hard to develop an offering where brokers and customers “want” to do business with BHSI, right through the different market cycles. 24

Back on track: the industry hopes to repair trust

Mark Milliner, Chief Executive Australia, IAG: Maintaining and building customer and community trust will continue to be a priority for the whole financial services sector, including general insurance, over the next year and beyond. IAG believes the royal commission is an important opportunity for us to listen, learn and to ensure we continue to do the right thing by our customers and all the people who count on us. Pat Regan, Group Chief Executive, QBE: In a rapidly changing world, we must quickly respond to our customers’ current and emerging needs against the backdrop of increased regulatory scrutiny and heightened shareholder and community expectations. insuranceNEWS

December 2018/January 2019

These are issues for the entire sector, in Australia and globally, and they are a significant focus for QBE as we seek to deliver a consistent level of outstanding service to our customers and partners. Gary Dransfield, Chief Executive Insurance, Suncorp: The major focus of the past 12 months has been the royal commission, which has shone a light on poor service and governance that has tarnished trust in insurance. If we want to rebuild community trust, I think as an industry we need to also talk about value. The insurance industry needs to be clear on the value we deliver for customers, how we are doing this and what this means for the wider community.


Industry regulation: Parliament could play a key role

2

REGULATORY ACTION

Richard Enthoven, Chief Executive of Hollard Insurance and President of the Insurance Council of Australia: There are a number of proposed regulatory changes under consideration by various departments and regulatory agencies. Any one of these will have a material impact on the industry. Absorbing a large number of these at the same time will be extremely complex. Such changes also enable us to continually refine process, and better respond to dialogue with our customers, so present inherent opportunities for the industry as well. Rob Whelan, Chief Executive, Insurance Council of Australia: The general insurance industry is already one of the most regulated in Australia, through the Insurance Contracts Act, Corporations Act, consumer laws, the oversight of the Australian Prudential Regulation Authority, Australian Securities and Investments Commission (ASIC) and Australian Competition and Consumer Commission and various state and territory regulatory and enforcement bodies, and through self-regulation. The financial services royal commission has put regulatory activity under scrutiny, and the regulatory focus on negotiated outcomes (due in part to resourcing issues) has been strongly criticised. It’s likely regulation in the post-royal commission environment will become more muscular, with a greater focus on formal sanctions and prosecutions. The Insurance Council is focused on sensible reforms and is committed to work

ing with regulators to help ensure outcomes for consumers are balanced by the industry’s capacity to continue to offer risk-based pricing in a competitive market, including maintaining direct and indirect sales channels that are appropriately remunerated. Dallas Booth, Chief Executive, National Insurance Brokers Association (NIBA): Given the fact both sides of politics have undertaken to implement the royal commission’s recommendations, for brokers this will include discussion of what true professionalism looks like, and who is responsible for monitoring and enforcement of professional conduct across the industry. The role of the Insurance Brokers Code of Practice and the oversight of professional standards by NIBA will be important topics in this discussion. Lyndon Turner, Chief Executive of NM Insurance and Chairman of the Underwriting Agencies Council: The question is how our regulators will move forward following the royal commission and how different business models, distribution and products and services will be shaped once direction is set. Mark Lingafelter: The changing regulatory environment will remain an important point of focus for our industry. Insurers will prepare to meet the new regulatory standards and community expectations that emerge following the royal commission. For carriers that provide specialty liability coverages to financial services customers, changes to the regulatory environment and changing enforcement behaviours would create a potential increase in the exposure to loss. insuranceNEWS

December 2018/January 2019

Carriers will need to thoughtfully review customers’ exposure to loss under the new regulatory environment and evolve their approach to risk control and risk underwriting. Robert Kelly, Managing Director and Chief Executive, Steadfast: The royal commission and ASIC’s recent proposal to ban commissions on all general insurance products has attracted significant media attention. But there is no evidence of any significant or systemic misconduct as it applies to general insurance brokers, who have a long history with regulation and compliance dating back to 1986. If a systemic issue doesn’t exist, then arguably the existing regulatory and self-regulatory regimes provide appropriate protection to the consumer when they deal with an insurance broker. The legislation dictates in a clear and unequivocal way that insurance brokers must act in the best interests of their clients. Looking at many other jurisdictions around the world you will see that a ban on commissions to insurance brokers hasn’t been required and the system of insurer-paid commissions has not created conflicts. Such a ban would result in Australia being inconsistent with most equivalent jurisdictions. Gary Dransfield: There are several potential regulatory changes that will have a significant impact on how the general insurance industry operates. From unfair contract terms, product design and distribution obligations to removing the exemption on claims handling, there is little doubt there will be change. But what and when is the question. 25


3

CLIMATE CHANGE AND MITIGATION

Mark Milliner: Insurers around the world understand the risks climate change poses, and it’s important we do everything we can to help protect our customers and their communities. At IAG it’s a critical way in which we can fulfil our purpose to “make your world a safer place”. In October we launched our expanded Climate Change Action Plan, which includes a scorecard to track our progress and assigns accountabilities to members of the leadership team. Helping our customers and communities prepare for and reduce the economic and social impacts of natural disasters must continue to be a key focus for the industry. Pat Regan: As well as the physical risks and opportunities associated with climate change, there are a range of potential transition risks associated with the global shift towards a lower‑carbon economy. At QBE we are implementing the TCFD [Taskforce on Climate-related Financial Disclosures] recommendations, which establish a strong and consistent framework for improving climate-related risk management and disclosure. In 2019 we will also continue to collaborate with the global insurance industry through the United Nations

Climate concern: severe flooding could become more common

Environment Program’s insurance industry TCFD pilot group. Richard Enthoven: Climate change is real, and all the credible science suggests the impacts on weather patterns are likely to be more extreme than previously thought. The historical data on which we base our pricing will increasingly fail to usefully predict future losses. Gary Dransfield: As we head into another disaster season, we continue to face the chal-

lenge of helping communities in vulnerable regions. Climate change impacts will see this disaster risk increase for future generations, which will in turn put upward pressure on the cost of insurance. We know mitigation activities are the best way for people to protect themselves, their loved ones and their homes against cyclones. This is an important issue for Suncorp, and we will continue to work with customers, government and the industry to reduce the destruction and heartache caused by natural disasters.

Diverse workforce: insurance can’t remain male, pale and stale

4

PEOPLE ISSUES

Richard Enthoven: To adequately meet the evolving challenges our industry faces and respond to its inherent opportunities, we need to attract and retain a diverse talent pool that reflects our customers and intimately understands their challenges and innovatively responds to their changing needs. Pat Regan: As an industry we must do more on the inclusion and diversity front and we need to do a better job of communicating the opportunities a career in the insurance sector can offer, especially if we are to compete with other industries that are sometimes considered more “cutting-edge”. 26

That includes attracting technology-related skills, for which there is huge competition everywhere. Robert Kelly: Insurance should be thought of as the DNA of a business, because it helps to protect it and minimise its exposure to risk. It should hold the same weight in terms of a career path as that of finance, law and other professional services. To drive the industry forward we need to be attracting the best of the talent pool. Insurance is a great career path, one that supports Australian growth and prosperity. Although the insurance industry has made significant progress to improve the gender imbalance in the workforce, more work still needs to be done to address equalinsuranceNEWS

December 2018/January 2019

ity at the highest levels in the industry. It’s important that the industry doesn’t just pay lip service to the diversity debate. At Steadfast Group we’re focused on building a diverse workplace, with more than 59% of our employees being female, including 40% in management positions. The difference this has made to our own organisation is huge. Lyndon Turner: A lot of work has been done, but following the royal commission we need to focus our energy, collectively, to demonstrate how we are a vital part of the economy and provide fantastic opportunities to quality people across the region. As many will attest, the pub test needs improving to ensure insurance is a path of choice professionally.


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TECHNOLOGY

Pat Regan: Technology is playing an increasingly important role in how the general insurance industry operates. At QBE, we see enormous opportunity in technology solutions to deliver better customer service. Digitisation and machine learning help us make better business decisions for our customers and our shareholders, and this will be become increasingly important in the future. Through our QBE Ventures arm, we will continue to look for targeted investment opportunities with start-ups that provide QBE with access to technically advanced and industry-changing technology solutions. Mark Searles: As a founding partner of Insurtech Australia, we strongly believe new technology offers enormous opportunity to better serve clients and facilitate businessclient interaction. We’re very active in this space – recently our team have been gathering expertise from offshore. While our clear strategic focus means we never want to be a tech

company, we certainly want to be a great tech enabler. Richard Enthoven: Autonomous vehicles will represent the biggest change to the insurance industry in our lifetime. Close to 50% of insurance industry revenue comes from motor insurance, and this is likely to look very different in a decade. Getting smart on artificial intelligence-related technologies and trends around automation, deep learning and external data ecosystems is also key. These will increasingly impact all facets of distribution, underwriting and pricing, and claims, and we need to be thinking a step ahead. Mark Lingafelter: Whether navigating the rise of fintech or finding better ways to service and support our customers and brokers, the ongoing transition to digital is driving change and creating new opportunities. Dallas Booth: Artificial intelligence, implementation of the New Payments Platform by the Australian banks, the potential entry of blockchain and ongoing developments in fintech and insurtech mean developments in technology will continue at a pace many

will not be able to cope with. Those who are alert, flexible and able to make quick changes in the market environment will do well; others are likely to struggle. Mark Milliner: Customers continue to change the way they want to interact and transact with insurers. They are increasingly demanding realtime access and response through digital channels, and mobile and data applications. There is also a growing expectation that services will be personalised to the customer to recognise their unique needs. These changes are mainly driven by the Millennials, who are becoming a more influential customer group. As a result, there’s a greater need to invest in digital capability, and that’s important for us and our customers. Lyndon Turner: How will insurtech, blockchain and other vehicles of technology, including large tech companies, change the way we distribute our products and services? Small and large entities in the market will be watching closely to maximise their opportunities, and whether diving in now or 0 a bit later, it’s the best strategic call.

INSURANCE NEWS THANKS THESE industry leaders for sharing their insights. While these were the most commonly listed issues, the leaders also covered a wide range of other subjects that we don’t have room to include. You can read their full submissions here http://www.insurancenews.com. au/local/industry-leaders-highlighttop-issues-for-2019

Automation: driverless vehicles are part of the technological revolution

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Our annual look at the people who most stand to influence the insurance industry’s direction through 2019

AFTER TOO MANY YEARS OF LOW EARNINGS and tough economic conditions, the Australian general insurance industry had every right to hope that, barring massive catastrophe losses, 2018 would be a better year. And so it proved – financially, at least. At the end of the year we are seeing strong signs of a sustained recovery, with the local industry leading the world in raising premiums and profits. Confidence is returning to the market, albeit with insurers remaining skittish about some risks. With all these positive signs, it’s remarkable that we will enter 2019 in a state of apprehension and uncertainty. But then, who could have foreseen the impact of the Hayne royal commission? It’s hard to focus on the positive aspects of a more stable and profitable business environment when no one knows what’s coming next from an inquisition that has exposed weak – in some cases completely rotten or even nonexistent – ethical underpinnings in the financial services sector’s foundations. While general insurance has mostly emerged from the royal commission’s inquiry phases with some fixable weaknesses exposed, there’s a weary acceptance that the general insurance industry will be lumped in with its financial services cousins when it comes to fixing the mess. So uncertainty is the overarching emotion marking the general insurance industry’s entry into 2019. We await the royal commission’s findings and recommendations with interest. We suspect it will call for more powers for the regulators to apply the muscle they already have, rather than a rash of corrective legislation. It’s what may arise from some of the side issues – brokers’ exposure to “conflicted remuneration” and the value of self-regulation and codes of practice, for example – that we just can’t predict. Adding to the uncertainty is what the legislators might do with the royal commission’s

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findings. A federal election must be held before November 2, and probably will be called much earlier. Whatever the date, the experts are predicting the Labor Party will win government with a strong mandate to get on with things after years of political dithering. We can expect the ALP to emphasise the gulf between its attitude and that of the Coalition, which vigorously resisted calls for the royal commission. With the exception of general insurance brokers, the activities and practices of intermediaries across financial services came in for considerable scrutiny. Where brokers may end up in all this is likely to become clearer over the next year. For the immediate future, the need for greater levels of professionalism and knowledge in broking will be – must be! – a dominant topic. This is the environment in which Insurance News presents its annual list of the Top 20 most influential individuals and groups in Australian general insurance. There are some familiar faces and some new ones in this year’s list. There is no science involved in the compiling of this list – it’s our assessment of who’s who, and we don’t even expect readers to agree with us. Nor do we provide awards for making the Top 20. It’s not a beauty contest, nor a measurement of intelligence, leadership or performance; it’s simply a way of naming the people who we think are having – and will have – the most impact on the industry. And we hope this is the last year that we’ll have a Top 20 influencers list with a distinct lack of women. There are female leaders in and related to the insurance industry who we’d love to see on this list – our two largest insurers are chaired by amazing leaders in Christine McLoughlin and Elizabeth Bryan, for example – but there are not yet women in the positions that steer the overall industry’s strategic direction. That day is rapidly approaching, however.

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Wolter Peters/Fairfax Syndication

By Terry McMullan


James Shipton, Chairman, the Australian Securities and Investments Commission: The cover of Insurance News magazine in October 2018 said it all – James Shipton, ASIC’s new Chairman, is on a crusade to restore trust in Australia’s severely dented financial services system. Since taking the role in February he has made it clear his heavily criticised regulatory body needs more money and resources to bring recalcitrants to heel and guide us into a future where consumers can deal with financial services people and their companies without being ripped off. Expect a tougher regulator that’s less inclined to consult and compromise and more inclined to punish through court action and monster financial penalties.

New ASIC Chairman James Shipton wants to restore a missing word

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June/July 2018

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The disruptors/insurtech: One thing that has gone unnoticed amid the industry’s financial success and the royal commission’s naming and shaming has been the continued rise of the so-called disruptors, the technologists who are seeking new ways to do old insurance things. Several years ago, we thought the disruptors would be making a massive impact on the industry by now. Instead, many have morphed into joint venturers with the established insurers, which are themselves taking on new shapes to adapt to the possibilities insurtech is throwing up. Some developers are close to perfecting breakthrough systems that simplify processes and make insurance more accessible. Whether insurers – and regulators – are ready to open up to revolutionary ideas that could change products and sales approaches is the next big question.

Peter Harmer, Managing Director and Chief Executive, IAG: Harmer has been running IAG for three years, and the way he has gradually changed the shape of the insurance behemoth is now more obvious. He was one of the first to see the coming insurtech wave and warn of the changes it would bring. While the talk at the top is all about reshaping IAG into a nimble and consumer-savvy supplier of responsive insurance products, the real name of the game remains making the group fit for purpose into the future and as profitable as possible right now.

The Hon Kenneth Hayne, Royal Commissioner into Misconduct in the Banking, Superannuation and Financial Services Industry: For the companies exposed to Hayne’s royal commission hearings, this inquiry – focused on the banks, but sweeping up general insurance in its wake – has been at times more like the Spanish Inquisition. Will he recommend ditching self-regulation in favour of tougher laws? Hayne has already made it clear he’s far more interested in seeing regulation as the key. How he frames his report, due in February, will be important to the way general insurance relates to its customers in the future.

Michael Cameron, Managing Director and Chief Executive, Suncorp: Well connected in business and politics, Cameron has made his mark at Suncorp over the past four years via a restructure intended to make the organisation more customer-centric, the sale of (apparently) non-core businesses such as its life insurance operation and the establishment of an ambitious marketing strategy. As one of the two insurance giants, Brisbane-based Suncorp under Cameron continues to play a big role in the industry. 32

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Mark Milliner, Chief Executive Australia, IAG: As the IAG mover to Peter Harmer’s shaker, Milliner’s role is to get the group’s major operating division (the retreat from Asia is almost complete and Chief Financial Officer Nick Hawkins looks after New Zealand) moving at a decent clip towards Harmer’s image of a lean, efficient business with innovative products flowing into the market and consumers tied ever more tightly to it. That’s not easy in a group made up of disparate cultures and legacy systems – some of which don’t talk to each other. But Milliner is on to it, and if anyone can kick Harmer’s goals, he can.

Pat Regan, Group Chief Executive, QBE: It’s now pretty easy to see why QBE spent $8.5 million in 2014 to sign Regan from UK insurer Aviva. Since taking over at the start of this year from John Neal (now Chief Executive at Lloyd’s), Regan has moved swiftly to restore the global insurer’s fortunes and investor support. Starting with a sobering $1.2 billion after-tax loss for 2017, he has restructured his management team and brought in new blood, sold assets that didn’t perform, made it clear he is intent on building a stronger international insurer, and generally persuaded the group’s critics that QBE is getting back on track. Not bad for the first year. 2019 should be even more interesting.

Gary Dransfield, Chief Executive Insurance, Suncorp: Dransfield is the sort of modest and clear-thinking executive that company chiefs and boards cherish. From all descriptions he’s effective at selling the strategies from above and equipping his multitude of operating teams to get on with the job. While he’s a regular around industry events and always approachable, Dransfield’s public profile moved up a few notches in 2018 when he ably fielded a no-win confrontation at the Hayne royal commission over AAMI’s botched handling of a series of total replacement building claims.

Robert Kelly, Managing Director and Chief Executive, Steadfast: A highly experienced broker, fiercely competitive businessman and passionate champion for intermediaries in the insurance industry, Kelly continues to expand the listed company he grew from a small broker buying group. His profile and reputation are international, his strategic brain very acute and his thirst for acquisitions unquenched. Steadfast is now the biggest broker group by a country mile, and it can only get larger as the pace of generational change in brokerages steps up a gear. Expect to see Kelly on the battlements if the Hayne royal commission recommends regulatory tinkering with broker commissions.

Mark Searles, Managing Director and Chief Executive, AUB: When Searles moves out of AUB next October, he’ll be leaving behind a group completely changed from the Austbrokers operation he took command of in 2013. Today the AUB Group is a powerhouse that earns an increasingly significant chunk of its income from the risk management, financial advice and other solutions its broker networks in Australia and New Zealand can access to provide clients with true holistic services. It was a radical strategy that confused some of the more traditional brokers in his flock when he introduced it, but Searles persevered and led from the front. Hopefully this super-experienced manager won’t be completely lost to insurance. 34

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Clare O’Neil, Shadow Minister for Justice and Shadow Minister for Financial Services. Stuart Robert, Assistant Treasurer: When Prime Minister Scott Morrison named his ministry in August, Insurance News was the first to spot the absence of a financial services minister. A few days later Stuart Robert was named by a spokesman as the person responsible, although it’s hard to find anywhere that officially confirms he’s the one. Robert could well be the go-to person for legislation resulting from the Hayne royal commission’s recommendations. But it’s just as possible that job will fall to O’Neil, a youngish ALP performer and Harvard University alumnus who worked for McKinsey before politics. Start lobbying, people.

Richard Enthoven, Managing Director and Chief Executive of Hollard Insurance and President, Insurance Council of Australia: Hollard Australia is all Enthoven’s own work. His support for industry start-ups and a shrewd eye for market opportunities, coupled with a strong sense of business ethics, have been the catalyst behind Hollard’s success. You don’t build insurance companies with $1 billion in gross written premium without having the best people working with you, well-developed business links and a lot of personal smarts. Enthoven has all that and more, and as the industry faces uncertain regulatory times and a new federal government with different priorities, Enthoven’s steadying hand and intelligent approach to issues management will be valuable.

Vivek Bhatia, Chief Executive, QBE Australia Pacific: Bhatia had enjoyed a stellar insurance career before he was snapped up to become the chief of what is arguably QBE’s most important operating division. Since leaving a high-powered strategic role at QBE in 2007, he has been chief executive of Wesfarmers Insurance, a restructuring and transformation specialist at McKinsey and founding chief executive of the NSW Government’s combined insurance giant icare. Now he’s back at QBE, where he has already made his mark defining a more consumer-centric strategy that has involved a drastic reduction in middle managers and a new focus on returning to QBE’s local glory days, when it led the pack in commercial insurance sales.

Dallas Booth, Chief Executive, National Insurance Brokers Association: Rob Whelan, Chief Executive, Insurance Council of Australia:

Brokers don’t know how lucky they are having the intelligent and focused Booth leading their association. As the royal commission wash-up descends during the next year, they will turn to him for guidance and a sensible way forward over some issues that could threaten the way brokers earn their money. As a leader in the growing push to build brokers’ qualifications and enhance their education opportunities, Booth is a very valuable cog in the machine.

He’s nowhere near as high-profile as some of his business group counterparts, but over the years Whelan has developed a steady-as-she-goes approach that values background sweat over television news glory. Whelan’s appearance at the Hayne royal commission, where his defence of the industry’s code of practice was lucid and convincing – in stark contrast to his better-known counterpart from the Financial Services Council – showed he’s across the details.

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The reinsurers: Due to our exposure to natural disasters, Australian insurers are among the world’s biggest buyers of reinsurance. The major reinsurers such as Swiss Re and Munich Re maintain their dominance of the local industry thanks to established relationships forged with the major insurers over many years. But the easy availability of capital via pension funds – which have stuck in the market despite recovering global economic conditions – continues to make things difficult. Even as their Australian customers force up premiums, prolonged soft market conditions are seeing increased reinsurance competition emerging through such alternative instruments as insurance-linked securities. Things aren’t what they used to be, but the reinsurers maintain their local influence, with the Australian market a strategically vital place to be.

Leon d’Apice, Chief Executive, Ebix Australia: How long Ebix can remain as the dominant operator of transaction exchanges in Australia is open to question. Steadfast, for one, has invested tens of millions of dollars in developing not only its own exchange platform but also its own broking system. The other broker groups don’t see development of standalone transaction technology as a core ambition, especially while Ebix maintains a responsive and efficient system. After 10 years watching would-be competitors rise and (sometimes) fall, d’Apice remains at the helm of an operation that can dip into its international pot to add new services as and when they’re needed.

Lyndon Turner, Chairman, Underwriting Agencies Council, and Chief Executive, NM Insurance: Some international underwriting agencies operating in Australia have been subject to mergers over the past year or so. For the local agencies the market continues to be positive, with niche products continuing to attract brokers. The agencies are living up to their reputation for being more nimble and adaptive than the mainstream insurers, and they’re holding their own against some bigger competitors. Whether they can continue to dominate as the majors slim down and shift their focus into niches remains to be seen. Meanwhile, Turner remains a worthy and steady hand at the council’s helm.

Chris Mackinnon, Lloyd’s General Representative in Australia: Lloyd’s has been well served over the past 20 years by some talented representatives in the Australian market, but Mackinnon – the first Australian appointed to the post – has taken the role to a new level. Lloyd’s faces some big challenges over the next few years – Brexit and resistance to technological progress are examples – but in Australia Mackinnon keeps Lloyd’s interests in its fourth-largest market humming along. The three-year diversity and inclusion festival begun by the now-departed Inga Beale gives Lloyd’s an additional burst of profile each year, and the relationship with Australia’s increasingly strong underwriting agencies has never been better. 36

Allan Manning, founder and Managing Director, LMI: Yes, he often wears his heart on his sleeve, but this brilliant businessman, academic and advocate sees insurance as something of enormous value to the world. His analytical products are the industry standard and the range of services his company offers continues to expand. His claims services embrace both sides of the divide, he writes books giving an insurance perspective on historical disasters, his blogs provide free claims advice as often as they zero in on claims failings, and his attendance at conferences locally and around the world must make him the industry’s most recognisable person. He simply loves insurance, and his enthusiasm is infectious. 0 insuranceNEWS

December 2018/January 2019


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Resolution solution Financial services has a shiny new one-stop dispute authority. But will it deliver for industry and consumers? By John Deex

Fair and independent: AFCA Chairman Helen Coonan

THE FINANCIAL OMBUDSMAN SERVICE (FOS) is gone, effective from November 1, replaced by the Australian Financial Complaints Authority (AFCA). The new body rolls FOS, the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal into one, pledging to raise industry standards as it responds to disputes and works with regulators to prevent misconduct. But will it be better than what came before, and what will it mean for the general insurance industry? Insurance News put the key questions to former politician and AFCA Chairman Helen Coonan. FOS was formed by the insurance industry and other industry sectors, and many believe it has been very successful in providing consumer redress. Why do we now need a government-run scheme? Our predecessor FOS was an independent external dispute resolution service. While it was funded by the financial services industry, it was approved for operation and regulated by the Australian Securities and Investments Commission (ASIC). FOS was a non-profit, non-government organisation, providing a free service to applicants, with the costs of running the service met by our member financial services providers. 38

Similarly, AFCA is not a government-run scheme; rather, it is regulated by ASIC. We are an independent body created by the Government to resolve financial services complaints. AFCA was formed following a federal budget recommendation and more than 20 months of public consultation and inquiry, commencing with the 2016 Ramsay review into external dispute resolution in financial services. The Government, in supporting the 11 recommendations made by the Ramsay panel, endorsed the view that an industry ombudsman scheme is the appropriate model for all areas of the financial system. In doing so, the Government proposed a single scheme that has appropriate statutory powers to deal with the complexity of superannuation disputes. Resolving a financial complaint can be complex and stressful. Australians need AFCA – an external dispute resolution scheme aimed at fair and timely resolution. Isn’t there a risk of an organisation such as AFCA becoming a political football, beholden to the Government? No. AFCA is an independent external dispute resolution service. Our governance, management structure, policies and procedures, and decision-making are designed to ensure we meet our obligation to provide an independent service. insuranceNEWS

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Our rules explicitly require complaints to be considered in an independent and impartial manner. Our board consists of an independent chairman and an equal number of consumer directors and industry directors. Our decision panels are made up of an independent ombudsman, a consumer panel member and an industry panel member. We provide an independent service through various means, including: holding ourselves to high standards of corporate governance and transparency and accountability to the community; through our operational guidelines and rules, which set out how we will ensure our process is fair and balanced for all parties; ensuring our leadership and our decision-makers are independent and free from material conflicts of interest; having an independent assessor to consider complaints about the standard of our service; operating as a nonprofit company that is free to consumers and small businesses. While the costs of our service are met by financial firms, our constitution and processes ensure financial firms cannot unduly influence the outcome of any complaint. Just as the financial regulators and the reinsurance pool have become sources of money for governments, could AFCA –


“More Australian consumers and small businesses are now able to obtain access to justice by bringing their complaint to this single, independent alternative dispute resolution body.”

which will still be funded by the industries that use it – go the same way, and eventually become a burden on the industry? AFCA is a non-profit, independent organisation that is required to be funded by the financial services industry. We are accountable to our stakeholders in our use of those funds. We are not a source of revenue for the Government or regulators. What are the key differences between AFCA and FOS? AFCA has a significantly expanded jurisdiction, not only in terms of higher monetary limits, but also with the addition of superannuation complaints. These limits are significantly higher than those under the predecessor schemes. Due to these increased limits, more Australian consumers and small businesses are now able to obtain access to justice by bringing their complaint to this single, independent alternative dispute resolution body, rather than having to navigate multiple schemes or go to court. The previous FOS and CIO monetary limits for most non-superannuation disputes have doubled from $500,000 to $1 million, and the compensation cap has increased from $323,500 to $500,000. The limit for a small business credit facility has increased from $2 million to $5 million and the compensation cap has more than tri

pled from $323,500 to $1 million, with a higher cap of $2 million for primary producers. With the arrival of AFCA, many small business complaints will now be covered by an external dispute resolution scheme for the first time. The definition of small business has been widened to cover businesses with fewer than 100 employees. We know small businesses are a key part of the Australian economy and that they have limited resources and time to navigate issues through the courts. AFCA will provide small business with a fair, free and independent way of resolving their disputes, so they can get on with their lives and businesses. AFCA will seek to build upon the work of its predecessor schemes by training and educating member financial firms to improve their internal processes and avoid a complaint coming to AFCA in the first place. AFCA uses informal resolution methods such as conciliation and negotiation to facilitate agreement between parties to a complaint if possible. It also has a well-honed triage system to resolve straightforward complaints quickly, while complex complaints have a streamlined path to adjudication. Specifically, how will the general insurance industry be affected by the change? The major area of change for the general insuranceNEWS

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insurance industry is in the jurisdictional and compensation caps. As stated, the jurisdictional limit will increase to $1 million and compensation cap per claim to $500,000. In addition, the compensation cap for uninsured motorists will increase to $15,000, general insurance broker disputes to $250,000 and income stream insurance to $13,400 per month. Otherwise, the processes adopted will not change significantly. We have had a good working relationship with the general insurance industry. This will not change, and will only be built upon. We will continue to consult openly and transparently with all stakeholders through liaison group meetings, open forums and individual meetings. We will work with industry to improve internal processes. What are AFCA’s key principles? Our core purpose is to provide fair, independent and effective solutions for financial disputes. This is what we will do daily as we consider complaints – fairness is at the heart of everything we do. We will carry out this work by practising our values: being fair and independent; transparent and accountable; honest and respectful; proactive and customer-focused. What are the key challenges facing AFCA? With a new jurisdiction in superannuation, 39


and an increased level of compensation caps and jurisdictional limits, we expect a significantly higher number of complaints to be lodged at AFCA. We have outlined the measures we have taken in addressing those challenges below.

AFCA reports matters to regulators in accordance with the Corporations Act, the Privacy Act and other relevant legislation, and we comply with any ASIC regulatory requirements and directions. We will also investigate and report systemic issues.

Will AFCA increase transparency? Should companies be named and shamed? AFCA expects insurers to take their internal and external dispute resolution obligations very seriously. That means having enough properly trained staff to resolve disputes quickly, objectively and fairly – internal dispute resolution is not a rubber stamp for decisions made by the business. It also means engaging with customers and with AFCA in good faith in a transparent and honest way. Insurers should be aware that AFCA will be focusing on financial firms and membership and their external dispute resolution obligations. You can expect proactive reporting of non-compliance to regulators. Our obligations under ASIC regulatory guide 267 will require naming and shaming, as you put it, in some circumstances. Our reporting obligations will be a focus of discussion with the industry in upcoming liaison meetings.

How will AFCA be resourced and staffed? As a one-stop shop, is there a risk general insurance will be sidelined? AFCA has more than 36,000 members, and we are expecting more than 55,000 complaints to be made during our first year of operation – more than 1000 each week. In fact, in just our first two days of operation earlier this month we took more than 1200 phone calls and received 551 complaints. We are well resourced to handle this work, and will have more than 550 staff members, including 22 ombudsmen and 14 adjudicators. Each jurisdiction will have appropriate specialist case workers and decision-makers.

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What is your view of the general insurance industry’s approach to compliance and complaints? This is an interesting question. The standard can vary. At times general insurers could be more proactive, could be broader in [their] thinking about resolving a dispute. insuranceNEWS

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While generally the industry complied with the FOS process, it took some time to get the industry to respond in a timely way. We have worked very hard with the industry to improve this over the past few years. I am pleased to say there has been an improvement in this space. How effective are industry codes of practice? Are changes required in this area? The review of the general insurance industry code, in particular issues such as mental health, family violence, vulnerable consumers and investigators’ conduct, is strongly supported. Having the codes apply to third-party distributors would also strengthen their reach. The industry codes can be an important tool in levelling the playing field between a financial firm and a consumer or small business. Do you think unfair contract terms should apply to the general insurance sector? I support the Government’s proposal to apply unfair contracts terms laws to insurance. The previous justifications, going all the way back to 1982, can hardly be supported these days. While I accept that an insurance contract is different to many other contracts in that it is essentially a promise to pay against a risk, I do not see that an insurance contract should be treated as a special case.


“Very few people read or understand the product disclosure statement or the key fact statement. One-hundred-plus pages of small print can do that to you.”

The proposal paper issued in June 2018 sets out a number of options. It will be interesting to see which option the Government adopts. Does general insurance have a problem with disclosure? Are product disclosure statements and key fact sheets fit for purpose? There is a real problem with disclosure. If the study conducted by the Insurance Council of Australia is correct, very few people read or understand the product disclosure statement or the key fact statement. One-hundred-plus pages of small print can do that to you. If you look at claim figures, nearly 12% of claims are either withdrawn or declined. This does not include the claims that are partially declined. It reinforces a view that consumers do not understand what cover they have. The debate needs to be had as to how this can be improved. We need to consider it through the lens of community standards and expectations. Do you expect an increase in the level of disputes following the Hayne royal commission hearings? The royal commission has highlighted a number of failings in the financial services

sector and delivered many lessons for industry and regulators alike. We expect the increased awareness of unethical practices within the financial services industry will indeed cause consumers and small businesses to approach AFCA with their complaint. The hearings revealed an apparent disregard for FOS among some financial institutions. Will AFCA be tougher? As mentioned above, AFCA will be proactive in reporting instances of non-compliance to regulators. What role can AFCA play in rebuilding public trust in financial services? Our vision for AFCA is no small thing. We will strive for AFCA to be a world-class ombudsman that raises standards and minimises disputes, meets the diverse needs of the community it services and which is, crucially, trusted by all. AFCA will achieve this vision by providing fair, independent and effective solutions – free to consumers and small business, and binding on financial firms – for financial disputes. Each of these words – fair, independent, effective – are central to building this trust and confidence, not only in our own service, but in the financial services industry. insuranceNEWS

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We will provide solutions for financial disputes, not just resolutions. We will do this by being proactive, not just getting involved when things go wrong. Instead, we will be actively working with our members to minimise disputes. We want to stop them from becoming something bigger that needs an external ombudsman to resolve. We are also working actively with consumers and small businesses to reduce financial disputes through innovative solutions, education and communication. For example, we will use our data about disputes to give us deeper insights on the most common issues and complaints, and deliver education and communication to members and the community to help reduce these issues from cropping up. We will get out there and talk to people in local communities across the country, to make sure they’re aware of AFCA and our role. We also want to make sure consumers have information about where to go when things go wrong and how they can resolve their disputes. And we are really going to focus on making sure those members of our community who are vulnerable to financial abuse – be it our elderly, Indigenous communities, culturally and linguistically diverse communities, victims of domestic violence, those experiencing disability and so on – can access and navigate our services if they need them. 0 41


Positive change Support for action to tackle global warming is growing, giving a leading climate expert cause for optimism By Bernice Han

THE DOORS TO PRIME MINISTER SCOTT MORRISON’S OFFICE are still shut. Coal-loving politicians in Canberra don’t want to talk about it, much less acknowledge its existence. But the tide is shifting. Growing numbers of Australians see climate change as a “serious and pressing” problem and want action, a recent Lowy Institute poll finds. Many of the country’s biggest companies have started to act. Insurers IAG and Suncorp are among them, with plans to address the global threat, which could inflict a heavy toll on the Australian landscape. At IAG’s annual general meeting in October Chief Executive Peter Harmer launched an expanded action plan as he explained the company’s “obligation” to do its part. “As an insurer, we see not only the financial impact on communities, but also the social impact,” Mr Harmer says. “In recent years we have seen an increase in the frequency of severe weather events that are affecting greater and greater numbers of people. And we know climate change impacts will increase even further. “Taking action on climate change and its impacts makes sense for our business and for our communities.” Growing public support for action to cut man-made carbon pollutants is what gives award-winning climate scientist Joelle Gergis cause for optimism, even as political leaders refuse to heed such calls. “I’m actually getting more encouraged – I think many people do care about this issue,” Dr Gergis tells Insurance News. “I think that once people become educated and they understand the risks to their business, the risks to their communities, the risks to their families… it’s only a matter of time until our Federal Government is dragged kicking and screaming into the 21st century. Eventually, the people who are in Canberra are voted in by us, and this is what gives me hope.” Publicly at least, the Morrison Government is standing by its coal-dominated energy policy after the Wentworth byelection defeat. This is despite exit polling commissioned by the influential Australia Institute think tank showing climate change and replacing coal with renewable energy was an influencing factor for 77% of Wentworth voters. Whether the Wentworth result has nudged open the doors in Canberra a little remains to be seen. But there is no denying sentiments on global warming have changed noticeably in the past few years. In the annual Lowy Institute poll this year, Australians see climate change as the third-biggest critical threat to national interests in the next 10 years. Only terrorism and North Korea’s nuclear program rank higher. The proportion who feel global warming is serious enough to warrant action now, even if this comes at a significant cost, has increased to 59%, up five points from last year and 23 points since 2012. In what may be a pointer to future policies, an overwhelming 70% of Australians aged 18-44 feel this way. Crucially, support for an increased focus on renewables gained three points to 84%. People want government policy to move in this 42

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direction, even if it means more money is needed to build up the infrastructure. Only 14% want Canberra to retain coal and other non-renewable energy sources. “Attitudes about climate change have been undergoing a dramatic reversal over the past six years,” the Lowy Institute says. “Despite the debate and political rhetoric, most Australians have not been persuaded to support coal over renewables for the nation’s energy security. Almost all Australians remain in favour of renewables, rather than coal, as an energy source.” Signs of an Australian ecosystem in severe distress are increasingly evident. They are occurring with more frequency and intensity. Ignoring them will be difficult. Bushfires broke out in New South Wales in August, the middle of winter. And another dry spell has the nation’s famers on the ropes, with many describing conditions as the worst they’ve seen. By next March the Great Barrier Reef may again be hit with coral bleaching, according to the US National Oceanic and Atmospheric Administration.

“All of our extremes, all of our bushfires, our droughts are now playing out on the background of a warming trend.” “All of our extremes, all of our bushfires, our droughts are now playing out on the background of a warming trend,” Dr Gergis, from the University of Melbourne, tells Insurance News. “We can’t talk about the current drought and not talk about climate change. In the past, we’ve seen droughts. It’s a natural part of the Australian climate. “However, because we have warmed the climate by a degree, all of our droughts are getting hotter, so they’re actually occurring on the background of hotter conditions.” The country’s mean air surface temperature has warmed by about one degree since record-keeping began in 1910. The bulk of the increase occurred after 1950. “So there is a very big ramp up in the late 20th century as a result of human activity,” Dr Gergis says. “What we are concerned about as a scientific community is these sorts of events [such as droughts and other extreme weather events] are going to become more frequent.

December 2018/January 2019


Les O’Rourke

Hopeful: climate expert Joelle Gergis

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The Sunburnt Country WHAT WAS THE CLIMATE LIKE IN AUSTRALIA BEFORE THE First Fleet arrived in 1788? Has much changed since then and has the weather always been this volatile? And the burning question: what is global warming doing to the country? This is what Joelle Gergis, the University of Melbourne’s world-renowned climate scientist, aimed to address when she started gathering material for her book, Sunburnt Country: The History and Future of Climate Change in Australia. Drawing on historical archives – think early settler diaries, farming records – and scientific sources, Sunburnt Country marks the first time Australia’s climate story has been compiled. The book, published in April, is essentially a narrative of Australia’s vulnerability to weather extremes, how human activities have affected natural climate patterns and what is in store as climate change takes hold. “It’s written for everyday Australians and you do not have to be a scientist to read it,” Dr Gergis says. “You just have to have an open mind and be willing to hear what the community has to say around this issue. “So that was important to me, writing something that incorporates everything from Australian history to human health, psychology, politics, ecology, climate science, and it’s in a concise, easy-to-read format.” The future isn’t looking too bright, unless Australians start getting their act together. “We can expect a real change in the sort of climates Australians have come to enjoy,” Dr Gergis says. “The sort of lifestyle that we enjoy as Australians… the outdoors, the natural landscape. We will start to see times of the year where extreme heat means you can’t go out. It’s just not going to be possible when we are seeing temperatures that are dangerous for human health. “It could also mean the spread of things like tropical diseases… imagine if you actually have to start taking antimalaria tablets to take a holiday in Queensland.” As Dr Gergis sees it, the time is long overdue for a national energy policy built around renewable sources and bigger emissions-reduction targets. At the state level, the ACT and South Australia are leading the way with policies to support clean energy. And it’s pretty obvious who is missing in action. “There is a lot of inertia at the federal level… in Australia we are still struggling with the political will to embrace this change,” Dr Gergis says. “It’s really important to recognise that we need a stronger energy policy, we need to have very real and deep cuts to our emissions. There are some parts of the world where progressive governments are doing these things.”

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“I’m very disappointed as a scientist to see our Prime Minister and other senior leaders dismiss our careful work as being unimportant.” “In the past they might have been a rare event or something you would experience every few decades or so, but we are now starting to see very serious drought conditions occurring more severely and more often.” The Great Barrier Reef shows how unfettered carbon pollution affects the natural order. Coral bleaching isn’t new to the reef, but the regularity of these episodes is on the rise. “These sorts of things don’t happen naturally in the climate system,” Dr Gergis says. “They have been given an artificial nudge, if you like, by all the excessive heat in the climate system.” Doing nothing is not an option for the driest inhabited continent in the world. “When we talk about climate change, it has very real impact for ordinary Australians,” Dr Gergis says. “We’ve had a degree of warming since 1900, so what we can expect in the future is an Australia that is quite different to the one we are experiencing right now. “So we want to put the brakes on the level of emissions. We can’t have a healthy economy without having a healthy environment. We’re a big desert. Most of it is arid or semi-arid, so we are vulnerable, very vulnerable, and our economy is vulnerable to that because of things like erratic rainfall, natural disasters.” Which is why Dr Gergis is less than impressed with the Government’s chilly response to the United Nations special report urging world leaders to take drastic action. At current rates of emissions, the world is on its way to warm by 1.5 degrees between 2030 and 2052, the UN Intergovernmental Panel on Climate Change (IPCC) warns. The report, released in October, was prepared by 91 scientists at the request of signatories to the 2015 Paris Agreement. It cited more than 6000 scientific references. “Put it this way: we would love to be wrong,” Dr Gergis says. “It’s an entire body of knowledge… which is why I’m very disappointed as a scientist to see our Prime Minister and other senior leaders dismiss our careful work as being unimportant. “It’s not really an appropriate response to something as serious as the threat of climate change.” Dr Gergis is one of the country’ foremost climate experts, and is recognised internationally for her work. She is one of the lead authors of the upcoming IPCC sixth assessment report, and the author of Sunburnt Country: The Future and History of Climate Change in Australia. The book marks the first time Australia’s weather patterns have been traced back to way before official record-keeping, using historical sources, early settler accounts, farm records and scientific data. It shows how human activities have altered the natural order of things and, importantly, provides a glimpse of what the future could look like. “The book sort of takes you on a journey,” Dr Gergis says. “I guess my book really tries to outline the past, present and future climate in Australia. “I look at the past and I explain what natural variability is, and then I draw together the evidence we have from the events we are seeing right now.” December 2018/January 2019


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Providing shelter: IAG’s David Henderson

Cyclonic impact David Henderson is bringing wind engineering expertise to IAG’s natural perils team By Wendy Pugh

AFTER MORE THAN TWO DECADES AT Townsville’s Cyclone Testing Station, David Henderson will be looking at catastrophes from a wider perspective as part of IAG’s natural perils team. Dr Henderson has accepted the newly created position of Property Resilience Specialist, bringing his knowledge on cyclonic wind and rain to the group as risk reduction becomes an increasing focus for the insurer and the community. The appointment builds on Dr Henderson’s previous links with IAG through the Townsville centre, where researchers test the limits of everything from roofing screws to full-scale homes using equipment to replicate cyclone impacts. He says insurance claims data shows the effects of building failures on people and businesses, and adding the information to structural research findings can help drive improved practices and standards, and changes to construction codes. 46

A recent cyclone research project on damage caused by wind-driven rain, which includes claims data from IAG and Suncorp, provides a case in point, Dr Henderson tells Insurance News. Damage surveys and videos show rain during cyclones Yasi, Marcia, Olwyn and Debbie caused major problems by entering around doors, windows and other narrow areas, even when home exteriors were relatively unscathed. Different air pressures between the outside and inside of a building contribute to water forcing its way through any small openings. “The missing piece was working with insurers to look at the claims data, to really look at what is the cost to a community of this,” Dr Henderson says. “To get some hard data on that and to put that information where it can best be used was really exciting.” The average cost of repairing damage from water ingress was $25,000 among the insuranceNEWS

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housing claims reviewed, while costs for detailed strata claims reviewed varied from $70,000 to $1.7 million. Findings went to Standards Australia and new requirements are pending around roof fixtures and waterproof “flashings” used on seams and joins. The research also showed residents can use plastic on the inside of windows and sliding doors as a stop-gap, and highlighted opportunities for designers to select better materials for building areas not usually exposed to the elements. “With cyclonic wind or severe weather, the rain isn’t coming straight down; it is more horizontal, so it gets into places where you may not be expecting,” Dr Henderson says. Since joining the Cyclone Testing Station in the early 1990s, Dr Henderson has held positions including manager and chief engineer. He has completed doctoral studies on the impact of cyclonic wind on low-rise buildings, participated in interna-


“The knowledge that we can do something to make our houses more resilient, safer, survive longer, and that we can be quicker in our recovery, is something that is important and is needed.”

Expert examination: Dr Henderson with IAG Executive General Manager Short Tail Claims Steve Fitzpatrick

tional research and examined severe storm experiences overseas. Having grown up in the Townsville area, he also has first-hand knowledge. He says he is one of the few researchers specialising in the field who “really doesn’t like cyclones”, and they are scary events. “One of the things with cyclones is that you do get warning, which is fantastic, but we get told to go home, so we leave our schools, homes, offices, whatever else and shelter in our houses. The knowledge that we can do something to make our houses more resilient, safer, survive longer, and that we can be quicker in our recovery, is something that is important and is needed.” The Bureau of Meteorology monitors tropical storm activity for a region extending from Queensland to Western Australia. On average there are 10-13 cyclones during the November-April season, four of which typically cross the coast. Despite the known risks, and improved access to information, prevention remains a tough sell. Research by James Cook University and Suncorp found 87% of north Queensland homes lack cyclone shutters and many people are relaxed about dangers. About 90% of the 550 residents polled believed Category 1-2 storms bring very low to somewhat low damage risks, and 45% said the same thing about Category 3-4 storms. The Bureau of Meteorology warns Category 4 wind gusts can reach 225-279kph, causing significant structural damage and destroying or blowing away caravans. Cyclone Debbie struck the Airlie Beach area last year at Category 4 strength, causing

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“We have to think more seriously around what might be considered minor design elements. They are so important for people’s stress levels and recovery.”

insured losses of more than $1.7 billion as it tracked inland. The losses topped those from Cyclone Yasi, which crossed the coast near Mission Beach six years earlier. Dr Henderson says residents on the edges of an event can misjudge the level of cyclone they have experienced, particularly when media reports highlight impacts in larger population areas, such as in the case of Cyclone Yasi. “People had the impression that they had been hit by a Category 4 event down in Townsville, when it was more like Category 2, which is still a scary thing to be going through, but it is not the intense, destructive winds that were happening up in the Mission Beach area,” he says. “If we can get messaging out on what people have actually been through, it may help with better preparations.” Promoting regular maintenance on homes, so they remain cyclone-ready over their lifespan, is also among the education priorities. Dr Henderson says residential resilience has gained focus and research attention compared with 20 years ago, but a concerted effort is needed to hammer home messages to homeowners, product manufacturers, builders, subcontractors, designers and property developers. Small changes can make an outsize difference, particularly with higher-density strata developments where rain damage can cascade through apartment levels. “In terms of the community getting back on its feet, we have to think more seriously around what might be considered minor design elements. They are so important for people’s stress levels and recovery,” he says. 48

Dr Henderson has also examined non-cyclonic severe wind damage, and has been involved in tornado damage investigations in Canada and earthquake assessments in New South Wales. In Canada he was seconded to the University of Western Ontario, where in previous decades wind engineering trailblazer Alan Davenport had led research into impacts on high-rise buildings and other structures. Australia had a property resilience awakening after Cyclone Tracy devastated Darwin in 1974, contributing to the foundation of the Townsville research centre, which is part of James Cook University. Dr Henderson says there was a similar step-change in the US after Hurricane Andrew hit Florida in 1992, becoming the costliest natural disaster in American history at that time. The two countries have noted each other’s experience. “Now there are a lot of learnings going both ways in terms of impact resistance and design criteria and looking at the whole construction process of housing,” he says. Dr Henderson’s role at IAG will go beyond cyclones to encompass thunderstorms, hail and other severe weather. He will also have access to data that sheds light on the impacts of many different events and losses across a range of residential and commercial structures. In the natural perils team, he joins experts in areas such as meteorology, statistics and flood engineering. The group’s role includes data modelling for reinsurance requirements and risk-based pricing, while understanding community impacts and practical ways to reduce risk. insuranceNEWS

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Senior Manager Natural Perils Mark Leplastrier says Dr Henderson can estimate wind speeds just by seeing bent road signs and tree damage, and he brings a different perspective, along with his understanding and links in the building and research arenas. He will remain in Townsville as IAG continues its close association with the testing centre. The number of intense cyclones crossing the Queensland coast since Larry in 2006 has elevated disaster awareness, but the damage could have been much worse if they had directly hit the larger cities. The Australian Competition and Consumer Commission is midway through a three-year inquiry into northern Australian insurance, sparked by surging prices after the large losses, while the industry is pushing for more government mitigation spending and pursuing its own measures. “At the same time… we have really come to an appreciation of the likely changes that climate change will have on extreme events,” Mr Leplastrier says. “It is a fairly likely outcome that we are going to see more of the intense cyclones.” Contributions from the natural perils team feed into projects under way as part of IAG’s climate action plan, launched this year, and support the company’s participation in the Australian business roundtable on disaster resilience. Dr Henderson says there is no room for complacency when preparing for natural disasters and acting to reduce the impacts. “The solutions rest with all of us, right through all parts of the community,” he says.


CERTAINTY At United Insurance Group, we believe authorised reps should know who they’re dealing with. We want them to be part of a true partnership. UIG is committed to maintaining that partnership and ensuring a clear future for your business. Call Trevor on 03 8676 0344 or 0431 705 660 or you can email trevor@uig.net.au to discuss why we’re growing so quickly.

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www.uig.net.au | Contact General Manager Trevor Howard | 03 8676 0344 | trevor@uig.net.au


Stranded: a ship left high and dry by a devastating tsunami in Palu, Central Sulawesi

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Bay watch Tsunami experts are stepping up their efforts to understand and mitigate the threat to Australia’s coast By Andy Swales

IN SEPTEMBER THE WORLD RECEIVED yet another stark reminder of the death and destruction tsunamis can wreak on coastal communities. A powerful earthquake on the Indonesian island of Sulawesi sent waves up to six metres high crashing into the city of Palu and nearby areas. The body count from the quake and wave combined passed 2000, and the damage bill was expected to exceed $US1 billion. It came seven years after the Sendai earthquake and resulting tsunamis killed about 18,000 people in Japan, and 14 years on from the Indian Ocean tsunami, which hit multiple nations and left more than 225,000 people dead. That catastrophe, in December 2004, served as a wake-up call worldwide, from the most vulnerable countries in the Ring of Fire to those with a less immediate risk. Among those nations spurred into action was Australia, which – while not commonly associated with geologic hazards – is in fact surrounded by tectonic plate boundaries that could trigger a tsunami at any moment. As Bureau of Meteorology Manager of Tsunami and Storm Surge Yuelong Miao tells Insurance News, the risk must not be discounted. “While it’s very unlikely Australia could experience something like Japan [in 2011], or what Indonesia experienced – those horrendous magnitudes – tsunamis can travel far away from their origins, across whole oceans, at minimal loss of their energy,” he says. “They can travel like a jumbo jet in open ocean… even with a small wave amplitudes, because of the sheer volume of water and the period [duration of one wave cycle] – we’re not talking about 10 seconds, it’s minutes – that surge can be very risky to people in the water, and if the wave is large enough it could push onto land and cause land inundation.” In fact, more than 50 recorded tsunamis have hit the Australian coastline since European settlement – mostly resulting in marine impacts such as dangerous rips and currents, rather than land inundation. And earthquakes with the potential to generate tsunamis happen “pretty much once a week, but not all are of concern to Australia”. Dr Miao is a senior figure at the Joint Australian Tsunami Warning Centre, a part

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nership between the bureau and Geoscience Australia that was established after the 2004 disaster. On November 5 – World Tsunami Awareness Day – Geoscience published its latest Probabilistic Tsunami Hazard Assessment, an update on a 2008 model. The assessment estimates the frequency with which earthquake-generated tsunamis of any size occur in deep water at all points around Australia’s coastline. (Rarer volcanoand submarine landslide-triggered waves are not modelled.) It simulates more than 500,000 tsunami scenarios from key quake sources in the Pacific and Indian oceans. It shows that “large offshore tsunamis are considered most likely on the northwest coast of Australia, particularly due to large earthquakes on the eastern Sunda Arc (south coast of Indonesia). The southwest and east coasts also have significant exposure to tsunamis generated by large earthquakes in the Indian and Pacific oceans respectively. The hazard on the south coast and [north coast] Gulf of Carpentaria is generally smaller.” The assessment does not cover the possible impacts of coastal inundation, but Geoscience notes its findings “can be used to support nationally consistent local-scale tsunami inundation hazard assessments throughout Australia, including its offshore territories”. Such inundation models “are used in many contexts, for example to inform coastal risk management, the design of evacuation routes and emergency management plans, the siting of critical infrastructure, and the pricing of insurance”. Geoscience project leader Gareth Davies says the new assessment includes data from tsunamis that have happened since the last analysis in 2008. “The… update reflects advances in our understanding of how frequently large earthquakes that can cause tsunamis occur and the uncertainties in these frequencies,” he says. “Additionally, it has data for more locations around Australia. This will make it easier for modellers like me to conduct local tsunami studies, including for major Australian offshore islands and territories.” As University of Newcastle coastal scientist Hannah Power notes, modelling inundation risk for all of Australia presents a “mammoth task”.

Hot spots: Geoscience Australia’s new Probabilistic Tsunami Hazard Assessment map, showing events with an average return interval of 1000 years. “Peak stage” is the highest water level above mean sea level, illustrating possible tsunami size

She tells Insurance News local-level inundation modelling has been carried out in “bits and pieces”, but “we don’t really have a comprehensive understanding of localised risks”. “We can say, well, the northwest shelf of Australia has a higher risk than the Great Australian Bight,” she says. “But what we don’t necessarily know [is whether], say, Manly Corso is more at risk than Newtown in Sydney. You don’t have that detailed understanding of which are the particularly vulnerable locations within a city or smaller region.” Dr Power is helping to change that. In October she – with PhD student Kaya Wilson and bureau researcher Stewart Allen – published a model for tsunami inundation in Sydney Harbour. It shows the possible impact from tsunamis with heights from 5cm to about 1.5m – the latter being assessed as a one-in-4700year event. As Dr Power tells Insurance News, while 1.5m might “sound like nothing”, it is the insuranceNEWS

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sheer volume of water within a tsunami that does the damage. “Wind-generated waves have a period of about 10 seconds, so there’s not a lot of water in them. A tsunami wave might have a period of 20 minutes or 40 minutes, so it’s a completely different kettle of fish.” The worst-case event could flood Manly’s Corso pedestrian strip, which links the seafront to the harbour side, and various other bays around the wider harbour, while creating dangerous and damaging currents. And Dr Power tells Insurance News that even the kind of tsunami that might hit every 50-100 years “could cause a real problem for Sydney Harbour”. “In an average lifetime, you’re unlikely to see the worst-case-scenario event, but you’re actually reasonably likely to see a moderate event, so it’s something people need to be aware of.” Awareness is one of the Joint Australian Tsunami Warning Centre’s watchwords. The centre uses Geoscience’s


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POCKMARKED WITH VOLCANOES AND sitting atop a host of fault lines, it’s hardly surprising that New Zealand’s tsunami outlook is somewhat scarier than Australia’s. Hannah Power from the University of Newcastle says her research on tsunami inundation in Sydney models a worst-case wave following “a magnitude-nine earthquake in the Puysegur Trench, which runs to the south of the South Island of New Zealand”. “When that reaches Australia, we’re talking about a wave height of 1.5 metres… by the time it gets to Australia, however many thousands of kilometres we are away, it’s 1.5 metres: you can imagine what it would be like in New Zealand,” she says. GNS Science, the leading authority on New Zealand natural hazards, notes the country has experienced about 10 tsunamis higher than 5m since 1840, mostly caused by “seafloor quakes not far off the coast”. It says for such “near-source” tsunamis, the only warning may be the preceding earthquake itself, because a resulting wave would “arrive at the nearest coast before scientists can calculate the location of the earthquake and issue a warning”. A 2013 GNS model showing possible inundation from one-in-2500-year tsunamis shows much of New Zealand’s coastline faces waves of 10-12m and higher. Reports when the model was published warned of the potential for 35m waves hitting Wellington.

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quake-monitoring technology and Bureau of Meteorology sea level monitoring systems to provide tsunami alerts, with responsibility for all Australia, plus the wider Indian Ocean region. If a tsunami is detected, it informs relevant government agencies and state and territory emergency services, aiming to give mainland Australians at least 90 minutes to evacuate seafronts and retreat to higher ground. Dr Miao says the centre’s network of sea level detection buoys can identify wave size to within a single millimetre. There are six buoys spread out across the Indian Ocean, the Coral Sea and the Tasman Sea, close to tectonic plate subduction zones. “Australia is fortunate we don’t have the fault lines right next to us, like Japan and New Zealand and Indonesia have, so it’s very unlikely we’re going to have [an event] as dramatic as they have, but we are still surrounded by active fault lines, about 8000 kilometres long… to the northwest the Java [Sunda] Trench and Sumatra Trench, to our northeast the Tonga Trench and south of New Zealand the Puysegur Trench,” Dr Miao tells Insurance News. “If something happens along those trenches, it only takes 2-4 hours for waves to reach Australia.” He says Australia was lucky when the 2004 Indian Ocean tsunami struck. “That earthquake was in the far end of that trench and the orientation was northinsuranceNEWS

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south, which means the energy generated was going towards the west, not the east. “If something happened to the south of Bali… the waves would take only a couple of hours to reach Australia, and they could be very, very large.” In September the centre was involved in two exercises, simulating the response to tsunamis on the east coast of Australia and in the Indian Ocean, where more than 20 other Asian and African nations co-ordinate efforts, including mock evacuations of coastal communities. Dr Miao is the exercise director for both programs. “The risk is very much understood and the public awareness very high in many countries on the Indian Ocean, particularly India, Sri Lanka, Indonesia and many African countries,” he tells Insurance News. “In Australia, the awareness is less, unfortunately.” He says the Australian Tsunami Advisory Group, comprising bodies such as the bureau, Geoscience, the Department of Home Affairs and emergency services, aims to “promote public awareness through creating online resources for schools, teachers, for the public”. “Public awareness is so vital to be resilient and tsunami ready,” he says. “We can never be tsunami safe. We can’t say any system is foolproof. We are getting more ready, and everyone should do their part.” 0


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Morgan Long


No regrets Consumer advocate Allan Fels has been one of the insurance industry’s leading critics – and he makes no apologies for his tough stance By John Deex

ECONOMICS EXPERT ALLAN Fels has had an eclectic career – mixing academic and regulatory roles and covering a myriad of issues from mental health to migrant workers. His most high-profile role was as chairman of the Australian Competition and Consumer Commission. He spent more than a decade at the regulator and its predecessors, building a reputation as a consumer champion. Perhaps his most unlikely is his involvement in training programs for the Communist Party of China on behalf of the Australian Government. At times he has been accused of behaving like a dictator himself, especially when it comes to insurance. Professor Fels has been employed as “insurance monitor” in Victoria and New South Wales after both states decided to remove the fire service levy from insurance and replace it with a property levy. The Victorian change went through in 2013, but Professor Fels’ role in NSW is ongoing after the Government backflipped last year and abandoned the proposed change. An inquiry has been held and a report on what happens next is pending. In both positions Professor Fels has been tasked with making sure insurers pass on the savings to customers. 56

And in both positions he has riled the industry with controversial statements and a tendency to suspect its actions. Provocative media pronouncements, public demands for pledges and humiliating hearings have been the order of the day. He has also published a string of critical reports that, on the face of it, have nothing to do with his monitor role. In the most recent example in November, data provided by insurers to Professor Fels in his insurance monitor role was used to attack them over an alleged “loyalty tax”. A press release asserted that the average base premium for renewals in NSW is 27% higher than for new policies and that “loyal customers should be rewarded, not ripped off by their insurance providers”. Insurance industry insiders were left fuming that data provided in good faith was used to attack them, also claiming that the research lacks rigour and the statement’s rhetoric fails to show respect. Looked at from another perspective, a “loyalty tax” can be a “new customer discount” that encourages competition. When the Victorian levy was removed, mistakes were undoubtedly made, but the insurance industry points out the complexity of the calculations required, and says overcollection should not “automatically be interpreted as price exploitation”.

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After Professor Fels’ appointment in NSW, the Insurance Council of Australia (ICA) released a statement to “respectfully request” the monitor “recognise the difficulty members face in recovering the exact amount of their statutory contributions”. No such luck. Professor Fels has continued the approach he feels served him well in Victoria, and makes no apologies for it. And relations have continued to sour. At a NSW levy hearing in August, ICA Chief Executive Rob Whelan tried to push Professor Fels out of a job, recommending his role be “reconsidered”. “It is hard to see a connection between much of the monitor’s current activity… and his levy monitor role,” he said. From Professor Fels’ office overlooking Melbourne’s Royal Botanic Gardens, he tells Insurance News that regulators doing their job are never liked, and insurers would gladly pocket extra profits from levy removal given half a chance. “Mistakes” have been deliberate, not accidental, he says, and the industry does not help itself by fighting common-sense reforms such as putting last year’s premium on renewal letters. “The fact that some people in insurance are critical of me, that’s the normal fate of a serious regulator,” he says.

“The fact that some people in insurance are critical of me, that’s the normal fate of a serious regulator. You’re never liked if you are applying the law that is meant to restrict the activities of a business.” “You’re never liked if you are applying the law that is meant to restrict the activities of a business.” Professor Fels points out that in his monitor roles he has simply been enforcing tough laws passed by state governments. He says the levy changes brought huge benefits to the insurance industry because it “could charge less and get far more customers”.

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Consumers are not well informed: Allan Fels in his Melbourne office

What insurers didn’t like was that the government and community “did not trust that they would fully drop their prices by the amount of the taxes”. Economic incentives were not there, he says. Maybe competition would achieve the desired outcome over time, but Professor Fels is not convinced. “The industry is not as competitive and consumers not as well informed to make you confident that would happen.” So Professor Fels applied the law “without fear or favour”. “We monitored the prices closely, and in some cases price reductions were not passed on and we took quite strong action. In the main case we came across, it appeared to be a deliberate strategy of taking advantage of the fall in tax to increase profit margins, and the evidence was quite compelling. It was not a mistake, it was a deliberate policy. “I do have confidence in the competence and know-how of the big players in the industry, so when I see something deviating from the law I don’t assume it’s a mistake, I assume they know what they are doing.” Professor Fels says there were community concerns that once his monitor role expired, insurers would restore previous prices. It was this concern that led him to try to shine a light on an alleged lack of competition and promote better-informed consumers in the industry. This led to two initiatives. As part of his NSW role Professor Fels campaigned to force insurers to tell consumers in renewal letters what their premium was the previous year. “There has been massive resistance to that from the industry,” he tells Insurance News. “I am extremely sceptical of their arguments that technologically this was too big an ask. I think it is quite simple to put on premium renewal notices what was paid last year. “There is usually a great deal of information on the renewal notice. It’s got any claims I’ve made, who can drive, my age, the age of other drivers, details of the car. There are many things, but the one thing missing is what I paid last year. “I think that is quite easy to tell consumers, and if we had better-informed consumers, I believe they would shop around and there would be more competition.” His second initiative was a NSW survey that showed big price discrepancies between insurers quoting for home insurance. Professor Fels says quotes for the same properties ranged from $1200 to $2200, proving competition is not working. 58

ICA said at the time that quotes vary because coverage varies, but Professor Fels says great care was taken to make sure coverage was the same. “In each survey we go to a particular address in a particular street. We specify exactly what kind of insurance we want, and we find huge variations. That leads us to the conclusion that the market is not well informed, [and] consumers would benefit from shopping around. “Insurers have disputed the validity of the comparisons, but I am not convinced because we took great care to specify in detail the sort of policy we wanted. “We went to great lengths to make sure the coverage was the same, and in any case those variations don’t explain the huge price differences. The obvious conclusion is that consumers are not well informed and they don’t shop around enough. “It is difficult. It takes time and there is a big inertia factor. Of course, part of it might be the fault of the consumer, but the insurer plays an active role by not even telling them what they paid last year.”

“If we had better-informed consumers, I believe they would shop around and there would be more competition.” Professor Fels says the principle of caveat emptor – or “buyer beware”, under which the buyer alone is responsible for checking the quality and suitability of goods before making a purchase – is not dead. “Caveat emptor is very acceptable where consumers are well informed; it works less well when they are not,” he says. “I am not proposing the end of caveat emptor, I’m just proposing that somehow better information is given to consumers.”

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So what can be done about it? Transparency about last year’s premium is a good starting point, and Professor Fels says that after “continual pressure” it will happen in NSW next year. A component breakdown of premiums would also help, and toughening up the standard cover regime may reap rewards, although Professor Fels sounds a note of caution. “I have some sympathy with that idea. I am not saying there are no problems. For example, the standard may be set too high. I’ve always been a believer in no-frills goods and services. That’s one of the components of a competitive market in nearly every sector and that includes insurance. So we don’t want to stop competition developing.” As for comparators, Professor Fels recommends a halfway house – an independent service publishing prices but not a full-scale aggregator. “I would suggest to the industry that if something like that is not done, it may face the comparator one day.” Professor Fels admits he has not followed every twist and turn of the Hayne royal commission, but he takes a particular interest in the proposal that commissions should be banned across general insurance. Consideration of such a ban has followed concerns about motor dealers selling “junk” add-on insurance, but brokers have warned it could “decimate” their industry. “Across the whole financial services sector, I am concerned about the role commission payments and incentive payments have played and I would like to see a fresh approach,” Professor Fels says. “I acknowledge that it is not easy to just move overnight from commissions and bonuses and incentive payment schemes to a fee for service, but change needs to happen on a significant scale. “Once again, the industry would probably be better off if it pushed through some significant changes of its own, rather than doing nothing and then facing onerous regulation.” He would also like to see industry self-regulation given more of a backbone. “The industry codes should be pepped up – they are not enforceable at the moment and they should be. I do think the compensation and remediation schemes in financial services pull up short of where they should be. “I’ve always thought that some forms of self-regulation are somewhat bogus. Self-regulation is better, it’s more informed if the industry and firms are committed to it.

“But so often they pull up a bit short, and then from a policy angle, do you step in and regulate with all the deficiencies and weaknesses of that, or do you leave it to very imperfect self-regulation? I hope [the new Australian Financial Complaints Authority] is a progressive step.” An argument Professor Fels keeps returning to, across a range of issues, is that the industry would do better to act on its own rather than wait to be forced into a regulatory corner. He may have a point. But many in the industry still take umbrage at his aggressive approach. Insurance News drew Professor Fels’ attention to an Analysis published on our website in 2016 after his latest levy pronouncement. “Is such negativity really necessary?” the article asks. “Professor Fels risks giving the impression that he sees insurers as nothing more than predators that regard their customers as dupes. From a person of his standing, such an attitude is damaging and unreasonable. And also unnecessary.” Professor Fels pauses, before composing his response.

“Across the whole financial services sector, I am concerned about the role commission payments and incentive payments have played and I would like to see a fresh approach.” “I’ve never used those words,” he says. “I have said the industry is not as competitive as I would like it to be and it doesn’t make enough effort to inform people. “Insurers have improved in many respects, we must give credit to the industry. But there remain some bad things that are getting worse, not better.” And he can’t resist one last jibe. “I firmly believe, if I wasn’t there in that levy regulator 0 role, insurers would have pocketed some of it.”

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Recycling risk

Fires in waste storage centres have turned up the heat on premiums By Benjamin Levy THE RECYCLING INDUSTRY faces an insurance crisis. In years past, China accepted recyclable material from Australia and other countries around the world. Some of the material, such as cardboard, was burned for fuel – a practice that wasn’t acceptable in Australia. Now China has stopped accepting recyclable material from overseas, and most southeast Asian countries have followed its lead. It is creating a big problem for the waste industry and insurers, with stockpiles of material building up at recycling sites around the country. Massive fires have erupted at recycling stations, including at the SKM Recycling facility in Coolaroo, which burned for 11 days in July last year. More than 100 fires have broken out at recycling stations over the past 10 years, with the vast majority occurring after 2012. Suncorp Group has kept a large-loss database for about five 60

years, and it has identified about 30 major fires a year at recycling facilities. Multiple fires have occurred at the same location, or at different sites owned by the same company: SKM also suffered a fire at its Geelong facility in October, and one site in Knox has had two fires. A blaze at the SUEZ Chullora Resource Recovery Park in southwest Sydney had to be contained by more than 100 firefighters, with residents and factories evacuated. As the risk of fire rises, so too has the cost of insurance. Gallagher Principal Broker Russell Boucher says premiums have risen by 5-7 times. The situation has gone beyond trying to keep premiums at a reasonable cost, and it is now about trying to keep local insurers offering policies. In the past two years, many insurers have stopped covering waste management facilities due to major fire losses. insuranceNEWS

Waste operators at the higher end of the market – with the highest underwriting risks – are struggling to put together consortiums of insurers, while for small recycling operators insurance is often unaffordable. Even well-protected businesses have seen their rates go up. Gallagher is receiving three or four times the number of inquiries compared with three years ago because some clients are unable to get insurance, Mr Boucher says. Brokers have turned to the London market – which has limited capacity for new recycling business – but it’s not a longterm solution. London insurers are more selective and premiums are twice as high as here. It is reaching crisis point for brokers placing clients, Mr Boucher says. Insurance Council of Australia (ICA) General Manager Risk Karl Sullivan tells Insurance News that part of the problem is many sites were not built to accommodate the tonnes of recycling waste that is now building up. Such sites won’t have the necessary fire-suppression systems. ICA has been working with state and federal regulators and

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recycling industry representatives for two years to find solutions for the industry. The Victorian Environment Protection Agency (EPA) is working on guidelines to lift fire-suppression standards and ensure industry compliance. If those guidelines are followed, it will become less challenging for insurers to underwrite the industry, Mr Sullivan says. State governments have taken on the burden of this problem in the absence of federal leadership. The Victorian Government has made a $37 million investment in the recycling industry, aimed at turning more waste into commercial products. The Queensland Government has introduced a landfill levy to divert waste from landfill. Gayle Sloan, Chief Executive of the Waste Management Association, says the Queensland levy regime features more incentives to use recycled material in manufacturing than any other program in Australia. The Victorian Waste Management Association is particularly active in tackling the insurance issue and has put together a support package for its members that includes training, tools and


Smouldering concern: getting cover for recycling centres is increasingly tough

AAP

“Unless their risk is as squeaky clean as they can possibly make it, then the insurers aren’t going to look at them.”

resources to help them identify and manage risks at their sites, plus support around legal compliance. ICA has found waste management operators are surprisingly business-savvy and attuned to threats to their business. “They had a range of clever ideas on how they could start to deal with this as an issue,” Mr Sullivan tells Insurance News. He says the problem must be managed to a point where either there are no large stockpiles of flammable material or the risk mitigation around them is sufficient. Some of the risk mitigation steps insurers expect include the basics – such as getting rid of stockpiles and installing latest fire-suppression systems – through to connecting security systems to fire systems so the fire brigade and security companies are warned if a smoke detector or sprinkler system is activated. Other steps include ensuring there are no fires in trucks bringing waste to the site, Mr Sullivan says. In an article published by Gallagher earlier this year, Mr Boucher says operators should ensure their machinery is regularly maintained by qualified technicians.

“Unless their risk is as squeaky clean as they can possibly make it, then the insurers aren’t going to look at them,” Mr Boucher tells Insurance News. Several brokers contacted by Insurance News suggest heightened state recycling regulations are not enough to satisfy insurers. Mario Cuenca, Managing Director of Emjay Insurance Brokers, says in one extreme case an insurer demanded around-theclock CCTV monitoring of a waste site so it could see if the business complied with conditions. Another insurer wanted a waste operator to store baled material outside; state regulations stipulate baled material must be stored inside. The operator refused. “That was a big black mark against our client,” Mr Cuenca tells Insurance News. Insurers are also demanding that waste operators restrict the tonnages they can handle. From a fire-load perspective that makes sense, but not from a business perspective. The waste keeps coming from council-contracted collectors, and it has to be stored somewhere. The crisis is also affecting property owners with recycling insuranceNEWS

businesses as tenants. If the recycling business can’t get insurance, it will affect the lease and the landlord’s risk, Mr Cuenca says. The brokers Insurance News contacted say risk mitigation has to start with the broker. That means visiting sites and examining layouts and stockpiling, and talking with site managers to see whether they exceed EPA regulations or merely conform. “We’re the front line of this, and you obviously want to help people, but they’ve got to help you help them – it has to start there,” Mr Cuenca says. Mr Sullivan says risk mitigation tends to be overestimated and doesn’t have to be a barrier to good practice. “Once you sit down and look at the systems that are required, and particularly alternative systems that are ‘deemed-to-comply’ systems, it’s not often prohibitively expensive.” Many operators have invested very little in their businesses from a mechanisation, processing and fire mitigation perspective, Mr Cuenca says. They can benefit from rectifying this. Gallagher’s Mr Boucher says poorer operators are mostly responsible for the fires and

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need to be removed. “If the industry can weed out these backyarders, it will obviously improve the risk,” he says. Mr Cuenca says Emjay has turned away several potential clients that are in denial about the need to improve risk management. But that is a very small percentage of the industry, and these operators will either close or sell out to someone else, he tells Insurance News. “As brokers, we need to collaborate and look at the moral hazard of the business.” He says the vibe of how a business is run, what the manager is like and their attitude towards compliance and risk in general are important. There is no quick and easy solution to this situation. Australia doesn’t have the kind of manufacturing industry that can use the plastic waste in bulk, and building a local recycling industry or searching for other markets overseas takes time. Insurers must rely on waste operators to do the hard yards and show them it is still worth offering waste management insurance. “If you work with a client and they’re good businesses, and they are aware of what’s going on, you can get it done,” Mr Cuenca says.0 61


Sure thing At its one-year milestone, Insurtech Australia is excited to see start-ups gaining traction at home and abroad By Bernice Han

INSURTECH AUSTRALIA IS ON A ROLL. A fruitful first year has the industry body brimming with confidence that the sector can scale new heights this year and beyond. “I’m really excited for 2019,” Chief Executive Simon O’Dell tells Insurance News. “We are going to build on the foundations we have achieved. “There is a lot of interest and a lot of capital being deployed into insurtechs globally and in Australia. We have created a lot of good channels into other international markets and other international ecosystems. “We will continue to leverage that to help our members.” When Insurtech Australia was launched in October last year, the mission was crystal clear: advance the growth of the nascent insurtech community. And the non-profit body, a standalone division of Fintech Australia, has since been busy laying the groundwork to achieve its goal. All that hard work, as the results suggest, is paying off. It co-hosted a successful Insurtech Conference and launched a state-of-the-industry report in partnership with founding partner EY. And a working trip to Europe gave invaluable insights to the 40-strong delegation. The five-day dash to London and Munich – sponsored principally by the body’s founding partners Munich Re and Macquarie – is one of the standout stories for Mr O’Dell, who in May succeeded Brenton Charnley as chief executive. Codafication, one of 10 insurtechs picked to join 30 insurance executives on the trip, came back a winner. It was among six start-ups from around the world to receive an award from the Digital Insurance Agenda conference, Europe’s premier 62

insurtech forum. Its strategic impact award speaks volumes about Australia’s band of thriving insurance innovators. “Certainly, Codafication winning the award is a highlight and recognition of our insurtechs globally and their strengths,” Mr O’Dell says. There has been a stream of interest from potential partners and investors since the trip, and that augurs well for the sector. “We have actually received multiple emails over the past couple of weeks from partners in venture capital firms in Europe wanting to understand who they can speak to in Australia,” Mr O’Dell says. “The trip was very productive, one of the single best things for the local ecosystem.” Insurtechs have come a long way since they emerged on the scene a few years ago. Billed initially as disruptors, the narrative has evolved to reflect growing engagement between them and incumbent insurers. The interest from Australian insurers shows no signs of easing. Whether it’s with local or global startups, Australian players are stepping up with investments and partnership deals. “The industry identifying insurtechs as an opportunity, and consequently engaging with [them], signals a maturing of this ecosystem,” Mr O’Dell says. “We are catching up to more mature markets such as New York City, London and Munich, where insurtechs have gained much more traction and incumbents are already realising significant value through partnerships.” Engagement and collaboration with insurers have been central to the strategy for Insurtech Australia. That has been obvious since day one: its founding partners and sponsors include QBE, Suncorp, IAG, Munich Re and AUB Group. insuranceNEWS

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“There is a lot of interest and a lot of capital being deployed into insurtechs globally and in Australia.”


Making progress: Insurtech Australia’s Simon O’Dell

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Here to help ENABLING THE FUTURE OF INSURANCE, rather than disrupting the sector, is the defining trait of insurtechs in Australia, according to the annual EY FinTech Australia Census. The census report says insurtechs continue to make inroads, principally by demonstrating they are allies of incumbents confronted by the rapid pace of digitalisation. Crucially, incumbents have reciprocated. “They recognise the core strengths of insurtechs: innovative application of technology, speed to move from ideation to a proof of concept and attitude to challenge the status quo,” the census report says. “Insurtechs are working with incumbent insurance players to challenge and test all parts of the insurance value chain. “This collaboration among different players in the wider insurance ecosystem is resulting in a new approach to product development and service delivery, and enabling risk management and risk avoidance rather than simply responding when incidents occur.” Insurtechs offer new ways of creating value for incumbents and consumers. Their tech-driven solutions are customercentric, scalable and align to the needs of consumers, the census report says. Their strengths complement the five key areas where insurers want to build expertise: connected devices, artificial intelligence and machine learning, blockchain, data analytics and platforms. While collaboration is on the rise, some insurers have been less welcoming. They still see insurtechs as a threat or find it challenging working with them, the census report says. Perry Abbott, Chief Executive of peer-topeer insurer Friendsurance, echoes this. “Some of the insurers, as you would expect, are deeply protective of their positions and spending a lot of money doing that, as… their shareholders expect them to do,” he tells Insurance News. “They have every incentive to maintain the status quo. At the end of the day, I don’t want to maintain the status quo and that’s my job, to bring something new to the equation. “What incentives exist in the insurance industry to create innovation and competition? Not enough.”

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“The bulk of insurtechs out there in the Australian market, and also globally, want to help insurers do a better job.”

Outsiders may find that odd, pairing with insurers. But insurance is different from other industries. Because it is about management of risk, it makes sense to collaborate. It partly explains why the industry has yet to see an Uber-equivalent upend the value chain, as the ride-share pioneer has in the cab market. “Insurance is a complex product, so you kind of need to work with the incumbents to generally develop or create innovation, and in doing that there is always going to be more incremental change,” Mr O’Dell says. “It’s more complex than getting from point A to B in a vehicle.” Insurtechs are extremely keen to engage with long-standing players. “The bulk of insurtechs out there in the Australian market, and also globally, want to help insurers do a better job,” Mr O’Dell says. “A lot of insurtechs are out there communicating propositions to insurers that they can halve their average claims cost for motor and home and business, through technologies, efficient loss adjusting and things like that.” Insurtech Australia’s emphasis on engagement and collaboration is producing results, as evidenced by the trip to Europe. The stop in London included visits to EY’s office, Lloyd’s Labs and Instech London. In Munich the insurtech conference opened the door to networking opportunities and investment pitches to insurers and venture capital groups. “We will continue along with raising the level of understanding among the industry, which I think is really important,” Mr O’Dell says. insuranceNEWS

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Perth-based Evari is among insurtechs working to build its network, to grow locally and beyond. It has a partnership with RAC Insurance, is a Lloyd’s coverholder and recently teamed up with online business assistance group Honcho to include insurance in a one-stop shop for start-ups. It opened a London office in August to oversee growth in the UK, Europe and US. “It’s been a great year for us,” Evari Chief Executive Daniel Fogarty tells Insurance News. “We are getting traction in the market, which is good. “From an industry point of view, I think we have seen a maturing of insurtechs and maybe that is also what we have experienced.” Mr Fogarty, who was Zurich Australia and New Zealand chief executive before he co-founded Evari, is a firm believer in engagement and collaboration. “Our key goals [involve] how many partners we can work with so the partners can leverage our technology. Our challenge is, how do we find more and more insurance partners in Australia and elsewhere who want to use our technology platform as a service?” The upcoming Insurtech Conference, backed by Insurtech Australia and organised by the Australian and New Zealand Institute of Insurance and Finance, is a great example of key players working together. “The great thing about Insurtech Australia is, it’s got the big established insurance companies as well as insurtechs, and we are all focused on working together to make Australia a great place for insurance innova0 tion,” Mr Fogarty says.


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2018 Insurance TV Ad Awards Lead Agency Managing Director Andrew Silcox and his team judge the TV ads that got across their message – usually with emotion or humour (or both) NRMA’S ADVERTISING campaign “Insurance Confidence” won our award for the overall best television commercial of 2017. Now we run the rule over the ads that have made an impression (good and bad) in 2018. As AI (artificial intelligence) and machine-learning begin to enter the mainstream consciousness, it’s interesting to see how we react. From fear-mongering that robots will take over our jobs (McKinsey Quarterly has quoted that 800 million global workers will lose their jobs by 2030), through to Google’s AI backtrack as it turns out we’re not keen to speak to a computer that has been engineered to mimic conversation (including saying “er” and “umm”); how we see ourselves and our lives are front of mind. Perhaps as a reflection of this, insurance advertising in 2018 has been dominated by focusing more on human-interest issues, rather than on any specific value or benefits of their insurance. As such, this year, we’re adding a new category: Best Issues-Based Advert. 66

BEST ISSUES-BASED ADVERTISING Criteria: Awarded to the ad that uses a human-focused issue to articulate the value proposition of the brand Winner: NRMA Christmas Advert 2018 #DontDriveNaughty NRMA Insurance’s ad encourages parents (and the rest of us) to slow down and turn off our mobile phones while driving to keep our families safe, especially during the holiday period. Introducing the tagline “Don’t Drive Naughty, Drive Nice”, the ad sees NRMA Insurance focus not on its insurance, but on reminding Australians what Christmas is about – family. The ad tells the story of a young girl who must find a way to get her stressed dad to pay attention to the road and turn off his mobile phone while driving. Her animated pink bunny toy helps her to avoid an accident and reminds us all that while there’s immense stress around finishing work and getting the family on the road, NRMA Insurance wants to make sure that Australians are driving safe, bringing to light what is most important. So where’s the insurance speak? Where’s the features and benefits? Where’s the mention of insurance? In this ad, it’s not as important as the message of remembering to slow down and not take unnecessary risks. This ad does a great job of using insuranceNEWS

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an emotional idea that we can all relate to. The clever use of the father, daughter and imaginary friend in an all-too-familiar situation for most of us endears us to the issue. What’s clever is the way the ad doesn’t mention insurance but still brings a clear link between caring, safety, minimising risks and the NRMA Insurance brand. WHAT WE LOVE: `` The ad subconsciously builds IAG’s NRMA Insurance brand as one that cares about the wellbeing of its customers with its tagline and creative focusing on communicating the dangers of distracted driving `` By using a situation that many can relate to, the ad pulls on the heartstrings and gets the attention of the viewer without being pushy or outlandish. WHAT CAN BE IMPROVED: `` The only possible danger (see below) is that the ad could really be promoting anything – it may be too subtle in convincing people to choose this brand for their car insurance.


Runner-up: QBE (SA) Safer Roads

When it can go wrong

QBE worked with SA schoolchildren on the creation of a series of road safety videos. We’ve grown up in Australia watching a series of more and more shocking ads showing the horrific outcomes and dangers on our roads. QBE tackled this issue in an innovative and engaging way. The children show framed pictures of their families and tell a story about them, cleverly humanising the images. We then see the devastation an accident can cause to families as these pictures are catapulted into different objects and smash in slow motion (mimicking the scenes we’re used to of cars and crash test dummies). The ads are then shown to the parents of the children with a personal message from each one to be safe and be careful. As any parent will tell you, there are few things more persuasive than your child telling you to do something you already know you should. WHAT WE LOVE: `` Bridges the delicate balance of showing the danger without scaring us and shows a positive emotional presentation of the issue `` The familiar scenario that we can all relate to `` What’s not shown here is the integrated campaign that included radio and digital advertising, which expertly complements this creative. WHAT CAN BE IMPROVED: `` The advert is entertaining and deliberately avoids mentioning insurance. However, this is a potential pitfall because that message could easily get lost.

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The problem with issues-based advertising is that it can be difficult to align the issue with the brand. More specifically, the focus on that issue can render it difficult for the viewer to recall the brand and the message. Advertising is a unique challenge; a good ad manages to touch viewers, engage them, make them remember the brand and have a positive association with that brand. However, sometimes an ad can miss one or all of those requirements. One such example is the campaign of NRMA Insurance’s IAG stablemate CGU – Hamid’s Story: As Australian As It Gets. We’re definitely admirers of CGU’s continued focus on business insurance. Kudos has to go to the company for a great premise: it found that almost a third of small business owners in Australia are migrants. Small business and migration are hot political topics, so combining them is brave. The story around the ad is great, Hamid’s challenges are something we’re all aware of (and should be ashamed of). Even better, his perseverance and dedication is testament to how Australians’ legendary grit and determination has been formed through migrants from a range of backgrounds. Unfortunately, from a marketing viewpoint the creative misses the mark. In the end, there is no link between the story of what Hamid’s struggle represents and either CGU or insurance. Put almost any Australian brand at the end of this video and the ad would have the same effect.

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BEST PRODUCT-FOCUSED ADVERTISING Criteria: Awarded to the ad that clearly articulates a feature of the product while entertaining and engaging the viewer  inner: Budget Direct – Insurer W of the Year Let’s not argue about why or how Budget Direct was judged the insurer of the year in one of an increasingly confusing number of such awards – it has taken the (arguably more coveted!) prize of Insurance News’ best product-focused ad of 2018 too. The “Insurer of the Year” ad cleverly tells the viewer straight off that Budget Direct was voted insurer of the year, by following an unfortunate and compulsive office worker who is trying to clear up confetti after the party. At the end of the ad, they find out they’ve won again – cue more confetti! Winning an award can give a “seal of approval” to your business and is often perceived as a sign of quality for potential customers – although such awards vary hugely in the quality of their judging. It’s also a great way of differentiating your company from competitors. In this ad, Budget Direct skilfully sends out positive signals to customers by articulating its winning status, while entertaining them with humorous execution. At the same time, the compulsive behaviour and attention to detail of the proponent in the ad promotes the idea that everyone in the business will focus on the detail too. WHAT WE LOVE: `` Simple execution of proof: winner of an insurer of the year award twice in a row doesn’t get much clearer `` The creative is very funny throughout and will keep the viewer’s attention, building to a hilarious end. WHAT CAN BE IMPROVED: `` It doesn’t specify the type of insurance it provides or any of the value-add features that won it the award `` However, communicating the award should be enough to convince potential buyers. 68

Runner-up: GIO – Linda and Lindsay Helping people to understand the differences between products is the white whale of insurance. Much akin to a poodle passing a Pepsi can, it’s almost unattainable but doesn’t stop people trying… GIO managed to do this in its “Linda and Lindsay” ad, which features a couple going for a night out organised by their teenage daughter, who “coincidentally” is left home alone. A quote from GIO’s campaign agency sums up what it successfully achieved with this ad: “To get people to stop and question their cover, we focused on the moments before a potential accident, because that’s when knowing what you’re insured for counts.” It also enlisted the help of a great comedian to boost the brand. Think ING’s use of Billy Connolly. Now add the ultra-dry Australian comedian Shaun Micallef as a narrator and you’ve got a clever ad that clearly identifies an area of insurance to consider. WHAT WE LOVE: `` Uses humour to highlight just one scenario where accidental damage cover may come in handy – something parents of teenagers need to consider `` Emphasises the main benefit of insurance: peace of mind. With the policy in place, the parents can enjoy their night out without having to worry about their home. WHAT CAN BE IMPROVED: `` The ad is focused on accidental damage cover, but we’re left wondering how much an insurance policy would really do for the parents left to clean up after a teenage party. In the same thread, Allianz released an ad with the same premise of what may happen when you leave your teenage daughter home alone. Unfortunately, it missed the mark with its creative. Its “Dare To” ad is unpolished compared to the more subtle approach of GIO and shows how a great script and creative idea can make or break an ad campaign. What’s more, it’s hardly what we would consider “daring” to leave your teenage daughter in charge of the house for an evening. Bring back the classic Allianz ads: dull, in some cases cringe-worthy, but accurate and easily understandable.

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Special mention: AAMI – Shame Lorraine The go-to format for an insurance ad is to show something that may go wrong in your everyday life, in an exaggerated and often amusing way. Our winner last year, “Insurance Confidence”, perfected this with the Captain Confidence series. However, in some cases advertisers can be accused of scaremongering when they take this a step too far. AAMI’s “Shame Lorraine” took a very light-hearted approach to this type of campaign with the use of a feline cat burglar. The cat, Lorraine, goes around the neighbourhood stealing different items and bringing them to her owner, which provides a nice tie-in to AAMI’s contents insurance for renters. And, of course, no AAMI ad is complete without the appearance of its call centre representative and jingle. What we’ve also noticed over the past few years is AAMI showing call centre staff outside of the office and with their customers. It’s another positive approach to selling a brand and association around service. WHAT WE LOVE: `` The ad is light-hearted, which gives viewers a positive feeling rather than focusing on negative motivators like fear `` It has a defined target market. It’s not just promoting contents insurance, it’s promoting contents insurance for renters. This could have been more clearly articulated in the creative – but it gives great opportunities for targeting potential clients with a specific and relevant message. WHAT CAN BE IMPROVED: `` AAMI still insists it’s “Not Very Insurancey”. We understand it is trying to use this tagline to distance itself from the negative images that insurance companies have, but at the end of the day it is an insurance company, selling insurance cover. It could make more of an impact if it works out how to articulate the features 0 and benefits of what it offers.  70

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How to find the ads mentioned in this article on YouTube: NRMA Christmas Advert 2018 #DontDriveNaughty https://youtu.be/QzzknZK36FQ QBE (SA) Safer Roads https://www.youtube.com/watch?v=v4tr66rnRpI CGU – Hamid’s Story: As Australian As It Gets https://www.youtube.com/watch?v=e--hwGC4Kqc Budget Direct – Insurer of the Year https://www.youtube.com/watch?v=7tsBDq4pLgU GIO – Linda and Lindsay https://www.youtube.com/watch?v=37AjfTsN6xk Allianz – Dare To https://www.youtube.com/watch?v=bFYqBKtNRjI NRMA Insurance – “Confidence” https://www.youtube.com/watch?v=sH7Tsk7BR2c AAMI – Shame Lorraine https://www.youtube.com/watch?v=6XFz-kncUtE

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From Myth to Reality: Looking Beyond the Royal Commission By Catherine Osborne

When I reflect on what has kept me busy throughout my professional life, apart from human error, greed is a constant theme. Greed is often the impetus for conduct which disregards the interests of others or for fraud. In ancient Greek mythology, Greek gods and goddesses were much like people. Their actions stemmed from basic passions and drivers of human behaviour including love, desire, greed, pride and jealousy. Greek myths abound with stories in which things were not what they appeared to be. The myths were a guide to life. The gods rewarded honourable behaviour and obedience. Those who dishonoured themselves or defied the gods were punished.

for herself or himself at the expense of others or to design a fraudulent scheme. The task at hand is to reduce, as far as possible, the opportunity for fraud to occur and to ensure that the people tasked with looking after the financial affairs of others are honest, trustworthy and are rewarded for so being. Alas, often it is “the trusted employee” or “the person no one suspects”, who is the perpetrator! The Interim Report In his recent Interim Report, Commissioner Hayne detailed some poor conduct in the banking and superannuation sectors and asked “Why did that conduct happen?, “What can we do to prevent it happening again?”. The Final

Apollo and King Midas’ by Simon Floquet, c. 1634 The King of Phrygia, Midas, was known for his wisdom but also his greed. Dionysus had warned Midas about the dangers of being granted his wish that everything he touched would turn to gold. Midas ignored the warning. Ultimately Midas begged that the “curse” of his “Midas touch” be removed. He was unable to eat, drink or do anything normally as everything he touched would turn to gold. The underlying causes of some of the issues which we now face in the provision of financial services have been around for thousands of years. Sadly, no matter what systems, checks and balances are put in place, there will always be someone who is looking to carve out a profit

Report, when delivered in February 2019, will undoubtedly identify similar themes in relation to insurance. Already we have seen case studies of conduct which is, quite frankly, embarrassing. I have spent most of my professional life representing people and entities in the insurance and reinsurance sectors. These include brokers, intermediaries, insurers, reinsurers, underwriting agencies and insureds. My experience of the industry has been overwhelmingly positive. Insurance is the backbone of our society and economy. In order for our economy and society to function properly we need a secure, thriving and profitable insurance sector in which the public

has trust and confidence. The industry is full of so many thoroughly decent people who are genuinely interested in acting in the best interests of their clients and customers. The Way Forward The industry needs to do whatever it can to address the problems. Commissioner Hayne lays blame at ineffective regulators. We all know however that the effectiveness of a regulator depends largely on the amount of funding the regulator obtains from government in order to be able to recruit good people and brief out to high quality external lawyers so as to maximise decision making, forensic review and prosecution of contravening conduct. While increasing the funding to regulators is important, curbing poor conduct by regulation is a last resort. One solution lies in taking preventative action such as: a. recruiting the right people; b. conducting regular and thorough training; c. rewarding employees who contribute positively to customer/client satisfaction and display sound values; d. ensuring that remuneration is not based solely on profit; e. ensuring proper supervision, accountability and effective controls; f. senior executives shaping the culture of organisations from the top down; and g. boards holding management accountable for cultural issues. In order to minimise the opportunity for contravening conduct, organisations need to ensure that culture is not just talked about but that it is “lived and breathed”. People who exhibit exemplary behaviour and contribute to shaping a brand that connotes trust and confidence, in addition to enhancing profitability, should be rewarded and promoted. Business as usual needs to be about integrity and what is in the client’s/customer’s best interests. I have no doubt that the insurance industry will meet and respond appropriately to the recommendations yet to be made by Commissioner Hayne. The industry will be strengthened as a result.

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Here’s why we do it the way we do it The recent Insurance News survey threw up a wide range of assertions and questions that deserve to be answered By Terry McMullan, Insurance News Publisher

IN ANY BUSINESS IT’S IMPORTANT TO know what your customers think. In the publishing business it’s even more important, because their views on how effective you are can be the difference between sinking and swimming. That’s why we survey Insurance News readers every few years – certainly to establish where we stand compared with our competitors, but most importantly to gain some understanding of our readers’ attitudes to us. Do you value what we’re doing? What would you like to see us doing more? How can we do better? Our latest survey, which was completed last month, resulted in more than 3000 responses from our nearly 26,000 subscribers, achieving what the market researchers call a “robust” sample. To those who responded, our sincere thanks. There were plenty of questions that invited readers to compile their own lists. We invited you to list “any additional topics you would like us to include”, and slyly repeated the question later by asking: “What additional services you would like us to offer?” And then we asked you to provide “other comments, queries and feedback”. The answers to such loosely worded questions could probably be neatly bundled up via a computer program, but the gold is often hidden in the way such responses are framed. It took a while to read all 17 smallprint, close-typed A4 pages of responses, but it was rewarding. I don’t propose to share detailed comments from readers as to their views on our future directions, because why give competitors an even break? But survey respondents should be assured the Insurance News team is already discussing and working on the best ways to respond to many of your suggestions. Again, thank you. However, we can share some points raised in the “comments, queries and feedback” section. Now, some of the following responses may seem a tad defensive considering the comments have been made by people who’ve taken time out to respond to a survey. 72

But the realities of the situation need to be understood, too. Advertising, for example. So let’s start there. 1. Advertising Insurance News employs seven experienced journalists and five support and services staff – far more people than any other insurance industry publication. Its daily and weekly online news and the magazine are published at no cost to readers. Our sole source of revenue is advertising. It’s a symbiotic relationship: we produce news and information products that attract a large industry readership base, and advertisers buy space to reach that base. We have avoided – and will continue to avoid – intrusive advertising such as pop-ups. But despite some readers’ protests about advertising, our growing range of news and information services will always feature advertising. Lastly, our advertisers deserve your attention. So click through from their ads and remember: supporting them is the best way you can support us. 2. Breaking News should always be breaking news We know that, and we have strict, self-imposed guidelines to ensure that only news of importance across the industry gets published. Prior to the introduction in October of our new insuranceNEWS.com.au Daily service, news that didn’t make the cut for a breaking news item had to wait until the next Monday for mention. That often made it “stale” and prone to being overtaken by later events. It’s not a problem any more, and going by the number of subscribers accessing the Daily between Tuesday and Friday, there are plenty of news junkies in the insurance industry. 3. Clickbait? Some readers complained that emails alerting them to a Breaking News item provided insufficient detail, forcing them to click through to the article. In the parlance of the internet, that sounds like it could be clickbaiting. insuranceNEWS

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In the face of some passionate objections to this practice, we plead guilty. In mitigation, we point out that it’s a First World problem. If we gave you all the details in the email, you wouldn’t click through to the article, and the advertiser who’d paid for the space alongside the article wouldn’t be happy. It’s much the same as the infuriating ad that chops into your YouTube viewing, or Facebook’s pop-ups, or the way the mainstream media attracts you to an article before demanding your money to continue. It’s how advertising works today, and we’ve done all we can to limit the annoyance factor. But some critics feel we should just email the article and lay off the flim-flam. The biggest difference between our online Breaking News items and that of our most significant (but not very) competitor’s similar service is this: the survey shows our news is overwhelmingly regarded as relevant and worth reading, and theirs isn’t. And you won’t find a pop-up ad between you and the article, either.


4. Are we overdoing climate change? “Tone down the climate change hysteria – the science is far from settled on ‘manmade’ global warming… [etc etc].” We had a couple of responses similar to this one. Yes, we do cover global warming and its causes and effects quite extensively. It’s a subject of vital interest to the insurance industry. It’s one of the most important things we can do. We won’t stop or even tone down the coverage – it’s too important. 5. Why don’t you run industry awards like that other publication? Because we’re not cynical enough. We conceived the annual Mansfield Awards for Claims Excellence because we can accurately measure and check insurers’ claims performance via surveys and the data of our awards co-founder LMI. But that’s where we draw the line, because without independent data that genuinely compares apples with apples, awards devised purely to suck in advertising are self-serving and could deceive insurance buyers. 6. Does our reliance on advertising revenue from insurers affect the independence of Insurance News? Several survey respondents accused us of a “pro-industry bias” in our reporting, or even “patting the industry on the back”. They were nice enough about it, making the point that we rely on advertisers for our existence. Trouble is, it’s not true. Beyond moving an ad to ensure it doesn’t appear alongside an article critical of the advertiser, our editorial function has no real relationship to our advertising. Our reporting is based around the need to ensure the original information we’ve received is true and the resulting report is properly researched, factual, fair and accurate. Advertising has nothing to do with it. “Fair” is a better word than “balance” in our reporting, because while we need to tell the critics’ side of an issue to ensure context, we’re very often more interested in carrying the industry’s point of view – because that’s the opinion most disregarded by mainstream media covering the same issue.

The industry’s point of view is the one that insurance professionals will have most difficulty finding and the one they need to understand most. Our recent week-long blog for the insurance round of hearings at the Hayne royal commission – plus any number of critical examinations of industry practices and criticism of individual companies’ practices over the past 10 years – is hardly turning a blind eye to the industry’s faults. Nor is our recent reporting on brokers’ anger with insurers’ flagging claims performance. As to the power of advertising, Insurance News has run many stories that companies wanted us to not publish. But while there has occasionally been shouting down the phone, we have never had a company cancel its advertising, or even threaten to (see above). Where a politician, radio commentator or other critic engages in a bit of insurance-bashing, which is hardly a rare occurrence, we think Insurance News has a right to examine their motives and point out inaccuracies in their argument. If we don’t, nobody else will. And I don’t think that makes us biased. 7. Are we just “a conduit for industry press releases”? Ouch, that one hurt. We get our information from a wide variety of industry sources, and the proportion of stories raised through press releases is about the same as for mainstream newspapers. The whole news business uses press releases, but unlike some competitors Insurance News doesn’t publish press releases in the form they are received. Sometimes companies hide behind their press releases, particularly, of course, when they are explaining things that will embarrass them – like staff lay-offs, management executions or falling performance figures. You can rely on some important details being missed out. Whether it’s about something “big” or just a routine appointment, company achievement or event, professional journalists will always check the details with the source of the release and try to build on the information they’ve been given. They will insuranceNEWS

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check the facts and write their own story, their own way. A press release should never be anything other than a starting point. 8. Will we stop printing the magazine? No. Our action in putting Insurance News magazine online from the October edition certainly won’t affect our intention to maintain the print version. Some respondents said they would support an online-only magazine for environmental reasons, but about 9000 subscribers love the print magazine. And we love seeing it on the table every time we step into an insurance industry reception area. While the print magazine’s existence is guaranteed, the online version does provide some new opportunities for advertisers. Insurance News magazine will now reach a larger and more geographically diverse readership throughout Asia-Pacific, and may well take on a life of its own as we explore the possibilities that an online magazine offers. Several readers complained about the environmentally unfriendly plastic cover the magazine was delivered in. You will now note that since the last edition, the magazine’s plastic cover is guaranteed fully biodegradable within three years. We listen and we act! 9. So, what else? Lots more, actually. I could comment on the hundreds of comments saying simply “keep up the good work”. Some random favourites: “The support provided by your business to the insurance industry is very valuable.” “Very good publication. I’d like to see it continue and remain independent.” “Love the website, love the magazine, great job, team!” And so on. Among the bouquets are a few brickbats, mainly based around the issues I’ve covered above. The favourable comments spur us to stay focused on giving the industry news and information professionals can rely on to be accurate and useful. The critics, though small in number compared with the enthusiastic supporters, are equally appreciated because they remind 0 us we’re still a long way from perfect. 73


Risks on the road From kangaroos to credit hire – an insurer casts an expert eye over emerging risks in the fleet insurance business By Steve Hamilton, Business Development Manager at Fleetsure

GRANDMA USED TO TELL THAT ONE LITTLE problem can lead to a bigger problem, which is especially true in the fleet business. Here’s a few examples of emerging risks, illustrating how claims costs can escalate, but not necessarily because of the initial cause. Kangaroo impact: With much of eastern Australia now in drought, collisions with kangaroos have increased – and will continue to increase. The presence of kangaroos grazing or moving along the roadside, even during daylight hours, is much more common than in “normal� seasons. As well as country areas, outer urban areas now face a much greater risk of kangaroo collision. As an aside, European car manufacturers faced the unusual problem of writing software for Vision technology that could identify the unusual spring of the kangaroo, not just the four-legged gait of deer and other northern hemisphere animals on the road. These same technologies that make vehicles safer also result in much more damage from front or side kangaroo impacts. Skipometric*, or macropod metrics, indicate that the increase in these losses will continue. Flash tradies: The fringe benefit tax exemption for utilities driven by many businesspeople has seen a huge take-up of “luxury utes�. The Hilux SR5, once the king of the high-end utility market, is being challenged at a similar price point by the “Euro-ute� contenders – VW’s Amarok and now the Mercedes Benz X Class. Insurers and brokers will have to deal with the repair cost impact of these very prestigious brands becoming much more common in fleet schedules. The days of $700 premiums for a tradie’s utility are gone, along with the Australian-made Holden and Falcon utes. Exhaustion: The targeted theft of expensive catalytic convertors in exhaust systems, notably in Isuzu trucks, has increased dramatically. Thefts from truck yards of numerous exhausts have seen many claims of tens of thousands of dollars. A single unit can cost up to $12,000 to replace. A simple way to mitigate this risk has seen owners spot-welding the attachment bolt holding the exhaust units in place. Metal fatigue: In ageing concrete pumps and reach stackers, many of the units imported to Australia a decade ago are starting to experience collapse losses from metal fatigue. The quality of metal alloy being used in certain countries of manufacture, while keeping original prices down, has seen a reduced lifespan for some machines, so there are often collapse losses as the items age. 74

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Most insurers have now identified these units and cover is becoming harder and harder to source. Traffic control and attenuators: The widening of motorways and new tunnel projects sees a huge amount of road work being undertaken alongside busy high-speed roadways. Attenuators (vehicle-mounted crash barriers) used for protecting areas around road workers are becoming commonplace in the fleets of many civil and roadwork-related accounts. These units are designed to absorb the impact of crashes and are a very cost-efficient way of avoiding injury and saving lives. However, these crash magnets are expensive to fix after being hit by a speeding car. Free windscreens: There is no such thing as a free lunch! Excess-free windscreen claims have historically had little impact on overall fleet claims costs and in turn premiums. Until a few years ago windscreen claims were generally a few-hundred dollars, hence the excess-free benefit being provided by most insurers. Windscreen supply companies have for years said to clients, “Claim your free windscreen from your insurance policy.� These replacements were usually undertaken without alternative quotes being obtained or an assessment process. With many vehicle windscreens now having inbuilt vision, temperature, light and rain sensors, replacement and claim costs have increased from a few-hundred dollars up to a few-thousand dollars in many modern and most luxury vehicles. These larger repair costs have a direct and substantial effect on premiums. Free hire car: The supply of hire/replacement vehicles to innocent third-parties has seen the birth of an industry (credit hire) of often unscrupulous vehicle providers who are attempting to gouge the “at-fault� clients’ insurance policies. In addition to third party demands for repairs of their vehicles, demands are now being made from credit hire companies for replacement vehicles at exorbitant costs. While most clients and the entire insurance industry happily accept the liability for the fair cost of “making good�, the emergence of gouging by vehicle providers is creating an unprecedented expense that will be built into premiums. We recently received a demand for a $45,000 car hire following damage to a 2014 Audi Q7 – even though the hire cost alone surpassed the pre-accident value of the damaged unit. The impact of these type of rorts will be ultimately 0 factored into insurers’ pricing. *Skipometric analysis is not a real thing

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Driving safety: a large fleet brings large risks

Safe travels A community care group has won plaudits for its fleet risk management By Wendy Pugh

WHEN YOU OVERSEE A FLEET OF drivers travelling more than 35 million kilometres a year through cities, towns and some of the country’s remotest areas to deliver community services, road safety is a priority. UnitingCare covers its Queensland and Northern Territory operating region using more than 2100 vehicles, and with more than 2000 staff driving their own cars. And it has harnessed training, telematics and other systems to become a leader in managing fleet safety. The non-profit’s achievements were recognised for the third time in seven years at the latest RM Advancer awards, established by Suncorp insurer Vero to recognise risk management excellence. Fleet Operations Manager Mark Stephens says efforts over a decade have reduced crash numbers, established a broader safety culture, enhanced vehicle 76

values and allowed more resources to be directed towards front-line services. The organisation, part of the Uniting Church network, assists the aged, people with disabilities, Indigenous communities, children and families. The fleet overseen by Mr Stephens travels as far as Australia’s far north and to Docker River in the Northern Territory’s southwest corner. Mr Stephens regularly meets with Vero and broker Aon to review risk mitigation strategies as key issues change and innovative approaches become available. “All of my risk management strategies and my fleet safety strategic plan have evolved through that direct relationship with Aon and Vero,” Mr Stephens tells Insurance News. “It is a definite partnership.” Outside input helps identify risks that may otherwise be overlooked, while the insuranceNEWS

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insurance sector can provide industry data to drive various proposals. “I have leaned on both those parties when building my business cases up for things such as satellite tracking… or anything we do that requires a business case,” Mr Stephens says. “At the end of the day, for every $50-$60 we save in the operating of our fleet, that is an extra care hour delivered back into the community.” The strong focus on fleet safety began a decade ago when the fleet team worked with Queensland University of Technology’s CARRS-Q research program and the RACQ to deliver training resources and driver education programs. Mr Stephens says more recently the National Disability Insurance Scheme rollout has shaken up the business environment, with commercial operators active in areas once dominated by non-profits.


“Over the years we have constantly evolved and reinvented ourselves and our approach as our risks have changed.”

Winners: from left, UnitingCare’s Mark Stephens and Kylie Hawkins, with Aon’s Michael Hambleton

Business incentives for risk mitigation have increased as busier urban environments heighten collision threats, while sophisticated technology in vehicles makes repairs more expensive. Burglary has also become a fleet issue, with thieves breaking into properties to take car keys as new technology nullifies old techniques for opening doors and hot-wiring vehicles. The trend has been addressed with a property audit that included key security. Separate issues arise over responsibility for the “grey fleet” – vehicles that aren’t owned by an organisation but are used for business travel. “As soon as you start paying a person a kilometre allowance, that car becomes their workplace and the workplace laws are quite clear,” Mr Stephens says. “You have a responsibility towards ensuring the employee has a safe workplace to operate in, and that is the car.” Oversight of these vehicles has moved to fleet operations, rather than staying with local managers, with systems in place to ensure driving licences are up to date and cars are appropriately insured and serviced. The organisation has continued to expand its education program and has developed “toolbox talks” on risks such as increased kangaroo strikes and car park crashes.

It collects data on driving behaviour, crash rates, traffic infringements, vehicle theft and other relevant measures as part of its education and risk management focus, and is adopting new technologies to gather and analyse information. Plans include expanding a telematics trial to a pilot of more than 100 vehicles, with the aim to roll it out across 1200 pool vehicles. Satellite tracking also offers potential benefits, such as for safety in far-flung areas. The overall aim is to improve driver behaviour, journey management, vehicle performance, service productivity and customer satisfaction. Mr Stephens says premiums were rising by “considerable amounts” when he took on management of the fleet, but the programs put in place with input from Vero and Aon have helped curb rises. In some areas, claims loss ratios of up to 120% came down to about 65%. The fleet’s asset value has also increased, with used vehicles bringing higher prices at resale auctions. “I have sold, sight unseen, trucks of vehicles into Tasmania and Perth and that is based on the quality of the product,” Mr Stephens says. “They are going to people with no dints or scratches and so forth, and a good crash history.” UnitingCare was encouraged by its broinsuranceNEWS

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ker to enter the RM Advancer commercial category for organisations with more than $100 million annual turnover. Awards were also presented in workers’ compensation and liability and SME categories. Suncorp Executive General Manager Darren O’Connell says the awards have evolved since they started 13 years ago and highlight not only risk manager achievements but the benefits of a holistic approach. Vero aims to establish longer-term relationships, to work with brokers and clients beyond the risk transfer role of insurance as risk management programs are developed. “No one wants their business to burn down, no one wants employees to get injured, but you need to look at it a lot more broadly than that,” Mr O’Connell says. “Staff engagement, productivity, all those things come into risk management. The risk transfer is but one facet.” Mr Stephens plans to continue exploring new technology and programs to improve safety at UnitingCare, and says the three RM Advancer awards it has received reflect that journey. “Over the years we have constantly evolved and reinvented ourselves and our approach as our risks have changed, and the industry we are in at the moment is 0 constantly evolving,” he says. 77


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Set for growth: Australia key in Sedgwick plans

Closer to customers: Tim Plant

Faster and stronger: Zurich simplifies leadership team ZURICH SAYS IT WILL BE MORE RESPONSIVE and decisions will be made faster under a new leadership structure that strengthens its commercial intermediated market focus. The changes also place greater emphasis on Zurich’s state and regional presence and empower local teams to trade and make decisions closer to customers. General Insurance Chief Executive Tim Plant says the new structure is not driven by “a desire to change course” but better positions the company’s leaders to accelerate improvements and momentum across the business. “Our simplified structure will make us a stronger and more deeply connected insurer, one that’s better able to anticipate the rapidly evolving needs of our broker partners and customers,” he says. Under the changes, Head of Commercial Insurance Giles Crowley moves into the newly created role of Chief Distribution and Deal Management Officer. Chief Underwriting Officer Sean Walker will take on responsibility for the commercial insurance portfolio in addition to his continued oversight of Zurich’s SME proposition. Hilary Bates’ remit expands to include operations, alongside her existing role as Chief Claims Officer, with current Head of Operations Wilson Varghese set to move to another role within Zurich. As a result of the changes, Chief Distribution Officer Steven Ord will leave the business. The responsibilities of executives in areas such as finance, risk and governance, human resources, and communications and marketing remain largely unchanged. Mr Plant joined Zurich in August, after moving across from NSW government insurer icare to take over the role vacated by Raj Nanra. Previously he also led QBE’s Australia and New Zealand operations. “Our brokers regularly tell us the things they value most are responsiveness and speed of decision-making and that’s what our simplified structure 0 is designed to do,” Mr Plant said. 78

SEDGWICK, THE WORLD’S LARGEST CLAIMS ADMINISTRATOR, IS pursuing growth in Australia following the US-based company’s acquisition of Canadian global loss adjuster Cunningham Lindsey. Group President Mike Arbour and International Chief Executive Ian Muress were in Sydney in November for a local launch of the combined operations under the Sedgwick brand as the company looks to build on the strength of the two organisations across the region. “This is a great time for Sedgwick in Australia, having successfully brought together the Cunningham Lindsey expertise and building on their rich heritage,” Mr Muress said. “Sedgwick is looking toward continued growth as we continue to leverage the strength of the wider Sedgwick organisation.” The Australian business is led by Diego Ascani, who joined Cunningham Lindsey last year as chief operating officer before being appointed Chief Executive. He is a former managing director of Xchanging Australia and has more than 27 years experience in the industry. Over recent months he has brought his operational skills and third-party administration experience to overseeing the integration of the two companies. “With the support of Sedgwick we can greatly enhance our capabilities in the local market, using technology, innovation and the brainpower of more than 20,000 colleagues,” Mr Ascani said. Mr Ascani is also a member of the Asia-Pacific senior executive team, which includes New Zealand Chief Executive Darryl Cowan and Asia General Manager Wayne Cheng. Sedgwick provides a wide range of services to clients in the region, including property, major and complex loss, marine, liability and product recall, fine arts, construction and building consultancy, environmental services and claims management. The company operates in 65 countries and is involved in mitigating and reducing risks and losses, promoting health and productivity, protecting brand reputations and containing costs that can impact the bottom line. Sedgwick handles more than 3.6 million claims annually and has fiduciary 0 responsibility for claim payments of more than $US19.5 billion.

Specialty merger: Liberty incorporates Ironshore LIBERTY MUTUAL HAS MERGED THE LOCAL IRONSHORE OPERATION – which it acquired more than a year ago – into a combined commercial specialty lines business. Boston-based Liberty Mutual acquired New York-based Ironshore in a $US3 billion deal completed in May last year. As part of the changes, the Ironshore brand will be dropped and 13 employees will join the existing Liberty team and continue writing business that includes warranty and indemnity, trade credit, political risk and war and terrorism. Where there is role duplication, “a small number” of Ironshore employees will depart the group, Liberty Mutual says. Former Ironshore Australia Managing Director William Lewis will continue in a new regional role as Head of Asia-Pacific for Liberty Global Transaction Solutions. The Ironshore team will start writing business under the associated Liberty brands from January. Liberty International Underwriters Asia Pacific President and Managing Director Mike Abdallah said the company is consolidating its brands. “Our well-established team offers a comprehensive suite of commercial insurance products, so it makes sense to integrate the specialty operations of Ironshore into our business,” Mr Abdallah said. Claims will continue to be handled in line with present arrangements, and Ironshore, Liberty and its London-based managing agency Pembroke will collectively review claims-handling arrangements as the integration moves ahead. “By integrating Liberty’s broader product offering and invested insurance operations with the legacy Ironshore Asia Pacific team’s earned reputation for entrepreneurial underwriting, we’re confident in our ability to provide holistic solutions to our mutual broking partners and clients,” Mr Abdallah said. 0

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December 2018/January 2019


READER SURVEY 2018 Thank you to everyone who took the time to share their opinions and ideas with us in our recent reader survey.

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Our magazine has the largest distribution in Australia and is read by considerably more than just our subscribers:

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More than 3000 professionals responded to our recent survey (independently managed and audited by an authorised AMRS research company). The feedback is from our readers so while it focused on us, it certainly confirms our place as a important voice in our industry. • Far more insurance professionals read insuranceNEWS.com.au and Insurance News (the magazine) than any competing publications.

Every day 2-3 times a week 4-5 times a week

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That perception of value is what keeps insurance professionals accessing Insurance News online and in print. At the same time, Insurance News is evolving: • Readers’ reception of our Daily service has exceeded our expectations

20%

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10 times more people consider our magazine content a more valuable source of insurance news than any other comparable publication:

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• Our magazine is available globally (and searchable) in a digital format • We have a significant social media presence (and have set up Facebook in response to your feedback). We’ll always be working to improve our services. We can always do more to support the industry we’re part of.

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NT conference enjoys strong support Attendance and support for the annual Northern Territory Insurance Conference in Darwin continues to grow. Event organisers from Young Insurance Professionals say attendees liked the breadth of topics such as cyber cover, drone technology, personal injury management, natural disasters and social media. The conference wrapped up with a gala dinner to recognise outstanding achievements. Gallagher broker Andrew McCormack won the senior broker professional prize, Gallagher Bassett’s Return to Work Specialist Karlie Clausen topped the customer service professional category and Territory Insurance Office Underwriter Ciara Bergin went home with the business development manager/underwriting professional award. Crawford & Company’s Leanne Johnson and Rebecca Hill won in the claims professional and young insurance professional categories respectively.

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UAC hosts first Canberra expo The Underwriting Agencies Council (UAC) held its first Canberra underwriting expo in October, with 44 exhibitors and more than 90 brokers registered for the event. Attendees could use the UAC Events app to record CPD points and communicate with each other. Surprise attendees swelled the occasion to capacity, and UAC will seek a bigger venue for its next Canberra event.

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Supporting Lauren Parker

How Accident & Health insurance helped the professional athlete embark on a new chapter.

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When a freak accident changed her life, Lauren Parker went from able-bodied professional athlete to Commonwealth Games medal-winning paratriathlete, all in one year. QBE were proud to provide support as her insurer and be there for her as she embarked on a new chapter. Visit qbe.com.au/laurenparker With one of the most experienced Accident & Health teams in Australia, QBE helps brokers to protect their clients 24/7, at work and home and everywhere in between. Our flexible product suite aims to help reduce the impact of injuries or sickness, whilst also helping people get their lives back on track. For more information contact your QBE representative today. qbe.com.au/accidentandhealth

QBE Insurance (Australia) Ltd. ABN 78 003 191 035. AFSL 239545. Consider the PDS to see if a product is right for you.


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BHSI hosts broker events Berkshire Hathaway Specialty Insurance (BHSI) ran educational seminars for 130 brokers over the past year, covering topics such as directors’ and officers’ legal reform, legislative change to transport and logistics insurance, cargo insurance, claims disruption and of course… the royal commission. BHSI also thanked brokers with an annual end-of -year Sydney Harbour cruise in October. Attendees enjoyed a warm afternoon, sailing from King Street Wharf and under the Harbour Bridge, trying to spot Prince Harry raising the flag for the Invictus Games. The Eclipse dropped anchor at Sirius Cove, where the BHSI team and 75 brokers enjoyed a BBQ lunch.

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GSA event scores charity cash GSA Insurance Brokers attracted 300 participants from a range of insurance industry firms for its annual KidsXpress Touch of Colour rugby league event. The occasion, which took place at Sydney University, raised $133,000 for KidsXpress. Team players could get their photo taken with the Provan Summons grand final trophy, and Roosters player Victor Radley made a special guest appearance. The final was played out between EML and Clyde and Co. Clyde and Co took out the trophy after a tense match. Afterwards, players kicked back and schmoozed over drinks at the Nags Head Hotel.

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Opportunities at 360 Underwriting Solutions Following on from the successful launch of our Commercial Motor and Cyber offering, the team at 360 Underwriting Solutions is now gearing up for the next phase of growth. Having established ourselves as one of the truly independent underwriting agencies in the Australian market, we are now seeking suitably qualified insurance professionals to join our Broker centric underwriting agency in the following specialist lines of business and segments; + Mid-Market Property & Liability + Farm & Crop + Fleet Motor + Marine + Sports The opportunity to establish an equity stake in a specialist business is available for those professionals looking to take the next step in their career as is the chance to enhance the “360 way of doing business.� Please send expressions of interest to executive@360uw.com.au

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AILA young professionals celebrate year-end in style Australian Insurance Law Association (AILA) young professionals held a Moulin Rouge-themed end-of-year event at the GPO in Sydney’s Martin Place. More than 300 people attended, with the best-dressed prize going to Gen Re’s Nicholas Zambetti. Guests dined on oysters and champagne and had access to open food stations. They were later entertained by a live band featuring a burlesque dancer.

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Insurance Australia

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


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YIPs hear from AIG executives New South Wales Young Insurance Professionals (YIPs) took part in a “fireside chat” with AIG Australia Chief Executive Noel Condon and Chief Financial Officer Debbie Wilson. The October event was the third since the initiative launched last year. More than 60 attendees gathered at AIG’s Sydney office and enjoyed drinks and canapés as Mr Condon spoke about challenges ahead for the insurance industry, sharing candid stories about how he started out in insurance.

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Celebrating safety Risk management leaders gathered at Melbourne’s Showtime Events Centre for the annual Vero RM Advancer awards. The event, now in its 13th year, celebrates risk management achievements by a diverse range of organisations, including large corporates, not-for-profits and SMEs. Discount retailer The Reject Shop won for excellence in workers’ compensation and liability risk management, a category introduced last year and which attracted keen interest. UnitingCare Queensland – a synod of the Uniting Church in Australia – was recognised for the third time in seven years, winning the commercial award for its fleet risk management and safety. Mental health services specialist Mind Australia took the SME prize for its work in improving road safety for employees delivering support into the community. More than 100 people attended the gala evening at South Wharf, with winners receiving 200,000 Virgin Velocity points.

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peopleNEWS

CGU up for the Cup CGU hosted more than 400 agency partners throughout the Melbourne Cup Carnival at Flemington. The event was a great success, the insurer says, with a theme inspired by Palm Springs. “It provided a great opportunity for the CGU team to thank key partners for their support throughout the year,� a spokeswoman said.

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Overseas Visitors Health Cover Support when visiting or working in Australia. Available to the Broker market! Overseas Visitors Health Cover (OVHC) gives your customers peace of mind while they’re visiting or working in Australia, as overseas visitors from certain countries may not be eligible for Medicare. Our OVHC product satisfies Department of Home Affairs visa condition 8501 which is required for popular visa types 485 & 482 making it easier for you to on board customers to the program. Want to see how OVHC can benefit you and your customers?

Get in touch 1800 764 661 brokersolutions@allianz-assistance.com.au www.agabroker.com.au View our full product range on our website. Allianz Global Assistance Overseas Visitors Health Cover policies are issued and managed by AWP Australia Pty Ltd ABN 52 097 227 177 trading as Allianz Global Assistance. Peoplecare Health Limited ABN 95 087 648 753 is a private health insurer under the Private Health Insurance Act 2007 (Cth) and is the underwriter of the Allianz Global Assistance Overseas Visitors Health Cover policies.


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Hundreds attend IA conference More than 400 delegates from Australia and across the Tasman joined Insurance Advisernet (IA) for its annual conference. Held in Canberra this year, attendees listened to addresses by noted journalists Lisa Wilkinson and Mark Riley, champion wheelchair tennis player and six-time grand slam winner Dylan Alcott, and motivational speakers Yossi Ghinsberg and Anthony Laye. The conference focused on the company’s strong compliance culture and results amid a changing regulatory environment. Many delegates also took a swing at the Neville Grenfell charity golf event at the Gold Creek Country Club or tried their hand at the IAthlon, on the shores of Lake Burley Griffin. Both events raised money for the IA Foundation, with more than 200 people attending. Chairman Ian Carr told conference-goers that more than $400,000 has been donated by the foundation in the past year, reassuring many puffed-out golfers and impromptu triathletes that their physical exertion was not in vain. A solemn moment was observed when the fallen soldiers of the First World War were honoured at the Australian War Memorial, with Mr Carr laying a wreath in tribute. Attendees also felt the glamour of Hollywood at the Oscars-themed gala dinner, during which the annual awards were handed out to standout employees and insurance practices.

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Wishing all our readers a peaceful and safe festive season. From the team at Terry McMullan Publisher and Managing Director

Bernice Han Journalist

Andrew Silcox Executive Director

Benjy Levy Journalist

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Kate Andrews Operations Manager

Julie Smyth Subscriptions Co-ordinator

Madison Seymour Advertising Manager

Krisztina Strzebonski Graphic Artist

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Sam Pentecost Contributor

Andy Swales Copy Editor

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Profile for Insurance News (the magazine)

DEC/JAN 2018/19 - Insurance News (the magazine)  

Allan Fels, the monitor of NSW’s non-existent emergency services levy change and primary foe of the insurance industry, is stirring up insur...

DEC/JAN 2018/19 - Insurance News (the magazine)  

Allan Fels, the monitor of NSW’s non-existent emergency services levy change and primary foe of the insurance industry, is stirring up insur...