New ASIC Chairman James Shipton wants to restore a missing word
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Contents 6 Newsmakers »
72 ‘Free’ rides »
10 The name of the game is trust » ASIC’s new Chairman wants financial services to ‘do the right thing’. Aided by a royal commission of horrors, expect even more reform.
16 The new broker » Don’t look now, but the future has already arrived. Pretty soon nothing will be as we knew it.
22 Leading on diversity » Jenny O’Neill explains how Hollard’s efforts on inclusion are already reaping rewards.
28 Prepare for the worst » Climate exposures are evolving and growing, and insurers are struggling to keep pace.
The emerging credit hire industry is beginning to face scrutiny from motor insurers and regulators alike
76 Help us to help you » Far from threatening to disrupt the traditional value chain, most insurtechs want to work with its incumbent players.
80 Working the land » A new broker partnership is brainstorming ideas for a viable multi-peril crop cover.
companyNEWS 82 Investing with impact » QBE launches Premiums4Good.
82 Stronger together »
34 The Smart way » IAG’s Chief Marketing Officer takes a holistic approach to making insurance part of people’s lives.
Law firms McCabes and Curwoods join forces.
40 On the waterfront » A recent ocean risk forum sets the stage for greater co-operation on one of the world’s greatest climate threats.
44 Branching out » Chubb has a new leader in Jarrod Hill, and a fresh focus on the SME market.
50 City frights » Conflicts and market crashes are among top economic threats for urban centres.
52 The language barrier » Rules around different types of advice are hindering insurers and making life harder for consumers.
84 A life in pictures » The work of New Zealand landscape photographer Lloyd Homer is celebrated in a new exhibition.
86 AILA marks 35-year milestone » 88 Great and good turn out for ICA dinner » 91 Steadfast tackles world of challenges » 92 Elvis brings AIG guests to their feet » 94 AIMS conference delivers clear vision » 98 maglog »
56 Ready for the future » Data-driven insights remain key as Aon’s Lambros Lambrou moves into a global role and James Baum takes over the local operation.
62 See you in court » Legal cases show just how varied insurance can be.
68 The missing component » Campaigners say consumers should be given a breakdown of premium calculations, but insurers are unconvinced.
Cover: ASIC Chairman James Shipton Image: Wolter Peters/Fairfax Syndication
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Trail of destruction: lava erupts from a fissure in Hawaii
Volcano destroys Hawaii homes Hawaii’s Kilauea volcano has destroyed homes and triggered evacuation orders for two housing estates, as lava flows and toxic fumes erupt from fissures. The eruption has destroyed 36 structures since May 3, with 17 fissures opening up and more than 116 acres covered by slow-moving lava, state authorities say. The Commerce and Consumer Affairs Department says home insurance policies vary on damage from lava flows, but if the heat causes fire it may be covered as a fire peril. “If policyholders are unsure of what coverages they have, they should reach out to their insurance company as soon as possible,” state Insurance Commissioner Gordon Ito said. “We don’t want residents to have lingering questions about their policies and not take advantage of a benefit they may not be aware of.” US President Donald Trump has declared a disaster,
allowing federal assistance to repair public facilities such as roads and parks. Guy Carpenter says at least 1700 people have been affected by the evacuations of Leilani Estates and Lanipuna Gardens, but it is too early to estimate the severity of the event. The US Geological Survey says continued fluctuating and intermittent activity is likely, with new outbreaks or further lava flows at current vents possible. “The general area of Leilani Estates remains at the greatest risk,” it warned in an update last week. “However, as the eruption progresses, other areas… may also be at risk.” More violent explosions and danger from projectiles may be triggered by the volcano’s lava lake falling below the water table, the US Geological Survey says. Hawaii volcano destroys homes as lava poses new threats, 14 May
Australia’s corporations, and the finance sector in particular, are suffering from a trust deficit, and this current predicament is of the sector’s own making. – Australian Securities and Investments Commission Chairman James Shipton
Rival invests in iSelect Companies linked to comparison site Compare the Market have taken a 10% stake in listed rival iSelect following a share price decline. iSelect says it understands IHA Group, which holds the stake, is related to Compare the Market and Auto & General Holdings. Auto & General is a South African company that owns a range of insurance-related brands in Australia, most notably Budget Direct.
“The board of iSelect has not been contacted by the IHA Group or its representatives at this time,” the online comparator said today. “iSelect will keep the market informed of any material developments.” IHA Group holds 22.18 million shares, representing a 10.15% interest, a shareholding notice released to the Australian Securities Exchange shows. The group includes Innovation
Holdings Australia, Jacamar Overseas, which is understood to be registered in the British Virgin Islands, and BHL Holdings, the statement says. iSelect shares closed at 55 cents on Friday after slumping last month when the company issued a weak trading update. Chief executive Scott Wilson quit at the same time. Compare the Market linked to iSelect share purchase, 28 May
UK probes ‘punishment for loyalty’ British insurers and brokers have released a set of “guiding principles and action points” to tackle pricing practices that penalise loyal customers in personal lines cover. The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) say they do not support excessive differences between new customer premiums and renewal prices, and have committed to better outcomes. The groups will publish a report within two years to show how members have responded to measures proposed to address the issue. “Given many consumers expect to get cheaper insurance when they shop around, there is no easy solution,” ABI Chairman Andy Briggs said. “These new guiding principles and action points are a positive initiative by the ABI and BIBA members to demonstrate the whole industry recognises this is an important issue that needs to be addressed.” The principles apply to products such as home, motor and travel, but not pet or health insurance. Commitments include making it clear to new customers that an introductory premium applies for that year only and subsequent renewals may be higher. The principles support disclosing previous-year prices on renewals and say the ethos of better outcomes for longstanding customers should be given board or senior management-level priority and incorporated into procedures for determining renewal premiums. The groups also support the Financial Conduct Authority taking the guiding principles and action points into account when supervising pricing practices.
Asbestos claims continue to rise Mesothelioma claims have exceeded expectations as home renovations cause an extended third wave of asbestos exposure, James Hardie says. A report on the building product supplier’s liabilities shows 392 mesothelioma claims were reported in the year to March 31, up 5% on the previous year and defying expectations for a slight decline. Cases have held at high levels after jumping from 2011-14. Actuarial group KPMG has now raised its claim projections. Previous assumptions assumed a peak in the period from 2014/15 to 2016/17. James Hardie, which provided details with its earnings, says full-year profit fell 47% to $US146.1 million due to a $US195.8 million unfavourable actuarial adjustment for the asbestos issues. The company’s liability to the Asbestos Injuries Compensation Fund, established in 2006, is estimated at $US1.85 billion. Mesothelioma claims due to renovations have outstripped other causes since surging ahead in 2014. KPMG says levels have moderated but remain higher than previously observed. Last year 210 claims involved renovation activity, while 182 were due to other sources. Workers exposed to asbestos during mining and product manufacturing were previously the main groups affected by the fatal disease. Non-mesothelioma asbestos-related claims, excluding workers’ compensation, last year fell 6% to 150.
UK industry acts on issue of ‘loyalty penalties’, 14 May
Renovation trend drives above-forecast asbestos claims, 28 May
Switkowski leaves Suncorp Suncorp director Christine McLoughlin will become Chairman after the annual general meeting in September, as Ziggy Switkowski steps down after seven years in the role. Ms McLoughlin has worked in financial services for more than 20 years and joined the Suncorp board three years ago. She is the remuneration committee chairman and a member of the risk committee. “It continues to be a time of great change, and some stresses, for financial institutions and I look forward to embracing both the opportunities and challenges this brings,” Ms McLoughlin said.
“As incoming chairman, I will be continuing the conversation on how best to create long-term value for all our stakeholders.” Dr Switkowski joined the board in 2005 and as Chairman has overseen a number of changes, including the appointment of a new chief executive, a corporate restructure and the launch of the group’s contentious Marketplace strategy. “In her three years on the board, Christine has demonstrated a broad range of skills relevant to financial services,” he said. “This includes having an informed view with regards to innovation and disruption of insuranceNEWS
traditional business models, as well as bringing a contemporary focus to governance processes within the group.” A Suncorp spokesman told insuranceNEWS.com.au the chairman role comes up for re-election every three years and the change is part of the normal board life cycle. Ms McLoughlin was the inaugural non-executive chairman of the Australian Payments Council and is a former director of Westpac’s life insurance, general insurance and lenders’ mortgage insurance companies. Ex-Westpac director steps up as Switkowski leaves Suncorp, 23 April
newsmakers at newsmakers at
Diversity festival set to expand
From the From the
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Priorservices to the 1970s, businesses late 1980s, the financial sector’ssmall reaction has beencommonly to The fourth Lloyd’s diversity and their insurance from agents who were accommodate ratherbought than embrace the change it brought. As the inclusion festival will take place Hayne royal commission demonstrated, financial services “tied”has to one or possiblymany two insurers. The move on September 25- 27, and will practitioners are stuck in a culture that sees personal and corporate to those agents becoming independent brokers expand to include New Zealand profit as the sole function business. came of about because the insurers wanted to for the first time. General insurance, with products based around annual eliminate the costmainly of maintaining agencies all over This year’s Dive In renewals and working a highly competitive market, has proved to theincountry. focuses on turning awareness be more receptive to consumer services. were among the first Today the brokerInsurers sits between the customer into action, with the theme industries to devise and a code practice, example. rise of technology gives theofinsurer, butfor the #time4inclusion. While much remains to be done before the can say it a insurers the opportunity toindustry once again reduce Some 16 events will take adheres to the practice of “utmost good faith” in everything it does, the significant distribution cost. more than 7000 people across place across Perth, Adelaide, banks and life/investment companies which arealgorithms our fellow travellers There’s no doubt that and Big in 17 countries and 32 cities. financial services have done besttotoinsurers’ make general insurance Melbourne, Sydney, Brisbane, Data are their central drive to build a look new positively angelic. interdependency between them and their “The level of enthusiasm Wellington and Auckland. However, it has customers. to be accepted for every advance continues to grow,” Lloyd’s Thethat endgame is to retain achieved the Lloyd’s Australia has also by general insurancecustomer in servingfor thelife. interests Is thatofa consumers, threat to thethere role have of the General Representative in Ausconfirmed that, for the second Home ownership: LMI helps keep the dream alive been examples of rigid foot-dragging, broker? You bet. and worse. tralia Chris Mackinnon (above) year running, it will hold an One example: insurers spent more than 100 years resisting a New technology with strange names (why do told insuranceNEWS.com.au. industry diversity and inclustandard definition of flood, which bolstered theirvowels?) general refusal to holds the so many developers ignore “We have spent a couple of sion survey, with the help of cover flood in personal lines, of even as their New Zealand subsidiaries promise untangling the complexities of years talking – now it is time to Macquarie. did so. Yet in the immediate aftermath the 2011 Brisbane floods it insurance policies,ofwhich is good for consumers. actually do something and put The first Dive In festival in took an unimpressed federal minister less than six in months At the AIMS Conference Perth to in push April,the some practical steps in place.” 2015 was restricted to the UK. wording. General Manager Glenn Schultz pointed out that The issue was discussed atindustry public into a standard The Insurance Council of Australia (ICA) It expanded globally the followD ive In festival ‘bigger than The embarrassing subject broking of add-on products, insurance is insurance itself evolving as customers’ hearings in Sydney and Melbourne. has rejected suggestions lenders’ morting year and last year attracted ever’, 21 May particularly in the carneeds sales change. industry, He hassees beenbrokers settled with becoming risk A Genworth submission says gage insurance (LMI) is unnecessary and compensation to consumers andwith a new agreement impose fairer of specialists, insurance justtoone of a series Genworth and QBE have about 64% of could be replaced with increased interest terms and lower commission levels. But it’s likely to get arisk runconcerns. in service lines that meet customers’ the LMI market, while Westpac LMI and rates on loans that require the cover. the royal commission nevertheless, with anywith otherMr as-yetfull interview Schultz in (We will have a along ANZ LMI are captive providers. It notes high commission/tiny It says overseas experience suggests undiscovered claims policies or systemic issues the next edition.) Australian LMI pricing is “significantly costs could be higher under the interest around policies and claims might still be with us.to find that So that brokers are most likely lower” than in some other jurisdictions. rate approach, and borrowers with less It’s possible theinsurtech royal commission will runtoout of time to focus too holds the key their futures, rather than a 20% deposit would find it harder ICA says there is a “robust” dynamic strongly on general insurance due to make interimBut report in be than being– it’s something to beits feared. it will industry be wise not to brace for itsanswer share ofthat to obtain QBE and Genworth September and dis- – but thean homeand loans withoutrecorded LMI. a 42.3%between General insurers reinsurers rise in after-tax enablerwould for brokers, the whole shocker when they to getbe through torturing the banks and lifies. net profit to $3.7 billion the year to March, Australian putesPrudential a draft report observation that headlines the “Affordability andinaccessibility to it seems for insurers. Allcosts this will inevitablyMr beSchultz followedalso by new laws the andbroker regulations. Regulation Authority (APRA) data shows.to be competition incentive is limited as home ownership has and continues believes of the point what they might contain, or side in every governments,” short-tail property class areprovided passed an on to consumers. No one can say at this a keyImprovements focus of Australian future must be recognised as a truewhich professional, politics is introducing them. article in this edition will give you earnings standards. which has Our implications for training “The nature of the tenderofprocesses ICA says lift. in a submission to a Productivity some pointers on possibilities. Underwriting profit nearly doubled to $4.2 billion. Gross earned Uncertainty is now normal. In this issue of that these LMI providers engage in is Commission’s draft report on financial The thoughts and aspirations of the Securities premium grew 0.7% to $45.3 billion and gross incurred claims fell Insurance News we new lookAustralian at the upsides and and the highly competitive and ensures the best system competition. “This is the key purInvestments Commission Chairman JamesofShipton in this issue also 15.4% to $29.7 billion in the absence of major natural catastrophes. potential downsides technological change, possible price is offered to the lender pose and benefit of LMI, and LMI provide some guidance to our future overall direction, andsowe’ve The net loss ratio improved to 62% from 68%. discovering along the way that like muchadded of and 85 theprimary least expensive price some is passed providers in managing thesourced from experts’ suggestions on what we developments, might expect. we only know APRA’sspecialise latest industry statistics are the world’s radical through to the borrower,” it says.Mr Shipton’s keyword is “trust”. For an industry that can boast higher presented by that cohort of insurersrisks and 10 reinsurers. what we know and we don’t know yet where all borrower.” “Inbillion, addition, of being bound by law to the principle of utmost good faith, general Primary insurers made an after-tax net profit of $3.6 up there are competitive this is going to end up. But ignoring change isn’t Choice’s pressures on the domestic LMI providers insurance should have a head start in dealing with that. fromConsumer $2.6 billion group the previous year.submission the answer. saysIndustry LMI “masquerades” as a inconsumerrecords sharp rise profit, 28 May due to the role of offshore reinsurers.” Terry McMullan facing product while protecting only the ICA defends lenders’ mortgage cover, Terry McMullan lender. It wants the cover abolished. 9 April
Lenders’ mortgage cover ‘helps home owners’
Insurers benefit from market turn
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Wolter Peters/Fairfax Syndication
The name of the game is
ASIC’s new Chairman wants financial services to ‘do the right thing’. Aided by a royal commission of horrors, expect even more reform By Terry McMullan
JAMES SHIPTON IS AN UNLIKELY
From a focus on “maximising earnings” to “doing the right thing”: ASIC Chairman James Shipton speaks to a Parliamentary committee in Canberra
corporate policeman, and even less likely a prophet, but nevertheless he’s intent on instilling new disciplines on Australia’s financial services sector and leading it into a new era where trust is the over-riding consideration. The new Chairman of the Australian Securities and Investments Commission (ASIC) is a former international investment banker who wants to coerce business into embracing trust rather than self-interest. The general insurance industry’s ethics and practices are already based around the concept of “utmost good faith”, which is enshrined in section 13 of the Insurance Contracts Act. But good faith is just one part of what Mr Shipton is talking about when he uses the word “trust”. It relates not just to clear disclosure and transparent practice but also to professionalism, efficiency, fairness and meeting community expectations – what he refers to as simply “doing the right thing”. While ASIC’s enlarged enforcement and punishment provisions give Mr Shipton considerably more power to force the sector to change through beefier court actions and larger fines, he was initially careful after taking up his appointment in February to downplay any hint of a “police state” mentality in regulation. But the stream of horror stories from the Hayne royal commission that began at much the same time as he took up his new position in February appear to have shortened his reform timetable for financial services. 11
What will any new reforms look like? WITH THE HAYNE ROYAL COMMISSION finding failings across the financial services sector and a new ASIC chairman determined to change the sector’s overall culture to restore certainty for consumers, the general insurance industry’s complaints that it is already suffering reform fatigue are unlikely to find a receptive ear. Whether the next wave of reforms will be by way of legislation or regulation – or a combination of both – is difficult to predict. The Federal Government resisted a royal commission into the behaviour of the banks until it started losing political points. Even then it tried to soften the focus by expanding the remit of retired High Court justice Kenneth Hayne to include the entire financial services sector. It would be fair to say no one expected the bombshell evidence that has poured out at the royal commission hearings, revealing massive failings by financial services companies and the banks. The final findings of the royal commission are due to hit the Prime Minister’s desk early next year, just as the major parties begin to prepare for an election that must be held before November. The Coalition government is likely to see the findings as action items that can’t be shelved until after the election, and the Opposition will not stand in its way. Any new legislation will also include the recommendations of the Government’s major regulators, most notably ASIC. So in the face of evidence that banks and financial services companies have ignored regulations or simply lied to the regulator, does this signal the beginning of an era of tough, hands-on regulation? Sources in Canberra and the industry say Mr Shipton has shown no sign that he does not support the concept of selfregulation, and his initial focus has been on “culture” and closing the “trust deficit” so customers can have confidence their interests are being looked after. That’s a huge cultural shift for many organisations, but should be less of a challenge for insurance. While there have been failings that will be aired in the royal commission, insurers have been operating under a code of practice for many years – far longer than their financial services counterparts. The general insurance market in Australia is also highly competitive, and sells risk products with a life of 12 months. Consumers are not as disadvantaged as they are in dealing with long-term financial products controlled within a limited market. Where there are failings, they can be easily enough controlled via regulatory intervention. The recent payment to customers of $125 million by insurers
participating in dodgy (but legal) addon insurance practices, coupled with an industry agreement to draw up new and fairer practices, demonstrates the powers ASIC already has to make companies “do the right thing”. Codes of practice: Financial services sector industries could be more forcefully encouraged to make their codes comply with ASIC’s template rather than their own preferences. At present no industry code achieves this, partly because participant companies have had so much say in their formation. Conflicts of interest: This is something Mr Shipton is determined to deal with, and commissions are a major area of concern. While financial planners have had commissions banned or limited by new laws, the regulators have always fretted about other industries that still suffer from “conflicts of interest embedded in remuneration”. General insurance intermediaries could find commissions limited to, say, 20-25% and special payments by insurers also limited or even banned if they could lead to conflicts of interest. Separating the makers and the issuers: Some industry and regulatory sources have told insuranceNEWS.com.au the only way to completely remove conflicts of interest from distribution is to separate the manufacturers of insurance products from the people who sell the product. This is a measure that would benefit major insurers with many product lines, in particular. Beefing up self-regulation: Section 912A of the Corporations Act requires licensees to “take reasonable steps to ensure that its representatives comply with financial services laws”. Mr Shipton is not impressed with the varied interpretations of what constitutes “reasonable steps”. Expect to see more action as ASIC pursues its “trust” agenda. Product design and distribution intervention: Mr Shipton sees ASIC having the power to “bring accountability to issuers and distributors of products by requiring them to establish processes and controls for ensuring products are designed with consumer needs and understanding in mind”. As Deputy Chairman Peter Kell noted on May 22 “The Government is still considering the scope of this power but ideally, this will be a broad flexible power that will enable ASIC to intervene in relation to all products within our jurisdiction, with a range of interventions including where features such as the remuneration structures are of concern to us.”
“Put simply, regulation’s purpose is to modify behaviour, with respect to agreed norms, in order to preserve the benefits of the underlying enterprise. We need to start by recognising that every cent in the financial system is other people’s money.” – ASIC Chairman James Shipton And where regulation of other branches of financial services goes, there inevitably goes general insurance. Mr Shipton’s first major speech at a conference in Sydney in April spelled out how he wants the industry to embrace “trust” as its new guiding force. And the concept has since been taken up and given further emphasis in speeches by ASIC Commissioner John Price and Deputy Chairman Peter Kell. “Everyone in finance should not just ask if something is legally permissible, but also whether it is the ‘right thing to do’,” Mr Shipton told the April conference. While that speech emphasised the responsible role of the financial services practitioner and the need for careful regulatory oversight, his second speech on the subject just a month later, to the Australian Council of Superannuation Investors, was far more pointed. Mr Shipton began by using a term that will likely be repeated through much of the next year. Australia’s corporations, he said, “and the finance sector in particular, are suffering from a trust deficit”. He says companies must be held to account and take responsibility for repairing the deficit. While he sees the regulators having a role to play in the repair process, “ultimately trust can only be restored if these companies work root and branch to change their ways... to rebuild their culture from deep within”. Turning then to the financial services sector’s culture, he maintained the calm
“I think that there would be little argument between us here today that in the public’s mind, the words ‘trust’ and ‘financial services’ do not currently sit easily together. Indeed, the royal commission will assess whether conduct, practices, behaviour or business activities by financial services entities have fallen below community standards and expectations.” – From a speech by ASIC Commissioner John Price on May 21
First-choice chairman JAMES SHIPTON WAS NAMED ASIC Chairman late last year and took up the appointment in February. Reports at the time said he was at the top of the Government’s shortlist of candidates. Described in one media report as “a child of the Melbourne establishment”, his late father Roger was a federal MP in the blue-ribbon seat of Higgins which is now held by Financial Services Minister Kelly O’Dwyer. She says Mr Shipton had unique characteristics for the position, having worked as a lawyer, banker and regulator. After studying Asian politics, history and economics at Melbourne University and gaining a law degree from Monash University, he worked as a funds and securities lawyer in Melbourne before moving to Hong Kong. Within 10 years he became a managing director of investment bank Goldman Sachs, where much of his work was involved with government and regulatory affairs. He then moved to the Hong Kong Securities and Futures Commission as chief of the division supervising financial intermediaries. Mr Shipton also held senior positions on Asian financial regulatory groups before moving to the United States as executive director of Harvard Law School’s program on international financial systems.
and measured tone of a financial services regulator while excoriating the sector for its behaviour and attitudes. “My concern is that many people in finance have lost sight of the ultimate purpose of the financial system; they have forgotten that this system is about managing other people’s money,” he said. Noting that the financial system’s purpose “is to serve core functions for everyday Australians” through capital allocation, inter and intra-generational transfers of wealth, hedging and insuring against risks, and maintaining the payment system, Mr Shipton added icily: “Instead of focusing on these functions, I worry that many financial services companies have become insular by focusing only on how they can maximise earnings.” Calling on the sector to refocus on its core purposes “instead of exploiting opportunities to make money from its customers, often to the consumer’s considerable detriment”, he highlighted another major concern – the “proliferation” of conflicts of interest across financial services. “It is clear to me that a number of institutions have not taken the management of conflicts of interest to heart,” he said. “This is verging on a systemic issue. Indeed, it is the source of much of the misconduct ASIC has been responding to and which is being highlighted by the royal commission hearings.” The example he singled out – the sale of add-on insurance by car yards – makes it clear that general insurance is included in his criticisms of the sector. insuranceNEWS
“The inappropriate sale of financial products in caryards by a commission-driven salesforce is but one example that ASIC has tackled in recent times,” Mr Shipton said. Accusing companies of lacking management systems, cultures or even codes to identify and resolve conflicts, he expressed surprise that “many Australian financial firms have turned a blind eye to the risks that conflicts pose to customer outcomes as their businesses evolved or grew”. “There has been reluctance, and often resistance, to addressing conflicts, especially those embedded in remuneration – even when ASIC pointed them out. This resistance has, at times, extended to a reluctance to make good any harms caused by conflicts.” Mr Shipton believes unacceptable conflicts are too often justified on the basis that everyone else is doing it, “even though it’s the right thing to do to end them”. “A business culture that is blind to conflicts of interest is a business culture that does not have the best interests of its customer in mind. Moreover, it is one that is not observing the spirit as well as the letter of the law.” He says it’s time for the financial services sector to “remember its purpose – and remember always that they are dealing with other people’s money. It must focus on the outcomes it delivers to its customers. “Accordingly, there must be a wholesale review by firms to identify, manage and, if appropriate, remove every conflict. Only when this is done can the journey of rebuild0 ing trust with our communities begin.”
The new broker Don’t look now, but the future has already arrived. Pretty soon nothing will be as we knew it
AUSTBROKERS AND IBNA MEMBER SERVICES (AIMS) is a small organisation with a big role. It co-ordinates support services shared by the 50 Austbrokers network brokerages partially owned by the AUB Group and the 150 independently owned members of the Insurance Brokers Network of Australia. The combined network contains some of Australia’s most significant SME and middle-market brokerages, and makes up about 25% of the Australian broker market. Glenn Schultz became General Manager of AIMS just over two years ago. After a lifetime as a broker, he’s working with experts to understand the rapid evolution of the risk business and develop new approaches for his members. He spoke to Terry McMullan after the AIMS Conference in Perth in April. SEPARATING PRODUCTS AND ADVICE: I’m one of those people who’ve come to believe that the term “insurance industry” to define where we all work and what we do is becoming a bit of a misnomer. The insurance industry is actually the part where the insurance product is manufactured, while the part between the broker and the client is actually the broking profession – or the risk advisory profession, as it will become – where the advice is actually given to the client. What I’m beginning to see evolving out of the [Hayne royal] commission is a situation where there will be a differentiation and distance put between product and advice. Clients will start to understand the difference between the advice being given to them by risk advisory professionals and the product being manufactured by the insurers. The two functions will be separate. I think we will reach a stage where the expectations of clients and the wider community are that only qualified people can give advice – and that advice has to be demonstrably in the client’s best interests. Meanwhile, the companies manufacturing products will only be selling their products and talking about the features and benefits of their product – they won’t be advising clients. So as time goes by, we’re going to see better alignment of the insurance sector
Looking ahead: Glenn Schultz
into those involved with product and those involved with advice. Brokers are going to need a far broader recognition of their clients’ risk and exposures than may have existed in the past – because they will be advising people not just on the purchase of insurance; they will be advising the client on risk and how they can treat and remove risk. Just as a product disclosure statement says what the product is and details its features and benefits, the risk adviser will have the responsibility to demonstrate how and why that specific product fits in with the client’s risk exposure. Truly, if we’re to fulfil the customer’s and the community’s expectations, it will be about us advising them in how to treat, remove and mitigate risk, because that’s what a client really wants. Historically, an insurance product has been the only answer. It’s not really all that new. We saw this journey beginning at least 10 years ago with the major global brokerages talking to their clients about risk advice and mitigating and treating risk. That’s a very small segment of the marketplace, but as clients’ expectations expand, so will the need for that sort of service migrate down to SME commercial customers. CLIENTS’ NEEDS ARE CHANGING: As a network, we’ve got to adapt to changing client needs. As I said, it’s no longer just about selling them insurance – it’s about addressing their risk concerns. Whether we do it by insurance or we do it by mitigation, removal, treatment, whatever, it’s all about making the client whole again after an event has occurred. We know clients don’t run their business thinking about insurance. But they do think about risk. Traditionally, our only response to risk has been insurance, but it will change. There hasn’t been that great a variety of options to insurance, but going forward there will be more options – many more. HOW BROKING WILL CHANGE: In my opening speech at the AIMS Conference in Perth, I said we’ve already arrived at the point where change is inevitable. Now it’s about how we adapt to it.
“Truly, if we’re to fulfil the customer’s and the community’s expectations, it will be about us advising them in how to treat, remove and mitigate risk, because that’s what a client really wants.” The theme of the conference was “clarity is the future”, because if you can’t be clear about what you need to do, you are going to run into significant issues. Playing catch-up from here on in is not going to be a successful business model for any broker. What we’ve got to do is expand the services, the products and the assistance that we give to the client. If we do that, we are a good natural answer to a growing need. If we don’t, then other [professional groups] will step in and do it, because the client is sitting there saying, “I want someone to help me with this.” And somebody has to. If you have a look at AIMS as a network, probably 50% of the people working in member brokerages are Millennials – the biggest demographic cohort in the country. They think differently, they act differently and they are going to own more businesses. So we’ve got to make sure that what we provide in products and services fits in with these clients’ perceptions. They want someone to de-risk their life and their business, so we’ve got to build products and services matching that need. There’s no guarantee they will use the term “insurance” when discussing risk. It’s an old, archaic thing that we impose on them by trying to teach them to do exactly what we do today.
“As more competitors enter the market and the client has more options, then by default we will have to become better at explaining what we do.”
They will find their own way of establishing our value. So what we offer may not even be seen as a broking service – it will have become more about risk treatment. MORE PROFESSIONALISM: The broking industry is going to need to increase its professional qualifications and professionalism. To provide a more professional service, you’ve got to demonstrate to clients that you are professionally trained, that you have the skills and you have the capabilities. There are processes under way within the industry to upgrade the requirements. I sit on the board of [the National Insurance Brokers Association] and there is a strong focus on increasing brokers’ professionalism. Not only will there be an upgrade to all brokers and all their employees, it will apply to authorised representatives as well. Anybody facing a client will need the same minimum education qualifications, and they will be substantially higher than what exists today. COMPETITION: The direct market isn’t going away, and in some cases direct insurers will be the best answer to an individual’s needs. But as time goes by, we believe there will be a growing number of clients who just don’t think the direct insurance market is the right answer. If they value the services of a broker or a risk adviser and we can provide something of value that really helps them deal with their risks, then there is a position for us. As brokers, we shouldn’t sell a product to the client; we should actually go and talk to them about their risk and where their exposures are, and try to deliver solutions that help with treating the risk. And, as I said, it’s not all about insurance. 18
As more competitors enter the market and the client has more options, then by default we will have to become better at explaining what we do. We’d better! For too long there has been only one way of doing it, and that’s been selling a client an insurance policy, and if the client doesn’t understand the difference between the coverage or the claims service or whatever, they default to price. One of our competitors recently went to press saying 85% of clients ignore the difference in coverage; they are only interested in the price. Rubbish! If that’s our value proposition to clients, we don’t deserve to have them. You don’t go and buy the cheapest TV, you don’t buy the cheapest car, you don’t buy the cheapest hamburger. We all make choices based on the quality of what we receive. THE TECHNOLOGY REVOLUTION: I see technology as a friend. It’s not the solution – it’s an enabler. People who work out the best combination of man and machine are going to produce the best result for the client. There are some [tasks] where technology will be 100% the answer, because it’s a simple, repetitive solution. There are other things that are going to be complex, which are going to involve a professional adviser, so what we’ve got to do is use the best and most efficient combination of both. REGULATION: Regulation is a good thing because you need to provide confidence that there’s a basic level of compliance and that people are going to play within certain rules that do the right things by the clients and the customers. How brokers and insurers will be affected by the regulatory response to the [current] royal commission is the $64,000 question. I don’t see any reason insuranceNEWS
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“The brokers that are up for change will hang around and will do a good job of it. The ones that aren’t will probably sell their businesses.”
for significant change in general insurance. All the statistics say we are a well-regulated industry, we are well up there on regulation and making sure things are working as efficiently as possible. However, there’s no doubt we are all going to be subject to more regulation and compliance. Not because it’s needed, not because it’s driven by a yawning gap, but because that’s just the world we live in. We could, unfortunately, be whacked with that stick where the lowest common denominator is applied to all of us. FIVE YEARS FROM NOW: I think it’s going to be a different industry. The distance between capital and the customer will dramatically reduce, because the customer’s need for capital will reduce. The customer will replace a lot of what’s provided by capital with services that help him with risk. That won’t be what everyone wants to do, of course. The brokers that are up for change will hang around and will do a good job of it. The ones that aren’t will probably sell their businesses. So, I would say [that] in a couple of years, those people who are still here and operating are the ones who are going to produce value to their clients, and they will do a good job. I’m absolutely convinced the broker will perform a broader role for the client, and if you look at today’s traditional response – insurance placement and risk transfer – I believe that will represent about a third of what happens within the client’s sphere. The second third is going to be the treatment of risk. Remove some things that are better removed than risk-transferred. Remove or mitigate. There are a whole lot of tools and data coming up that will allow us to individualise that response. The last third is acting when a client has an event 20
and he’s worried about being back in business and reinstating his business or his life or whatever asset as quickly and efficiently as possible. A lot of that won’t involve an insurance claim. For a broker or risk adviser to fulfil those three objectives, [they are] going to have to be involved in all those areas. That will require a combination of the best available resources to do the job for the client. Whether it comes from a broker or from an insurer or from new external services that haven’t even happened yet, the solution will be whatever produces the best result for the client. If we don’t learn to do that for ourselves, those external parties will work it out and start introducing services to our clients. I see a significant change in the volume of services that are available to the client under what we call today “the broker”. … AND LONGER-TERM: I just think we are in an extremely exciting time. I’m in a generation that is in the twilight of their careers. It’s extremely good to be involved for the first time in your career in substantial change, and seeing how we can actually bring new ways of doing business to the table, and clients actually wanting it. To have a job in the future, you’re going to need to be able to solve higher-order problems, be creative in the ways you approach risk and have excellent interpersonal relationships. Therein lies the absolute key of our future business success. It’s pretty good to be in a business that is actually going to be needed by clients, and also knowing we can’t just be replaced by technology. A lot of the younger generation coming through are realising the possibilities that exist and some of the really broad areas they can get involved in with clients. It’s a great 0 business to be in. insuranceNEWS
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Leading on diversity Jenny O’Neill explains how Hollard’s efforts on inclusion are already reaping rewards By John Deex
A DECADE AGO, WHEN JENNY O’NEILL was five months pregnant with her son, she was called in to see her Group Chief Executive Richard Enthoven. The litigation lawyer had been with Hollard for three years, and was well aware that when women exit the workforce during pregnancy, it often leads to a “career break”. But she need not have worried. “Richard said, ‘Jenny, I’d like to invite you back when you’ve taken maternity leave to be general counsel at Hollard.’ ” Ms O’Neill took the offer and has gone from strength to strength, later moving to a company secretary role, before her current position as Head of Governance, Legal, Culture and Corporate Affairs. And she is far from alone as a successful woman at Hollard. Half of Mr Enthoven’s direct reports are female, and by July 1 four out of the nine board positions will be held by women. “That’s the sort of company Hollard is,” Ms O’Neill tells Insurance News. “You talk about diversity and inclusion. Creating a senior leadership role for a woman aged 30 with a small child at home – that’s the career trajectory here at Hollard.” Ms O’Neill notes the importance of helping the women coming up behind, and is a key player in pushing Hollard further on this crucial issue, chairing the diversity and inclusion steering committee. A milestone was reached in 2016 when the board approved the company’s diversity and inclusion roadmap, which features three main goals: equality, diversity and inclusion; 22
employee wellness; and the advancement of women. Under these headings are eight focus areas: LGBTI, unconscious bias, disability, mental health, domestic violence, flexible workplace practices, gender pay equality, and gender diversity.
“Creating a senior leadership role for a woman aged 30 with a small child at home – that’s the career trajectory here at Hollard.” “We take this stuff really seriously,” Ms O’Neill says. The Chief Executive reports to the board quarterly, and a number of working groups have been created. From top to bottom in the business, people are taking responsibility for diversity and inclusion. Ms O’Neill highlights a forthcoming parental leave policy as an example of progress in providing better conditions for the company’s precious “Hollardites”. The “market-leading” policy features 18 weeks’ paid leave for both primary and secondary carers, men and women. insuranceNEWS
The leave can be taken any time within the first 36 months of a child being born or placed into a family arrangement, and there is no repayment clause should the new mother or father choose not to return to Hollard. In cases of stillbirth or sudden infant death, the policy still responds. Leave can be taken in various ways: 18 weeks full-time, 36 weeks part-time, or the parent can elect to stay home one week a month for 18 months. “The inherent flexibility is amazing,” Ms O’Neill says. “Families are, by their nature,
Enjoying the journey: Hollard’s Jenny O’Neill
“This is about supporting our Hollardites, and creating inherent flexibility in the way they can balance their work and home life.”
different, and this policy applies to a foster, adoption, surrogacy or kinship arrangement for children up to age 16. “Some people are not lucky enough to have biological children born into their families. By paying super, we are looking at repairing that retirement savings issue. “We know retirement savings are a big issue for women, particularly women that earn less and have career breaks. “This policy puts us on the front foot with an issue that is incredibly important. “What we know is men want to be able to stay at home and look after their children. And when women are relieved of that care-giving obligation, they can stay at work and have a great opportunity to get promotions and be recognised. “This is about supporting our Hollardites, and creating inherent flexibility in the way they can balance their work and home life. “Our staff are so proud of it. We are a family company and it is really inspiring when you see each Hollardite take ownership for this stuff and live it, breathe it and take it forwards.” There is also a domestic violence policy, which allows up to five days’ paid leave on top of other entitlements. Ms O’Neill believes the business case for improving diversity is now undisputed. She quotes International Monetary Fund findings that for every woman who joins the senior leadership team or board, the return on assets is typically 3-8% higher. “It’s a no-brainer to us,” she says. “If we 24
can, at Hollard and as an industry, continue to facilitate flexible workplaces, it’s an absolute game-changer. “Organisations that do well on diversity and inclusion are typically 70% more successful when they wish to enter new markets because of that diversity of thought, and 45% more successful in gaining market share. Those statistics are really important. “It’s not just the right thing to do, it makes business sense. In the roadmap, we pledged we would have three women on the Hollard board by 2020. “I’m really proud to say that, by last year, we achieved that, three years ahead of schedule, and come July 1 we will have a fourth woman on the board, which makes four out of nine.” Ms O’Neill says Hollard is also focused on “cognitive diversity” – allowing a range of voices within the company to be heard. Different perspectives, different ways of solving problems, are listened to. “That is something [Richard Enthoven] has lived and breathed – going to the quietest voice in the room and asking what they think. That freedom from psychological harm that comes with, ‘If I speak out, what’s going to happen?’ “The fact is, different points of view are encouraged here. A lot of our customers are female and working parents, and being able to respond to business problems with that mindset is actually a strategic advantage.” Ms O’Neill says Hollard is happy to share its work and collaborate with the industry more broadly on diversity. insuranceNEWS
Caring for parents HOLLARD’S GENDER EQUALITY WORKING Group (chaired by Head of Personal Lines Paul Fahey) started work on an enhanced parental leave offering in February. “We wanted to create a policy that was inclusive for all parents, not just primary care givers, and that would lead the way in the insurance space and also more broadly,” Ms O’Neill says. Key elements of the new policy include: • 18 weeks’ paid leave for new parents, regardless of gender • Superannuation will continue being paid for parents on paid and unpaid parental leave up to 52 weeks • Flexibility in application of the policy to best align with each family’s unique circumstances, with entitlements able to be taken over the first three years of a child’s life or family placement • The paid parental leave offering is open to adoption or surrogacy carers, foster carers, kinship arrangements and parents facing the hardship of stillbirth or infant death • No repayment clause should the new mother or father choose not to return to work with Hollard after the period of leave.
“It is not something we just do, a box we tick. We are accountable to our board, we have a roadmap with key objectives.”
Mapping the way HOLLARD SAYS ITS DIVERSITY AND inclusion roadmap translates the June 2016 terms of reference for the Hollard Diversity Council Steering Committee into a “living document”, which will evolve to reflect changing circumstances and continual progress. It values the competitive advantages of leveraging workplace diversity and practising inclusion, and the benefit of their integration throughout its business and culture, to: • Enrich corporate perspective • Improve corporate performance • Increase shareholder value • Minimise risk by having cognitive diversity • Enhance the probability of achieving strategic objectives • Inform its contribution to the community. Hollard has three strategic goals, and eight key focus areas with respect to diversity and inclusion in the workplace. The goals are: equality, diversity and inclusion; employee wellness; and advancement of women. The focus areas are: LGBTI, unconscious bias, disability, mental health, domestic violence, flexible workplace practices, gender pay equality and gender diversity. Each focus area has a business case supporting Hollard’s strategic goal, “measurable objectives”, Hollardite sponsor(s) who will oversee implementation, a relevant timeframe and “hard” (statistical) and “soft” (cultural) methodologies to measure performance. The roadmap covers the period to 2019/20.
Peers that want to partner with Hollard, see its policies and learn from them, are encouraged to speak up. “We are very happy to share. This is not a competition. This is something that, as an industry, we can get on the front foot and create positive sustainable change.” She accepts that, despite Hollard’s rapid progress, the journey is far from over. Problems within the industry remain, and there is no telling how long it will take to resolve them. The local insurance industry has more women working in it than men. But scratch the surface and many are part-time, in less senior and lower-paid jobs. “We do have those statistics to be dealing with, and we do know there is a gender pay gap and it is 33.5%. For us, it’s about embedding our policy. “It’s empowering our people so they bring their whole selves to work to do their best work. It’s about engaging and motivating and rewarding great work. “I would like the parental leave to be taken up equally by men and women, and every role in our company to have the option of working flexibly. “I would like more and more of those stories where we are living those values. Diversity and inclusion is a journey and you can always do more.” Ms O’Neill believes there is no single solution, and she cannot put a date on reaching a destination. But she is convinced the momentum has shifted and change is coming. insuranceNEWS
“There is a combination of factors. The talent pipeline, creating learning opportunities for younger women coming up through the ranks so they are confident and empowered and resilient enough to step up and say yes to these opportunities. “The more we encourage our men to step up and avail themselves of parental leave, if they understand their own careers won’t suffer if they take primary care responsibilities, the more it benefits both men and women. “We are creating paid entitlements for primary and secondary carers, and paying the superannuation. A combination of those things together creates change. “It is not something we just do, a box we tick. We are accountable to our board, we have a roadmap with key objectives. It has qualitative and quantitative metrics against it, meaning not only do we look at things such as hard targets, but we also look at soft cultural metrics such as interviews and feedback – and do you know what? It’s working. “I’m very confident we are moving in the right direction and I’m genuinely enjoying the journey. I’m 13 years young at Hollard, 0 and looking forward to the next 13.”
Prepare for the worst Climate exposures are evolving and growing, and insurers are struggling to keep pace By Benjamin Levy
Submerged streets: large areas of Houston were flooded following Hurricane Harvey
LAST YEAR A HURRICANE FORMED OVER THE GULF OF
Mexico. Normally, much of the damage caused by hurricanes is from high wind gusts. But as Hurricane Harvey stalled over southern Texas, slowly weakening to a tropical storm, it dumped a year’s rain in less than one week, breaching two flood-control levees and flooding one-third of Houston. According to the US Department of Commerce, it caused nearly $US125 billion of damage. It was the second most costly hurricane in more than 100 years. It was a similar story with Cyclone Debbie in Australia. Instead of dissipating, it ground its way inland, inundating the Queensland town of Proserpine, nearly 25km from the coastline. About 1200km south, the New South Wales town of Lismore was flooded. Debbie caused $1.7 billion of damage. As climate change intensifies, extreme weather events are growing in both frequency and severity. In the past decade, the average number of extreme weather events has jumped to 310 a year, compared with 60 in the 1970s. General insurers need to accelerate their responses, or risk being caught unprepared. A recent Moody’s report on climate change risks for the property and casualty (re)insurance sector examines three areas of exposure: direct weather-related catastrophes; potential claims on liability insurance; and investment depreciation from transition risk. Weather-related catastrophes are by far the greatest risk general insurers face. Extreme weather events have always been a key risk and are priced accordingly. But continued increases in insured property values in areas exposed to climate change – such as coastal areas – and the increasing frequency and severity of extreme weather events are likely to magnify the volatility insurers face, and result in risk management challenges in assessing, measuring and mitigation of catastrophic risk, Moody’s says. The correlation of risks will have a net negative credit impact on the (re)insurance sector, according to the report. Many directors will have already investigated what their companies are doing to combat climate risk, because they face being personally liable and in breach of their fiduciary duties if they don’t, according to a Finity Consulting report on climate risks.
But the unpredictability of future extreme weather events makes reassessing pricing trends and risk modelling very difficult. Insurers use cyclone catastrophe models to help them assess pricing and understand both the annual cost of reinsurance and what an extreme weather event might look like. But Finity Principal Tim Andrews tells Insurance News these models are outdated and don’t take climate risk into account. “Insurers need to start looking at more granular information,” he says. Finity uses weather station data from across Australia to model how the environment is changing, and it compares that to what scientists expect from climate change. Insurers can then build that into claims estimates, Mr Andrews says. The big insurers that have the necessary resources are already doing this. The Taskforce on Climate-related Financial Disclosures – established to ensure financial markets are adequately reflecting climate risk – suggests companies conduct scenario testing because of the significant uncertainty in quantifying climate risk. However, there is much uncertainty about extreme climate impacts under either a two-degree global warming scenario or a four-degree scenario, according to Finity. Mr Andrews tells Insurance News insurers would be better conducting scenario testing around specific physical impacts, such as a 20% change in rainfall intensity or an 80-centimetre rise in sea levels. But the increasing frequency of natural catastrophes is a gradual, manageable risk. The industry’s practice of repricing policies every year should prevent a situation where premium increases lag actual losses from extreme weather, Mr Andrews says. Insurers don’t have to actively monitor it to make a significant premium increase in any given year. The real consequence of gradually raising premiums to match anticipated claims costs is that premium volumes will decline as insurance becomes unaffordable. Deloitte Principal Sharanjit Paddam tells Insurance News this makes climate change a revenue risk, not a balance sheet risk. “We already have an affordability problem in northern Australia,” he says. “That problem is going to get worse.” The economic cost of natural disasters in Australia is expected to rise to $39 billion a year by 2050 due to increasing urban sprawl alone, he says. 30
“We already have an affordability problem in northern Australia. That problem is going to get worse.”
Cyclones are expected to shift further south as climate change intensifies, which will cause insured losses in places with no history of such events. Insurers must help building owners prepare for this through their policies, and use their influence on the Federal Government to take adaptation measures, Mr Paddam tells Insurance News. This would be in the insurers’ interests, because it would ensure properties remain insurable and don’t become unaffordable. Cyclones are also causing different kinds of damage. Most insured losses from Debbie were due to flooding, rather than high wind, and it dumped much more water inland than past cyclones. Insurers need to understand how to adapt to those changes, yet they are far behind. Such adaptation requires scientific modelling of extreme weather. It is only recently that scientists have started producing information on weather extremes, Mr Paddam says. And most of the science has so far focused on average temperature, which is of no interest to the insurance industry. However, insurers still have time to figure this out. Liability is a more immediate risk. The insurance industry is significantly exposed through the liability insurance provided to corporate clients, Moody’s report says. Although litigation against energy companies alleging liability for carbon emissions has been unsuccessful thus far, it only takes one win to establish a legal precedent. Mr Paddam says most litigation against carbon emitters is occurring in the US, but there is a danger it could spread here. June/July 2018
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Shareholders may also prompt claims from directors or executives under professional liability policies because of companies’ inadequate disclosure of climate change exposure. Because liability coverage tends to be written on a claims-reported basis, exposure could fall on the last company to underwrite a liability policy, Mr Paddam says. “It’s a bit of a game of chicken if you’re writing it, because you’re saying that you’ll watch what’s happening and get out of it quickly.” Insurers can mitigate this risk by diversifying underwriting exposures, Moody’s says. The transition risk in shifting to a non-carbon-intensive economy is the most modest threat (re)insurers face, according to the ratings agency’s report. Although companies in carbon-intensive sectors face higher taxation and more stringent regulation, reinsurers’ investment portfolios should be cushioned from declines in value. Some European reinsurers have built sustainability guidelines into their investment policies, while the general insurance business model uses low asset leverage, Moody’s says. However, Mr Paddam says the transition risk depends on how you measure it. Most general insurers have bond-type investment portfolios, and they don’t tend to hold shares in particular companies, he says. But they may be exposed through project finance, either through large infrastructure projects or through corporate bonds in their investment portfolios that back energy companies. For a large underwriter of energy insurance, its risk book will change drastically, Mr Paddam says. Such underwriters need to transition from high-risk areas such as oil and gas to smaller risks such as wind and solar power. Many underwriters haven’t taken advantage of the enormous shift to renewable energy, Mr Paddam says. “The skills to underwrite a wind farm are very different from the skills to underwrite a coal-fired power station. The technology is different, the engineering is different, and many insurers haven’t invested in that capability.” The weather derivatives market is an untapped opportunity for underwriters, Mr Paddam says. If a wind farm can’t provide the power output it is contracted to generate due to low wind speeds, insurers can cover the losses. Swiss Re and Munich Re are already increasing their capability 32
“The skills to underwrite a wind farm are very different from the skills to underwrite a coal-fired power station.”
to provide such insurance. In the meantime, the decline of coal-fired power stations is providing an added benefit to insurers. Coal power stations are failing regularly because of ageing infrastructure, but owners are producing fewer claims expenses. “You know you’re going to shut down in five years – why would you spend millions of dollars investing in the maintenance or upgrading it?” Mr Paddam says. Moody’s report says insurance usage will likely increase under risk adaptation strategies as governments and businesses become more aware of the financial and economic risks of climate change. Swiss Re puts the protection gap for catastrophic weather events at $78 billion a year on average over the past decade, the report says. Growth is also likely to come from the agriculture and crop insurance sectors. But opportunities will bring challenges in underwriting new technologies that lack significant loss histories. This will result in uncertainty around the adequacy of insurance premiums, Moody’s says. The ratings agency is clear that the overall risks outweigh the opportunities for general (re)insurers – and smaller, more geographically concentrated companies will bear the brunt of it. Volatility from risks associated with climate change will favour larger (re)insurers due to their greater capital resources and risk 0 management capabilities, Moody’s says. June/July 2018
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The Smart way IAG’s Chief Marketing Officer takes a holistic approach to making insurance part of people’s lives By Terry McMullan
YOU WOULDN’T EXPECT that making insurance relevant via marketing would be the easiest assignment in the world. But it was a challenge that brought Brent Smart back to Australia from New York, leaving behind a job as chief executive in the global headquarters of famous ad company Saatchi & Saatchi. Since being appointed early last year as IAG’s first Chief Marketing Officer, he has been busy putting together a talented team and bringing a new light – with a subtle touch of edginess – to the group’s brands, most notably (at this point) NRMA Insurance and CGU. Mr Smart is bringing IAG’s marketing into line with the group’s drive to become fully engaged in the lives and businesses of its customers – an approach that has stirred considerable debate in broking circles. IAG makes no secret of its ambition to build closer relationships with its customers, and Mr Smart is a key part of the action plan, working in IAG’s Customer Labs division under Chief Customer Officer Julie Batch. He’s responsible for the group’s brand portfolio management and marketing strategy, handling brands such as CGU, NRMA Insurance, SGIO and SGIC in Australia, and New Zealand-based NZI, State Insurance and AMI. 34
Customer Labs is the launch pad for Managing Director Peter Harmer’s customer experience strategy, developing digital delivery systems and driving data, product, pricing and marketing innovation, new business incubation and “venturing”. Securing Mr Smart for the marketing role was a coup for IAG, although he tells Insurance News he was looking to return to Australia anyway (see panel). “Trump got elected and I just felt like it was time to come home,” he says. “I loved the fantastic 20 years I had in advertising, but I felt it was time for something different, time for something new. “The idea of being the CMO of a brand that matters, of a company that matters in this market, was the sort of opportunity I was looking for.” Explaining his decision early last year, Mr Smart said the opportunity to “have a bigger influence on the entire customer experience, working with the impressive data and analytics capabilities IAG has to fuel creativity and innovation” was exciting. And he wasn’t signing on for something he knew nothing about. In his early advertising years, the Melbourne-born-andraised executive twice worked on campaigns for the insurance group. insuranceNEWS
The most memorable is the NRMA/HELP campaign of 15 years ago – one that still resonates with focus groups. His job at IAG requires a holistic approach to the complex business of growing closer to the customer, but his passion for effective marketing is never far from the surface. Shortly after arriving in Australia last year, he told a Sydney conference organised by media and marketing publisher Mumbrella that marketers are “missing huge opportunities” in financial services. Criticising practitioners who use terms such as “low involvement, low interest, low engagement” to describe the task of marketing financial services, he said such terms “are actually excuses… for doing low-involvement marketing”. “Creativity is not a choice,” he said. “You have to be creative, you have to be interesting to have any chance of being noticed, to have any chance of succeeding, because there’s just so much stuff competing for our time.” He tells Insurance News the best place to start when marketing insurance is to understand that people aren’t very interested in it, but “we can make anything interesting – it June/July 2018
Positive outlook: IAG’s Brent Smart
just takes creativity and a different approach”. “The challenge of insurance for me is the perfect creative challenge,” he says. “My whole career I’ve always worked with insurance companies, banks, telcos – the more complicated stuff. “I’m a huge admirer of what [companies such as] Nike and Apple do, but I think it’s somewhat easier when you’re in a category that people care about, when you’ve got an unbelievably good product.” Mr Smart says marketers should never accept that promoting insurance isn’t interesting. “Don’t accept that it has to be complicated, or that it has to be rational. Actually, make it anything but that.” NRMA Insurance is IAG’s largest consumer brand, and its TV advertising – which is seen only in New South Wales and Queensland – already bears the signs of the Smart approach. The insurer’s “confidence” advertising, which featured on the cover of Insurance News in December, is a case in point. Our judge described the ads as “charming” and “amusing”. NRMA Insurance then ran an ad specially created for Christmas, telling the story of an elderly
couple driving through the night from their farm to share Christmas with their grandchild. The latest in the series shows insurance workers helping people after disasters – which Mr Smart agrees is a nod in the direction of the old NRMA/ HELP ads, which gave the brand what he calls “this unbelievable iconic equity. It hasn’t been on air for 15 years, but we still remember it.” He says he wanted to bring the old theme back, “not in a way that’s harking back to the past, but with a modern interpretation of what ‘help’ could be”. “It became even clearer for me when I talked to our frontline staff,” he says. “You see what they do when there is a disaster or a big claims event. “They genuinely help people, they’re really good at it and they care about it, and they feel a great responsibility to do it well. “So as the marketing guy it’s brilliant because you go, well, I can make an emotional promise around ‘help’ because I know that our people will actually deliver it. I think a lot of brands get that wrong, because they make a big promise that doesn’t get delivered in the experience.” However, emotional and supportive ads don’t get across the message about actual products. 35
“You’re much better off giving them a feeling about the brand, making it more likely they will choose you when they do come around to shopping.”
Happy homecoming SOMETIMES CAREER OPPORTUNITIES JUST HAPPEN. Insurance was far from Mr Smart’s mind in late 2016 when he caught up with an old friend from his New Zealand days, who was visiting New York on business. The friend was IAG Chief Financial Officer Nick Hawkins, who worked in Auckland as chief executive of IAG New Zealand when Mr Smart was working for ad agency Colenso in the same city. That catch-up led immediately to a meeting with Mr Hawkins’ colleague and fellow traveller, then-chief operating officer and now Chief Executive Australia Mark Milliner. “It was just one of those sort of happy coincidences,” Mr Smart says. “They were there for some big meeting. And then Nick was back a week later with Peter [Harmer], and then I flew out and met the team and stuff. It was meant to be.” The move to Sydney completed Mr Smart’s career circumnavigation, having begun his advertising career in Melbourne before moving to the harbour city. In 2007 he moved to New Zealand to become managing director of Colenso BBDO. “I was looking at all the creative ideas coming out of New Zealand, and they were just so much braver and more creative than Australia,” he tells Insurance News. “It was an amazing five years. New Zealand is a really creative and innovative place. It punches way above its weight and in the creative fields I think it’s the perfect place to work.” But after five years, the ambition to play in the big leagues took over and he moved to San Francisco with BBDO. In 2011 he headed for the bright lights of New York City as worldwide managing director of Saatchi & Saatchi, also leading the global marketing of US food giant General Mills. After two years he was promoted to chief executive of Saatchi & Saatchi New York, working on some of the country’s biggest brands. “The level of talent there is incredible, especially digital talent in that market,” he says. “There’s a reason Google and Facebook were invented in America. “And then Trump got elected, and I just felt like it was time to come home.”
Mr Smart agrees, but notes that only a small percentage of policyholders shop around when it’s time to renew a policy. “If you’re talking to a small percentage, why would you talk to them about specific product offers and product features and benefits, because the vast majority aren’t shopping for insurance today. “I believe you’re much better off giving them a feeling about the brand, making it more likely they will choose you when they do come around to shopping. “Building a brand and taking a long-term view is the way to go.” CGU’s advertising is taking a different tack. Recent TV ads celebrating migrants’ small businesses proved highly successful, and now the company’s promotions are hinting at non-insurance support services for small business operators. “We’re out there trying to start a conversation around something that’s bigger than insurance,” Mr Smart says. “With CGU, I think we do want to try to find bigger emotional places to play, and I think we want to also have conversations that are bigger than just insurance products.” He says market research has confirmed SME owners don’t June/July 2018
differentiate from their business and professional lives. “Rather than just saying it’s an SME brand, I think we’d like it to be a brand that has a certain attitude and is more tapping into a mindset.” Brands, he says, are powerful and emotional, “so you can actually change how people feel about the experience if you can have a brand relationship with them”. IAG’s overall ambition to build new and long-lasting relationships with its customers might not be universally welcomed by intermediaries, but that’s nevertheless where it’s going – and that’s where data and data-driven marketing becomes so important. “Being able to better understand our customers and what they need, what’s going on in their lives, what products they have with us and what products they should have with us all comes down to data. “Being data-driven is critical, so we can start having a more personal relationship and a more predictive and proactive relationship. Rather than have the customer come to us and tell us what they want, maybe we can actually get a bit ahead of it and say, maybe you need this next.” IAG is working on what Mr Smart calls the customer journey
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“Ultimately, the products will also have to change to be relevant to customers’ lives.”
Diverse skillset: from left, Zara Curtis, Sally Kiernan and Caroline Hugall
A new direction IAG’S MARKETING TEAM HAS MADE A NUMBER OF HIGH-LEVEL appointments that illustrate Mr Smart’s point: insurance is now an exciting place for creative people. Zara Curtis, the new Director of Content, is responsible for social media and content. She moved to IAG from Fremantle Media, where she was general manager for commercial, digital and branded entertainment. She has also led content and creative teams at News Corp and Bauer Media. “Zara comes from a completely different mindset,” Mr Smart says. “It’s not marketing or insurance, so she brings this really great way to think about content and audiences.” Caroline Hugall, the Group Brand Strategy Director, is another New York returnee, having most recently been senior planner of global brand strategy for food and beverage giant Mondelez. She has also held senior strategy positions at global creative agencies. And Sally Kiernan, the NRMA Insurance Marketing Director, previously worked in senior marketing roles for Vodafone, UBank and, most recently, as the group marketing director for music streaming platform Pandora. “So, it’s a very different diverse set of skills, and none of us has worked in insurance before,” Mr Smart says. “That’s not a bad thing. We have a lot of people who really understand insurance here, so I think it’s good that we bring a bit of an outside-in kind of perspective to what and how we do it. “Five years ago, I don’t think these people would have worked in the insurance industry, but I think it’s reflective of the business and the direction that marketing innovation is taking [that] people want to work for us now.” Mr Smart says the potential for what marketers can do in insurance is “amazing. It’s not a staid or boring or traditional industry at all. It feels really dynamic.”
– “how their needs change, how we should be communicating with them and what we should be doing. It’s great to be talking about building brands and all the rest of it, but it’s so critical that we look after those direct relationships with customers and deepen the engagement and deepen the loyalty – massively important.” Data is now a powerful tool for marketers, but with the recent Facebook data fiasco clearly in mind, Mr Smart makes the point that there are limits. “You’ve got to respect that data and the relationship. There has to be a clear value exchange happening. There’s a line that some companies cross. We won’t do that.” Generalisations are also a no-no. Mr Smart says Millennials, in particular, are often lumped into one group by marketers, “but that’s really dangerous”. Segmentation work to discover and understand people’s needs, attitudes and mindsets isn’t based on demographics or age. He says all demographics have individuals with quite traditional values, and there are older people who are equally as progressive as many younger people. “But there is no doubt we need to find ways to be relevant June/July 2018
to [people], and you’ve got to reach them in different ways.” That will affect insurance policies, once jealously regarded as the sole preserve of underwriters and actuaries. “Ultimately, the products will also have to change to be relevant to customers’ lives, and so there’s a bunch of stuff we’re working on to achieve that. The way we engage with them, the way they engage with us – that is all changing and I think that’s one of the reasons I was really excited to come here with Customer Labs. “We have all the skills and capabilities we need to build the modern customer experience. I work closely with the digital team and with the analytics and data teams, and I work closely with the innovation teams as well. “By bringing all those skills together, you can start creating new and different experiences. “It’s really important that I don’t just run out there and create marketing and advertising that feels very different and then the experience doesn’t change. It’s got to be aligned. “There’s so many new ways we can engage with customers. “It’s an exciting time to be in marketing and in this industry.” 0
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On the waterfront A recent ocean risk forum sets the stage for greater co-operation on one of the worldâ€™s greatest climate threats
By Andy Swales
Oceans under threat: fishermen amidst floating garbage in Manila Bay
GIVEN ITS CRUCIAL ROLE IN THE world’s economy, proximity to much of the population and overall job as a planetary life support system, the sea’s importance can hardly be overstated. But our oceans are increasingly unhealthy: swollen, feverish and filthy. Sea levels are forecast to rise by up to one metre this century, as the ice caps melt under barely constrained global warming. The oceans are heating up too, harming ecosystems such as Australia’s Great Barrier Reef, and producing new, destructive weather patterns. Studies show the absorption of fossil fuel emissions has left the sea 30% more acidic than in the pre-industrial era. And the water is, to put it bluntly, full of crap. Earlier this year the Ocean Cleanup Foundation reported the Great Pacific Garbage Patch – a collection of plastic and other floating trash formed by currents halfway between Hawaii and California – has grown to more than 1.6 million square kilometres. That’s about twice the size of New South Wales. In May a report by the International Union for Conservation of Nature (IUCN) warned of unprecedented changes in the ocean and called for a “multi-sectoral approach”, with government and the business community working together to address their potential impacts. It sees the insurance industry as integral to this effort. “The changing chemistry and physics of the ocean as a result of climate change can have devastating consequences for human life, health and livelihoods, the scale of which we are only beginning to realise,” IUCN Global Marine and Polar Program Director Carl Gustaf Lundin says. “The insurance industry can play a significant role in helping businesses, governments and communities mitigate damages and better adapt to these changes.
“Insurance against the loss of ecosystems can provide much-needed protection for people dependent on them for their livelihoods, while encouraging their sustainable management.” His comments accompany an IUCN report examining the impacts of rising ocean temperatures and stressors such as acidification and deoxygenation on the marine environment and humans. The report was commissioned by global (re)insurer XL Catlin, which from May 8-10 hosted its inaugural Ocean Risk Summit in Bermuda. The conference showcased the latest research on ocean change and discussed issues such as threats to global food security and human health, and the impacts of hurricanes on communities, ecosystems, business, migration and national security. It provided new data and analysis to help governments and businesses identify their exposures, mitigate them and adapt to them. XL Catlin Sustainable Development Director Chip Cunliffe says the summit’s main achievement was to put “the concept of ocean risk firmly on the map and unite a diverse group of influential ocean science, government, finance and risk management leaders” in seeking solutions. “For the insurance industry, it was a chance to assert our central role in this… based on our unique position at the intersection between prediction, prevention and cure,” he tells Insurance News. The forum prompted a flurry of new reports on ocean risk, and the launch of some pioneering projects to tackle it. Climate risk and catastrophe model expert Falk Niehorster issued a paper examining ways the insurance industry must adapt to tackle impacts including coastal inundation, intensifying storms, loss of marine food resources and a growth in ocean-borne viruses. insuranceNEWS
“New modelling systems are needed by the insurance industry to frame the multiple and interconnected risks associated with changes that remain relatively poorly understood,” he says. “In addition, governments must work to accurately assess the value of their coastal economies, to ensure they are adequately covered for disruption and damage.” He says the insurance industry should “incentivise greater mitigation strategies to help prevent worst-case scenarios occurring”, citing a new reef resilience fund in Mexico as an example (see panel on page 42). Dr Niehorster also urges improved data collection for more accurate risk-assessments, and a “joined-up approach” from government, business and other sectors in reducing risk. “The report’s call for new modelling systems able to cope with multiple, interconnected ocean risks, and for governments to assess the real value of their coastal and
Worth the effort IN A BRIEFING RELEASED BEFORE the forum, XL Catlin’s Chip Cunliffe notes the world’s oceans support a “blue economy” that records a “gross marine product” of about $US2.5 trillion a year, accounts for about 31 million jobs and provides “food for more than 4 billion people”. It is estimated to have an underlying asset value of $US24 trillion. But its role in the world economy is under threat “because of deterioration to the marine environment” due to threats including carbon emissions, pollution and destructive fishing practices. Mr Cunliffe cites a World Wildlife Fund study showing about two-thirds of the ocean’s value is threatened by overexploitation, misuse and climate change.
Parametric pioneers SWISS RE IS PART OF AN INNOVATIVE project to help protect vulnerable reefs and beaches in Mexico – and the tourism industry that depends on them. The Coastal Zone Management Trust, covering part of the Mesoamerican Reef on the Yucatan Peninsula, was officially established in March. Among its suite of measures is a parametric insurance program that pays out quickly for reef and beach repairs and restoration after hurricanes or storms – key sources of short-term damage. The Mesoamerican Reef protects the most important tourism hub in Mexico – including the famous resort of Cancun – which receives more than 12 million visitors a year, generating $US9 billion. Management trust partner the Nature Conservancy says the program will “promote conservation of coastal areas in the Mexican Caribbean and will finance what will become the first parametric insurance policy for a coral reef”. It calls this “a scalable new market for the insurance industry – a multistakeholder model that can be applied to other regions and ecosystems”. Funding for the trust and insurance program comes from the tourism industry and state government sources. The Nature Conservancy says reef restoration work and post-storm intervention – which Swiss Re’s parametric policy will facilitate – are “widely proven to reduce damage to reefs and erosion on surrounding beaches”. Such work “maintains or increases the reef’s capacity to reduce wave energy, thereby reducing onshore damage and coastal erosion”. Nature Conservancy President and CEO Mark Tercek says: “This insurancefor-nature approach is a promising example of creative financing to address imminent challenges facing marine ecosystems, both in Mexico and around the world.” Swiss Re Chairman of Global Partnerships Martyn Parker hails it as a “new type of parametric insurance product that offers rapid disbursement of capital, which can be adopted for broader application in the market. We believe this could become a very effective tool to help countries protect their oceans better and achieve climate resilience faster.”
ocean assets, were echoed throughout the summit,” Mr Cunliffe says. US research body the Stimson Centre and XL Catlin unveiled work on one such innovation: a predictive mapping model to identify developing coastal nations that are most at risk from climate change, and prioritise areas for mitigation and resilience. The model, to launch next year, will examine social, environmental and economic conditions. “Along with the mapping model, a checklist will be created for businesses for future operations in climate change hotspots,” XL Catlin says. “Further, governments and industry will be engaged and provided with tools to help identify solutions and take actions necessary to mitigate climate change risks.” XL Catlin has also teamed up with US environmental group the Nature Conservancy on a scheme to protect the world’s threatened coastal wetlands – such as salt marshes and mangroves – which “sequester billions of tonnes of carbon from our atmosphere at concentrations up to five times greater than terrestrial forests”. The carbon stored in coastal wetlands is called “blue carbon”, and the partners aim to create Blue Carbon Resilience Credits – essentially a “permit” to emit greenhouse gases. “As an increasing number of companies are purchasing carbon credits to offset their [emissions] footprints, this credit will enable a valuation of the carbon sequestration and coastal resilience benefits that wetlands provide both businesses and communities,” the partners say. The Nature Conservancy will explore different options to rate coastal wetlands’ insuranceNEWS
value and develop a credit that supports their conservation. “The goal of our partnership is to make blue carbon the new frontier for action to mitigate both climate change and ocean risk,” Mr Cunliffe says. Another new project presented at the summit is the Economist Intelligence Unit’s Ocean Risk Index, designed to “address the scarcity of measurable indicators on ocean risk and develop practical solutions”. The index will rate the vulnerability of specific countries and communities to ocean-related threats, to inform decision-making and action. The conference also heard proposals to stop the provision of insurance to illegal, unreported and unregulated vessels, and plans for a statement from chief executives of the top 100 insurance companies supporting “crucial ocean goals, such as protecting 30% of the ocean by 2030”. “There was overwhelming support for raising the profile and ambition of the insurance sector in the ocean realm,” Mr Cunliffe tells Insurance News. He believes the prospects of tackling ocean risk are “extremely promising”. “Already there is unprecedented momentum around ocean health thanks to the [UN’s] Sustainable Development Goals, an upsurge in public interest in threats such as plastic pollution and illegal fishing, and the realisation that the ocean is central to the fight against climate change. “With this summit, the insurance industry has now thrown its hat in the ring and will be adding its considerable expertise and 0 resources.”
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Branching out Chubb has a new leader in Jarrod Hill, and a fresh focus on the SME market By John Deex
GLOBAL INSURANCE POWERHOUSE Chubb has long held a local reputation for excellence in large accounts, cover for high net worth individuals and even for claims handling. It’s a highly respected brand, verified by the fact that when Ace bought Chubb in 2015 the merged company kept the Chubb name. One thing that has not traditionally been synonymous with Chubb in Australia is a strong presence in the SME sector, but that could be about to change. New Country President Australia & New Zealand Jarrod Hill, who took over from John French in February, tells Insurance News there is no question of Chubb relinquishing its current hold on the sectors in which it has a large share. It does, however, see great opportunities to expand into the mid-market and SME sectors. 44
“We are one of the recognised leaders in the large and multinational account space,” Mr Hill says. “It has been a strength of the organisation for many years and will continue to be. “We want to bring Chubb’s quality product and service offering to areas where we are not heavily represented now, such as SME and the middle market.” Mr Hill, a Sydneysider, is one of those very rare people who always intended to work in the insurance industry – his father was a broker and he knew what he was getting into. In 1990 he joined Commercial Union, later moving on to Cigna (which would soon be acquired by Ace) as a property underwriter. “I have been at Cigna and Ace, and now Chubb ever since,” Mr Hill says. During that time he’s travelled the world with his family, insuranceNEWS
working in Hong Kong, Singapore, New Zealand and the UK. Most recently he ran Chubb’s international property business out of London before moving back last year to continue that role from Sydney. Then came the call to succeed Mr French, who remains with the company in a regional position. “It was a surprise, but a nice surprise,” Mr Hill says. “I haven’t stepped into a role before where I have seen such strong prospects to expand a successful product and service proposition. “I see opportunities in SME, mid-market and our global major accounts space. There is more that we can do, there is more that we can bring of Chubb to all of those customers.” More than a year ago Australia was identified at a US symposium as a priority country for expansion in the SME space.
Aiming for growth: Chubb’s Jarrod Hill
A six-month pilot was launched in July last year, with a quote, bind and fulfilment platform, which focused just on certain occupations. It was hugely successful and Chubb has now launched the SME platform across the majority of occupations. “We have been engaging with our broking partners for 18 months now and really trying to seek out how satisfied they are with the current offerings, and what Chubb could bring to that space,” Mr Hill says. “We are poised to really serve small commercial customers and broker partners with something that hasn’t been readily available to them. “The feedback from our brokers [on the pilot] was really positive – on platform capability, the service proposition, the business pack product we launched and also on claims.”
The company’s claims performance saw it win the overall Mansfield Award for Claims Excellence last year. It also won the Mansfield Award for SME Property and Casualty and was a finalist for the Personal Lines award. (The Mansfield Awards are organised by Insurance News and loss experts LMI.) Mr Hill says brokers asked Chubb managers when the company would launch a complete SME offering so they could start engaging it as a core player in the segment. The challenge, as Mr Hill sees it, is bringing to the SME sector the same excellence in service and claims handling that Chubb is renowned for, while also competing on price. Chubb will distribute its SME product only through its broking partners. “How can we be efficient but still bring the expectation of a Chubb claims expeinsuranceNEWS
rience to the SME market? That has been critical to whatever we do in this space. “The message we have got from our brokers is that they want us to participate and they want to be able to have the experience they have with us in large accounts in the SME space. “We have really listened to our brokers and this is a broker play for Chubb.” Mr Hill believes brokers remain a crucial cog in the insurance wheel for SME owners, despite increasing talk of disintermediation and disruption. He says business needs are constantly changing and professional advice has never been more important as SMEs are increasingly exposed to new risks such as cyber. “We have already had an example where an SME has suffered a ransomware attack,” Mr Hill tells Insurance News. “Our product provides some basic cyber coverage, 45
Jarrod Hill on… Insurtech “There will be significant change in the industry over the next five years. What that looks like, I don’t know, but it would be naïve for anyone to sit back and think that digital and insurtech won’t have a significant effect on the industry. There will be new entrants to the market that will be successful. But there will be opportunities for incumbents to be successful as well. Probably the biggest win will come from data, and how people utilise it. Whether it’s through robotics or AI, how can we deliver a better product more efficiently to the customer? A lot of people talk about the sales side, but how will digital impact the claims side? How can you maintain that service level while improving speed and efficiency? Chubb is investing significantly in technology and is transforming into a digitally integrated organisation. This is translating to improved service experiences for brokers and customers, faster claims processing, increased efficiency and better use of data and analytics.” A hardening market “If we look back we have certainly seen firming of pricing, particularly across the property classes of business and also Directors’ & Officers’. Over the last five or six years the profitability of the property classes at an industry-wide level has been poor and in the majority of years they have been in a lossmaking position. So rate [rises] have been needed in those classes and we have certainly seen that coming through in 2017 and the first quarter this year. We are seeing a lot of rate rises come through in what companies are defining as hard to place or very challenging segments, particularly with sandwich panelling and cladding. In the D&O space we have seen significant increases in class actions supported by litigation funders, which are unregulated. There were about 16 class actions launched last year, and we are seeing the average payment for those class actions increase to about $50 million. A lot of those actions are brought under the guise of protecting the investor, but the industry has questioned how much of the awarded funds actually end up with the investor. There is no end in sight and it is a big exposure facing boards and directors now.” Diversity and inclusion “Workplace culture is very important to me. It isn’t only about offering a great place to work, it’s about shared values empowering everyone in our team to contribute. We see strength in diversity and want all our employees, regardless of background, gender or personal preferences, to feel like they can pursue successful careers with Chubb.
It’s about ensuring that we have the appropriate recruitment strategy in place but also that we have the appropriate pathways for everyone to be successful, and for everyone to feel like they have that opportunity at Chubb. It has to be a diverse and inclusive meritocracy – that is really what we aim for. We believe that we need the best people and we want to be selecting from the entire population, not half the population. With our sponsorship of the Young Insurance Professionals (YIPs) it’s very much along the same path. YIPs is about investing in the future of the industry and we feel that is a great place for us to invest and support and grow talent.” As an industry we are going to have to continue to attract quality talent to succeed. We need talent that can think along the lines of the digital age. A lot of Millennials will think differently about how business is transacted, how they communicate.” The industry’s reputation “Insurance is, when it comes down to it, a promise to pay. So it is imperative that the consumer has faith in the insurance market in Australia. Generally I do think that is the case. The market has responded well to a number of major events. If we look more broadly in the global context, historically everyone has talked about the $US100 billion event being the thing that would disrupt the insurance market from a pricing perspective, but the industry had $US100 billion of catastrophe losses in Q3 last year, and there has not been significant disruption. The majority if not all the industry has been able to meet its obligations across those events. The industry as a whole is well capitalised and in a strong position to meet the promises that it is making to the customer. That’s a positive and consumers should take strength from that.” Chubb’s reputation “A lot of success comes down to people and passion for what they do. The claims team has that passion. They are dedicated to ensuring quality outcomes for our clients. That is supported throughout the business, and it comes down to the culture of the organisation. We do our underwriting at the point of sale. We are clear about what we are insuring and what we are covering, so this makes life easier for all parties at the point of claim. The concept of craftsmanship is a differentiator for Chubb. This is about applying a master craftsman’s approach to Chubb work, whether it is underwriting, claims or service. Our teams are rewarded and acknowledged for demonstrating craftsmanship.”
“If it’s purely on a transactional basis where lowest cost wins, that’s not necessarily where we see ourselves.”
which gives the client access to a 24/7 advice service. “Because they had that access, this client was able to be up and running the next day. “Brokers being able to advise on products that have broader coverage – that is what Chubb wants to bring to the SME space. “If it’s purely on a transactional basis where lowest cost wins, that’s not necessarily where we see ourselves.” Mr Hill cites another example of an SME becoming involved in a legal dispute that threatened the future of the business. “They had purchased a cyber liability product from Chubb via one of our broking partners, and we were able to take them through that case, and settle the claim within the limit of the policy. The client is still operating today. “The broker had advised them on a cyber liability program. That to me is where the value is in brokers.”
“We see SME as the fastest growing segment of the Australian economy and we want to be a relevant player.”
Chubb’s investment in SME is significant. Matthew Head joined in March as SME Manager, and about 50 new staff will be added this year to support growth in SME and other areas. Investment in the platform will also continue, enabling brokers to become more dynamic in the SME space. Mr Hill declined to talk targets, but says Chubb wants to take a significant slice of an intermediated SME premium pool estimated at up to $4 billion. The SME strategy will eventually be launched into the New Zealand market too. “We see SME as the fastest growing segment of the Australian economy and we want to be a relevant player. It’s early in the journey and in 18 months we will have a lot more clarity about the targets we should be setting ourselves.” 48
Chubb is one of several general insurers in the highly competitive tier at the top end of the Australian market under the “big four” of IAG, Suncorp, QBE and Allianz. Its competitors for fifth place are Zurich and Hollard. The Switzerland-based insurer has ambitions to grow, but does not judge itself against others. “If you look at the big four [in the local market], they are significantly larger than anyone else, and a large portion of that is made up with broad-based personal lines,” Mr Hill says. “We see ourselves as a specialised high net worth personal lines player, and then commercial. We won’t necessarily judge ourselves against others but we do see there are strong prospects for Chubb in Australia.” Mr Hill believes his experience in other markets has been great preparation insuranceNEWS
for the leadership role in Australia and New Zealand. And he is relishing the opportunity. “I’ve been fortunate seeing where other markets are, whether it be the digital space or SME, or how we engage with brokers. Bringing all those experiences back and having that breadth of exposure stands me in very good stead.” He says when the call came offering him the role of leading the Australian and New Zealand businesses, “it wasn’t a tough decision. It was a role I had always wanted. “Chubb Australia is a well-integrated organisation with a deeper risk appetite, broader product suite and larger distribution capacity than ever before. “Backed by our culture of craftsmanship and claims excellence I am very optimistic about achieving strong growth with our 0 broker partners.”
City frights Conflicts and market crashes are among top economic threats for urban centres By Wendy Pugh TOKYO AND NEW YORK HAVE TOPPED A LLOYD’S global list of cities facing the greatest potential economic impact from a range of man-made and natural disasters. The City Risk Index analyses 279 cities, assessing their vulnerability to more than 22 threats and ranking their exposure according to the estimated loss of gross domestic product (GDP). For Tokyo, $US24.3 billion of GDP is at risk, with interstate conflict representing the single largest threat. New York could have $US14.8 billion wiped off its economic output, with a market crash taking the greatest toll. Tropical windstorms are the costliest event for Manila and Taipei, which fill third and fourth positions in the cities at risk table, while interstate conflict is the greatest threat for fifth-ranked Istanbul. Eight cities from Australia and New Zealand are included in the analysis. Sydney, at the top of the local list and 65th overall, has $US2.36 billion, or 0.8% of GDP, at risk. A market crash is the largest potential threat for the city and could wipe out $US1.19 billion of GDP, while a cyber attack could have a $US413 million impact. Other key threats are human pandemic, drought, flood, temperate windstorm, power outage, heatwave and a plant epidemic. The picture is similar for Melbourne, which has $US2.09 billion, or 0.89% of its GDP, at risk. Top threats are a market crash, flood, cyber attack, human pandemic, solar storm, power outage, temperate windstorm, plant epidemic and a freeze.
The 22 threats assessed in the report fall within five categories. Geopolitics and security includes civil conflict, interstate conflict, social unrest and terrorism. The other broad areas are health and humanity, natural catastrophe and climate, technology and space, and finance, economics and trade. A market crash heads the global list of top threats, potentially putting $US103.3 billion of GDP at risk, while interstate conflict is second with $US80 billion. Tropical windstorms, the costliest natural catastrophe threat, could have a $US62.6 billion impact. In the Asia-Pacific region, man-made threats account for almost half of the city risks. Delhi, Mumbai, Bangalore and Karachi are in the global top 10 for terrorism, while Jakarta heads the regional rankings for economic risk from civil conflict. The index, produced in partnership with the University of Cambridge Centre for Risk Studies, aims to help policymakers, businesses and communities understand the impacts they could face, encouraging steps to build resilience. In the Asia-Pacific region, 16 cities rated “very strong” for resilience, including all those assessed in Japan, South Korea and New Zealand. Nineteen centres rated as “very weak” include those in India and Pakistan. Melbourne and Sydney are assessed as having “strong” resilience. Lloyd’s says if all cities in the region achieved a “very strong” rating, the saving would amount to $US34 billion. Manila would reduce its GDP at risk by almost $US4 billion and Taipei could achieve a 0 reduction of more than $US2 billion.
Australasian top 8 cities most at risk GDP at risk $US2.3593bn
Sydney Biggest risk: market crash Melbourne Biggest risk: market crash
$US0.6487bn New York GDP at risk – $US14.8 billion Biggest risk – market crash
Global top 10 threat categories Threat
Earthquake Commodity Price Shock Sovereign Default
$US34bn $US20.3bn $US18bn
Manila GDP at risk – $US13.3 billion Biggest risk – tropical windstorm
Taipei GDP at risk – $US12.9 billion Biggest risk – tropical windstorm Istanbul GDP at risk – $US12.7 billion Biggest risk – interstate conflict
Tokyo GDP at risk – $US24.3 billion Biggest risk – interstate conflict
The language barrier Rules around different types of advice are hindering insurers and making life harder for consumers By Wendy Pugh
CALLS TO OVERHAUL rules on giving advice to consumers are becoming louder as insurers and customers navigate arrangements increasingly considered inadequate for everyone involved. The lines between factual information, general advice and personal advice are tying providers in semantic knots, while consumers are often confused by limited or non-sequitur conversations when trying to choose products. The Insurance Council of Australia (ICA) says the difference between the three advice categories can, in some circumstances, be as little as a single word, leading to a strong focus on carefully phrased conversations. “General advice rules often diminish the usefulness of information provided to consumers,” ICA spokesman Campbell Fuller tells Insurance News. “Insurers take a conservative compliance approach, so as not to be at risk of providing personal advice when they are not licensed to do so. The potential exposure to regulatory penalties and reputation damage from non-compliance is significant.” 52
The Australian Securities and Investments Commission (ASIC) suggests tension between consumer expectations for advice and industry concerns are likely to rise as technology enables more individualised data collection, while people are becoming accustomed to new forms of personalised guidance and assistance in the wider digital economy. A recent Productivity Commission draft report on financial system competition focuses on the issue, recommending renaming of the misleading “general advice” term and seeking feedback on the merits of further changes. Responses to the report show the name change is supported, but more significant action is needed to help ensure consumers receive the right assistance. Suncorp’s submission says it would welcome reforms so insurers can provide more tailored information to customers, with current arrangements leaving front-line staff with the difficult task of assisting the customer without veering into personal advice. Among the problems frequently highlighted is that insuranceNEWS
consumers don’t understand general advice cannot take into account their particular circumstances, while if providers give personal advice it may open up compliance obligations out of proportion to the type of assistance required. The issues date back to financial services reforms in 2002. Those changes aimed to provide a more consistent regulatory regime, but they caught up general insurance in ways that created problems where none existed. “[The] objective was to streamline the regulation of financial services, and not to address any specific issues with the way general insurance was sold,” Mr Fuller says. Previously, simple insurance products could be offered with basic advice around product information and needs, but legal requirements under the new regime changed the landscape. “I don’t know whether people anticipated a wholesale withdrawal from personal advice and the wholesale adoption of general advice, particularly by the direct insurers providing no real guidance to their clients as to the nature and level of June/July 2018
cover,” National Insurance Brokers Association (NIBA) Chief Executive Dallas Booth says. “But given the regulatory framework, that is what did occur.” An Australian financial services licence is required when general and personal advice is offered, but not for an information-only model. Personal advice triggers requirements that recognise the need for higher standards and duties of care when offering services tailored for individual circumstances, and which may form part of a wider financial plan. Views differ on better ways to ensure consumers receive the insurance that best suits their circumstances. Consumers with complex risks may engage a broker to obtain personal advice, but ICA says most consumers don’t need or want personal advice for their general insurance purchases. “However, it’s likely most consumers would benefit from guidance from insurers at key decision-making points – for example, in selecting the cover
“An option for reform could be a carve-out for the provision of certain information to consumers of general insurance products by the product issuer.”
amount and options at the point of sale,” Mr Fuller says. “An option for reform could be a carve-out for the provision of certain information to consumers of general insurance products by the product issuer.” ICA says it is open to considering all options that would provide insurers with greater flexibility in providing guidance. NIBA’s Mr Booth says revisiting standard-cover policies, such as for home and motor, may be part of the answer, while the Consumer Action Law Centre says new product design and distribution rules will provide protections. The Federal Government referred a review of standard cover to Treasury as part of its response to last year’s Senate committee report on the general insurance industry. Improvements to standard cover may make it easier to compare policies and provide a base level of insurance that meets community expectations for what should be included in lines such as home and motor. “That should remove a lot of angst and concern about people finding out after the 54
event that they didn’t have the cover they thought they did,” Mr Booth says. The push to improve the advice process comes amid increased focus on other reforms to encourage consumers to shop around for better deals, and acknowledgement of the problems they face when comparing policies. Comparison websites have faced criticism for focusing on price and for limitations in the suite of providers, while policy complexities and lengthy product disclosure statements make comparisons difficult for consumers going it alone. “It is just not an easy process,” Mr Booth says. “So anything that will make it easier to get a little bit of guidance without having to do a full box and dice with bells and whistle, I think ultimately would be a good thing.” The Consumer Action Law Centre also views advice-type distinctions as confusing and often misleading, and is looking at other paths to ensure people receive the right products for their needs. “Instead of getting caught up in the semantics of what insuranceNEWS
is no advice, what is general advice, what is personal advice, we have really been focusing on the new design and distribution obligations that will be applying to financial products, which look more at suitability in general,” Senior Policy Officer Katherine Temple says. Treasury has released draft legislation for the obligations, which require providers to identify target markets for products and put the onus on distributers to sell them correctly. The rules will come with stronger intervention powers for ASIC, including the ability to stop distribution if a product might cause harm. ASIC says the reforms should provide a “foundational level of consumer protection” that will apply regardless of whether advice is provided. The regulator has also been researching community understanding of general and personal advice, to gather a stronger evidence base of consumer needs, building on previous review findings that highlighted difficulties in getting basic extra information when buying policies. June/July 2018
A home insurance sales review found cases where insurers were operating on a general advice model, but scripts provided to sales staff provided less than that level of assistance. In another example, staff at an insurer repeatedly read verbatim from the product disclosure statement when a consumer asked a question about the scope of the policy. “While we consider that relabelling general advice is a useful step, this proposal on its own may not address broader issues relating to financial advice, including the need to raise the quality of advice, whether general or personal, and to increase access to financial advice,” ASIC says in its Productivity Commission submission. NIBA has suggested the full cost of compliance in amending the term general advice would likely run into the millions of dollars and may require at least a two-year transition period as processes and documentation are amended. More substantial reforms are clearly on the radar, but finding an agreed way forward remains a work in progress. 0
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Ready for the future Data-driven insights remain key as Aonâ€™s Lambros Lambrou moves into a global role and James Baum takes over the local operation By Wendy Pugh
LAMBROS LAMBROU AND JAMES BAUM WILL
Pulling together: Aon’s James Baum and Lambros Lambrou
be working on opposite sides of the world in new roles for Aon, but their focus will be in similar places as they help clients navigate a volatile business environment. Emerging risks, customer needs and insights available from data and analytics are major themes for the company, which sees Australia playing an important role in developing innovations and opportunities. “It doesn’t actually matter what size client we look after, the demand for advice is increasing,” Mr Lambrou tells Insurance News before moving to New York, where he will take up a global role. “Clients want to know that they are making the right decisions around how they think about risk resilience planning, how they think about insurable versus non-insurable risk and how they link that to their risk appetite and the risk culture of their organisations.” Mr Baum is taking over as Aon Risk Solutions Australia Chief Executive, after previously holding the Commercial Managing Director and Aon Broking Pacific Chairman positions. He says the role of the broker is as strong as it has ever been at the top end of town, and the use of in-house captive insurance vehicles remains at a small level. He agrees that time-poor small business owners also want advice that suits their needs. “Individuals want choice and they want to know that somebody will advocate for them in case something happens that is unexpected,” he tells Insurance News. “If you think about choice and advocacy, that really is our DNA within the organisation of Aon.” Mr Baum says businesses are facing new trends and challenges, each accelerated by the rapid pace of technological change, and it’s Aon’s role to help clients reduce volatility and increase performance amid the uncertainty. Globally, Aon’s strategy leverages a $US400 million annual investment in analytics, data and modelling to deliver insights and sophisticated advice that can be acted upon. Mr Lambrou, who was telling brokers about the looming insurtech revolution long before it actually arrived, has seen the rising impact of analytics over three decades with the group, including roles in the US, Europe and the Asia-Pacific region. He’s a strong advocate of the better-informed decision making that data brings. Aon says he will bring “an innovative mindset, international perspective and understanding of the marketplace” to his new role as Aon Global Chief Commercial Officer and Chief Executive of Global Specialties for the firm’s commercial risk business. Clients are increasingly savvy, he says. They’re no longer satisfied with advice from those who may take a “gut-feel” approach to recommendations. “We are seeing more and more demand from clients who are saying that [advice without evidence] is not appropriate for them any more, ” he says. 57
“What they want is a broad-based, fact-based set of insights that are provided to them by their risk partner, to enable them to look beyond their current risk register and come up with resilience plans that are not just fit for today, but tomorrow as well.” Aon is investing in modelling approaches that reflect the shifting risks as it seeks to broaden the areas that are covered and more effectively respond to fast-moving threats such as cyber security. “Historically, insurance has always thought about modelling, I would say, through the rear-view mirror,” Mr Lambrou says. “For some risks that is an appropriate way of thinking about modelling. On the other hand there are other emerging risks, and I would go to cyber as a classic example of this, where history is not a great determinant as to what the future will look like.” Large volumes of data are now being collected on cyber threats and vulnerabilities, much of it held by technology firms rather than traditional insurers, which provides opportunities to develop tools to deal with the risks. Silicon Valley-based Cisco scans 600 billion e-mail messages each day and identifies 1.5 million unique kinds of malware every day, Aon says in a Global Insurance Market Opportunities report, subtitled Re-Imaging Risk Management. “There is a considerable amount of energy being thrown at the issue of cyber by the overall insurance and reinsurance industry in the US,” Mr Lambrou says. “In many ways the risk itself is outpacing the speed with which the insurance marketplace is trying to evolve with broader solutions to respond to clients’ issues.” Aon has boosted its cyber risk management capability with the acquisition of US company Stroz Friedberg, which helps businesses before and after incidents. The firm was founded by former Federal Bureau of Investigation special agent Edward Stroz, and computer crime specialist Eric Friedberg. Mr Lambrou says cyber criminals have varying motivations and objectives that affect the range of potential repercussions. These impacts can go well beyond ransom experiences highlighted in the recent WannaCry attack. “That creates different risks and different issues that need to be considered by clients and indeed by the insurance industry in terms of the capacity that might be required by some of the bigger infrastructure players out there,” he says. Discussions locally and globally with carriers have focused around both the breadth and the quality of the coverage, but also how much capacity is available to deal with some of the high severity risks. Aon has co-chaired a Business Council of Australia “cyber alliance” with Cisco as part of efforts to raise awareness about the evolving threat, while globally 58
“There are other emerging risks, and I would go to cyber as a classic example of this, where history is not a great determinant as to what the future will look like.”
there’s a mismatch between an awareness of the issue and efforts to respond. The group’s global risk management survey last year showed cyber crime is a top 10 risk for respondents in most regions. “Yet when you really get into the way organisations treat that risk, either from a risk perspective or insurable perspective, it doesn’t quite line up,” Mr Baum says. Aon’s view is that cyber is an enterprise-wide issue for businesses that reaches across all operations. In the case of physical assets, damage triggered by cyber crime could outweigh losses from routinely insured risks such as fire and flood. Australian data breach reporting rules that started this year and European General Data Protection Regulation that took effect in May have highlighted some potential cyber threat repercussions. But Mr Baum says businesses are encouraged to look more broadly at potential risks, and the insurance industry needs to help educate clients and to work with them to develop products. “People are very focused on privacy and the data that relates to privacy, but more and more people are getting their heads around that the risk is as much a physical asset risk,” he says. A cyber attack on Iran’s nuclear program a decade ago was an early wake-up call, and opportunities for physical cyber attacks are expected to increase with the uptake of cloud computing and the rapid growth in the internet of things. Mr Baum says the industry has to also find ways to address other emerging areas that are not adequately covered by the insurance industry, with the vast increase in data and new technologies offering the opportunity for new solutions. At the same time, it is necessary to work closely with clients that would benefit from tools to address non-traditional risks. insuranceNEWS
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“We’ve also got to create a marketplace for those things,” he says. “We as an industry can create and innovate, but we also need to be able to educate the client base. There is not much point building these products if we can’t sell them.” In the Asia-Pacific region Aon has expanded its Centre for Innovation and Analytics in Singapore, announcing last year it was creating a new space to foster increased collaboration between the group and potential innovation partners. In Australia, Aon is a corporate partner in technology start-up hub YBF Ventures, formerly named York Butter Factory after the historic Melbourne building that it occupies. The company sees opportunities for insurtech innovations to deliver services and products in different ways. The industry is generally looking to take a collaborative approach, rather than raising the drawbridge. “There are any number of opportunities for us to play a part in that and I think it is incumbent on us as brokers to actually encourage insurtech to play a bigger role within the industry,” Mr Baum says. “Industries have really tried to ignore technology or disruptive strategies to their own peril. You only have to think about the likes of Uber.” Aon says it is well placed to deliver tailored advice in whatever ways a client prefers, including through digital platforms and in person. The company has a network of around 40 offices spread across each of the capital cities and extending into rural and regional areas. Mr Baum travelled throughout the branch network after taking the helm of the local commercial business to better understand how the company could be meaningful in the day-to-day lives of clients and to ensure regional offices are represented in the wider strategy. He also focused on diversity and achieving an equal gender split within the leadership team of that business. The company has moved to ensure women are equally represented as candidates and on interview panels as part of a strategy to engage the best talent. “If I look at the business today, in terms of where we have come from and the impact the diversity and inclusion strategy has had on attracting people to the business, then it has been a marked change,” he says. Mr Baum, who has worked across the risk solutions business spectrum and with a wide range of clients in 13 years with Aon, says his leadership style values teamwork and inclusiveness. “I am a strong believer that trust and backing your colleagues and backing each other to get results is really the best way to get things done. I am certainly not an autocrat. I believe we have a great team and we will use that team to drive the right outcomes.” Last year Mr Baum hiked the notoriously difficult 60
“We as an industry can create and innovate, but we also need to be able to educate the client base. There is not much point building these products if we can’t sell them.”
Kokoda Trail in five days to raise funds for the Black Dog Institute, which focuses on mood issues such as depression and bipolar disorders. In November he will trek to Everest Base Camp to support the charity. “I have had a little bit of an interruption to my training schedule with my new role, but we are committed to getting it done,” he says. “The fund-raising page is up and running so there is no backing down now.” Mr Baum has worked closely with Mr Lambrou in recent years and says he is fortunate to be taking over an Australian business that is achieving sustainable growth. “That puts me in a fantastic starting position, so really for the first 12 months in particular it is going to be about driving forward the strategy we have built over that time,” he tells Insurance News. Australia’s unique market characteristics ensure it holds a special position in the Aon world, and that will remain a focus for Mr Lambrou from his global vantage point. The country offers scale in segments ranging from small-to-medium sized business to large international enterprises, while global, regional and local players in insurance and broking are all in the market fighting for business. As global chief commercial officer Mr Lambrou will be working with colleagues around the world on their growth agendas and strategies, some of which may have emerged from the Australian market. As global specialities chief he will focus on the broader risk agenda for clients in specific industries such as mining, energy construction and professions, with Australia again having a strong specialty footprint. “For us at Aon, we often refer to Australia as a place where we would like to pilot and sometimes launch innovative tools, services and initiatives,” Mr Lambrou says. “It is a really interesting part of the world and one we continue to look to around our innovation 0 and growth agenda.” insuranceNEWS
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See you in court Legal cases show just how varied insurance can be By Wendy Pugh
CASES INVOLVING A BROTHEL, GRAPES AND professional horseracing were among those to shed light on insurance law issues in the past year. The Australian Insurance Law Association has provided a snapshot of important cases in its Annual General Insurance Law Review, which examines almost 50 decisions. There are implications in areas such as disclosure obligations, the interaction between local and global policies, duty of care, and liability when accidents happen during professional sport. Scenic Tours, Woolworths and the Australian Competition and Consumer Commission are among high-profile organisations involved in the legal tussles. Here are summaries of some of the cases.
Murky waters on liability Aquagenics Pty Ltd (in liq) v Certain Underwriters at Lloyd’s Subscribing to Contract Number NCP106108633  FCA 634;  FCAFC 9 Water treatment engineering business Aquagenics and the Break O’Day Council in Tasmania were in dispute over project pre-commissioning works, with both sides claiming the other was in breach of contract. Aquagenics left a site before work was finished, saying it could not move ahead because it was waiting for sludge for seeding, which was the council’s responsibility. The council took the project from the company and later found major design defects. An arbitration hearing awarded damages, interest, costs and fees to the council. Aquagenics notified its insurers, expecting professional indemnity cover on claims made for any wrongful act committed in the course of professional activities.
The insurers rejected the claim, arguing Aquagenics decided to stop work and leave the site, whereas the “wrongful act” cover was for an act, error or omission that was inadvertent, unintentional or accidental. The Federal Court ruled against the insurers, finding acts, errors or omissions can involve deliberate conduct and the policy did not provide support for its interpretation. It also ruled the “wrongful act” occurred in the course of professional activities and the design defects would have affected Aquagenics’ ability to achieve pre-commissioning. An appeal by the insurers to the Full Court of the Federal Court was unsuccessful.
Hail limit dents payout Mobis Parts Australia Pty Ltd v XL Insurance Co SE (No 7)  NSWSC 1321 Mobis Parts Australia took court action after a warehouse collapsed in a storm, prompting a dispute with XL Insurance over a $14.4 million payout capped for hail damage. The car parts company held a local policy that was part of an international program, offering storm damage cover of about $72.1 million. The global policy explicitly included the lower hail limit and XL argued it applied to the local cover. The court found the program aggregate limits did not have the effect of importing the hail cap, and if it was intended that the local policy should have such a sub-limit, the language should have been clearer. XL failed to convince the court, in a rectification case, that the insurer and Mobis had a common intention for the local policy to include the limit but by common mistake it did not. The court confirmed hailstones
caused the collapse because they were accumulating and weighing down the roof shortly before the structure failed, and the warehouse had previously withstood heavier rainfall. An exclusion for faulty design was rejected because the warehouse complied with relevant Australian standards. The court held Mobis was entitled to indemnity under the local policy for substantial losses connected with damage to the warehouse and stock, and business interruption. “The case is an illustration that care needs to be taken when incorporating or adopting terms from the master policy into the local policy, such as sub-limits for specific perils,” Chern Tan at MinterEllison says. “Even if the parties might have believed the sub-limits were the same, the court will require compelling evidence before it will order rectification of the local policy.”
Grape expectations Woolworths Ltd v McQuillan  NSWCA 202 Woolworths was taken to court for damages after Colleen McQuillan slipped on a grape and was injured in the Leichhardt supermarket six minutes after it opened for business. The District Court ruled Woolworths was negligent, with the grape likely to have dropped as employees brought produce from the cool room before opening. It awarded Ms McQuillan $151,000 in damages, plus interest and costs.
The Court of Appeal overturned the decision, saying it was not clear when the grape fell, and it was not persuaded that a failure by staff to see a single grape during a busy time constituted a casual act of negligence. Woolworths’ duty to take reasonable precautions to avoid people slipping required keeping a “proper lookout” but not a “perfect lookout”, the ruling found.
Medibank defends disclosure ACCC v Medibank Private Limited  FCA 1006 The Australian Competition and Consumer Commission (ACCC) brought action against Medibank after the insurer dropped cover for some out-of-pocket expenses for in-hospital diagnostic services without notifying policyholders. The ACCC alleged marketing materials suggested the services were fully covered, and by not notifying people of a change Medibank had not given them a chance to respond. It said the insurer’s conduct was misleading or deceptive and unconscionable, breaching Australian Consumer Law. Medibank maintained it had represented that cover was provided for some, but not all, out-of-pocket expenses and there was no change to fund rules that required a notice to be sent out. The insurer said the changes would affect only a small proportion of policyhold-
ers who would not cease to insure if they incurred expenses regarded as reasonable. The Federal Court dismissed the ACCC case, accepting that materials, including those provided during purchase cooling-off periods, showed out-of-pocket expenses could be incurred. The court said no reasonable consumer would understand “cover” in the marketing materials to mean “entirely covered”, and the wording identified types of medical procedure included in policies. Ashurst Senior Associate Philip Hopley says the Federal Court endorsed the practical approach taken by Medibank, and others, to disclose that some benefits can be partly paid, without specifying the precise extent of the reimbursement. The ACCC is appealing the decision and taking similar enforcement action against another private health insurer.
Bikies and brothels Stealth Enterprises Pty Ltd t/as The Gentlemen’s Club v Calliden Insurance Limited  NSWCA 71 Stealth Enterprises, operator of The Gentlemen’s Club brothel, had a fire damage claim denied because it failed to disclose its owners were associated with the Comancheros bikie gang. The claim was also rejected under Calliden’s adult industry policy because the brothel’s registration under the Australian Capital Territory Prostitution Act had lapsed. Stealth took the matter to court and won on appeal. The judge found Calliden’s underwriting guidelines did not make clear that a motorcycle gang association was grounds for declining cover, and there were no specific questions to suggest that was likely. The court found a reasonable person could not be expected to know a Coman-
cheros association would justify denial of cover for an adult industry participant with known risks, and Stealth had not failed in its disclosure duty. The court also held that there was insufficient evidence Calliden would have denied cover if the bikie gang links were known, and rejected the lapsed registration concern. If the lapse had been disclosed, Stealth would have paid for re-registration and obtained insurance, so Calliden would be “on risk regardless of whether the failure to register was disclosed or not”. Megan Lingafelter and Ray Giblett of Norton Rose Fulbright say the Stealth decision sets a high bar for establishing non-disclosure and “raises the spectre” that insurers may face more pressure to produce onerous question lists.
Sporting chance Goode v Angland  NSWCA 311 Jockey Paul Goode suffered serious injuries and was confined to a wheelchair after his horse clipped heels with a rival and fell during a professional race at Queanbeyan. Mr Goode claimed the injuries were caused by negligence or breach of duty after jockey Tye Angland moved his horse to the left, then back again, without leaving sufficient space. The trial judge found Mr Angland’s riding was not the cause of the fall, and that professional horseracing comes under Civil Liability Act sections that exclude liability
for harm suffered due to obvious risks from dangerous recreational activities, including any sport. The Appeal Court agreed horseracing was a sport, the recreational activities definition included professional events and Mr Angland was not liable. The court noted the Act’s recreational definition also focuses on the location of an activity, highlighting potential inconsistencies if professionals and amateurs competing simultaneously are treated differently for liability purposes.
Professional Indemnity I Public and Products Liability I IT Liability I Medical Malpractice I Management Liability
Collar causes discomfort Weir Services Australia Pty Ltd v Axa Corporate Solutions Assurance  NSWSC 259 Phil Gold Processing and Refining retained engineering company Weir Services Australia for work on a grinding mill in the Philippines. Welding work completed by Weir later disintegrated and Phil Gold brought arbitration proceedings against the company. Before the matter was decided, the two entered into a “cap and collar” agreement. Phil Gold’s recovery was capped at $US10.725 million, while Weir, without insurer Axa’s consent, agreed to pay a minimum $US2 million, whatever the arbitration outcome.
The tribunal dismissed Phil Gold’s claim. Weir paid the minimum “collar” amount and sought indemnity for the payment and defence costs from Axa. The insurer denied the claim in a decision upheld by the Supreme Court of New South Wales. The court found an agreement to cap and collar damages did not establish liability for the purposes of the policy, especially given the arbitrators in the Phil Gold claim had dismissed the case.
Cruising for a bruising Moore v Scenic Tours (No.2)  NSWSC 733 – personal injury claim under consumer law, assessment of damages under Australian Consumer Law European river cruise organiser Scenic Tours was ordered to pay damages after buses were substituted for luxury boats when melting snow and heavy rain made rivers unnavigable. Clients who expected all-inclusive accommodation, dining and entertainment instead toured by bus and stayed in hotels of varying standards, or on vessels docked in sometimes remote and unpleasant locations. Disenchantment with the “once in a lifetime” adventure sparked a representative action in the Supreme Court of New South Wales, with David Moore as lead plaintiff. The case focused on Australian Consumer Law (ACL) guarantees, which
require services to be rendered with due care and skill, and to be fit for a particular purpose. The judgement, which followed an analysis of tours, detailed itineraries and actual experiences, found reality often departed so far from promoted descriptions that the “cruises” were not reasonably fit for purpose. The court found Scenic had breached consumer guarantees under the ACL. Mr Moore was awarded the $10,990 cost of the holiday, because he would have withdrawn from the trip if Scenic had acted with due skill and care and informed him of the conditions, allowing him to cancel. Mr Moore was also awarded $2000 plus interest for distress and inconvenience.
Labour agency on hook for mine crash
Paskins v Hail Creek Coal  QSC 190
A truck driver at a mine run by Hail Creek Coal was injured when his vehicle collided with an excavator negligently operated by a worker from labour hire agency Workpac. The accident raised questions over whether the labour hire agency was vicariously liable when control of the employee’s work was largely exercised by the coal mine. The Queensland Supreme Court found each of the employers was liable to compensate the truck driver. The coal mine owed a non-delegable duty of care to its employees, which was breached by the excavator driver failing to comply with safe operating proce-
dure for loading trucks. The labour hire agency was vicariously liable because it had not vested complete, or substantially complete, control of its employee to the mine. The agency maintained an office and supervisory staff on site and the contract preserved its ability to provide overall direction and control to its employees. Once the labour hire agency’s employee was found negligent, it was liable under the terms of its contract to indemnify the coal mine for any liability arising from negli0 gence of its personnel.
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The missing component Campaigners say consumers should be given a breakdown of premium calculations, but insurers are unconvinced By John Deex
CONSUMER GROUPS BELIEVE THAT when a customer renews or takes out a policy – or even just obtains a quote – they should be able to see how their premium is put together. Not in granular detail, but in broad terms: a “simple pie chart” to show what percentage goes towards administration costs, taxes, flood or cyclone cover. Far more than a gimmick, this information could have several practical uses. Julia Davis, Policy and Communications Officer at the Financial Rights Legal Centre, tells Insurance News it could increase trust, help target mitigation and bolster competition. But the Insurance Council of Australia (ICA) has reservations. It says it could force insurers to reveal commercially sensi68
tive information and would be expensive to implement. However, at the very least it seems the idea will be investigated further. The recent Senate inquiry into the general insurance industry recommended the Federal Government carry out a review. It suggested establishing a framework for “amending the Corporations Act 2001 to provide component pricing of premiums to policyholders upon them taking out or renewing an insurance policy, as well as an assessment of the benefits and risks to making such a change”. And Canberra’s response was encouraging. “The Government agrees there is merit in further reviewing this recommendation and will task the Commonwealth Treasury insuranceNEWS
with assessing this proposal,” it says in its official response to the inquiry report. Ms Davis says that how insurers calculate premiums is shrouded in mystery, and this can only damage consumer trust. “We don’t really know what insurers do in terms of pricing,” she says. “I don’t expect them to reveal commercially sensitive information, but there is a lot of wriggle room. I imagine a pie chart made up of base premium, taxes and key risks such as flood or cyclone. “If in a certain region cyclone risk is very high, why not disclose that to the customer? It would be a lot of great information for the consumer that they’re not getting at the moment. “Now the Government seems to think it is a viable idea, the industry could come up with a solution.”
Duty of disclosure: yesterday’s hero? The duty of disclosure needs to be reconciled with the new ways insurers are collecting and processing policyholder information By Andrew Sharpe The duty of disclosure has long been a cornerstone of insurance. Although law reforms over the past 30 years have made the duty fairer for policyholders, it remains at the heart of the insurance transaction – at least in relation to non-consumer policies. But it may be reaching its use-by date. The rationale for the duty rests on two assumptions. First, that the facts relevant to the assessment of the risk to be insured lie, most commonly, in the knowledge of the insured. Second, that the insured is in a position to identify and volunteer all matters known to it that are relevant to the risk to be insured. While these assumptions may have once been well-founded, they don’t necessarily hold good in 2018, especially for small to medium-sized businesses. Insurers are now able to access large data sets of historic risk information, which allow them to incorporate more scientific pricing and underwriting algorithms into increasingly sophisticated and automated underwriting processes. At the same time, for marketing and cost purposes, insurers are limiting the scope of questions asked of insureds. This has been hastened by the industry’s renewed focus on customer experience and made possible by insurers’ enhanced capacity to identify and quantify risks in other ways. However, the rationalisation of questions asked by insurers has resulted in insureds having less information to identify what’s relevant to the insurer. The rise of “insurtech” business models will further enhance these trends. Daniel Fogarty, CEO and Founder of Evari Insure, a notable player in the insurtech space, which targets its products solely at SME business, says the duty of disclosure can be a challenge for customers. “Small business owners are experts in their own business and not in insurance, so what is ‘reasonable’ to an
insurance professional can be very different to what is ‘reasonable’ to a plumber on site who just wants to know they’re covered.” Evari, other insurtechs and incumbent insurers are “all working to increase sophistication of underwriting analysis, and bring as much data to the analysis as possible, to reduce reliance on customer disclosures; but some disclosure is still required”, says Mr Fogarty.
“What is ‘reasonable’ to an insurance professional can be very different to what is ‘reasonable’ to a plumber on site who just wants to know they’re covered.” A hardening of the courts’ approach to non-disclosure Against this background, courts have taken a restrictive approach to the range of matters a “reasonable person in the circumstances” could be expected to know to be relevant to an insurer. Two recent cases in the NSW Court of Appeal demonstrate this. In the first case, a brothel owner, insured under a specialist adult industry policy, did not have a duty to disclose that its sole director and manager were members of the Comanchero outlaw motorcycle gang. In the second, a service station operator was insured under a policy that provided cover for pollution, which was the direct result of a “sudden, specific and identifiable
event” occurring during the policy period, but not for historic or gradual pollution. The court found the insured did not have a duty to disclose an environmental report which identified historic underground contamination below the service station or that the contamination was above notifiable levels and had been notified to the Environmental Protection Authority. These cases both involved small businesses undertaking activities which could be expected to have heightened exposure to the same type of risks inherent in the matters the insurers complained ought to have been disclosed. Yet, in neither case did the insurer choose to ask any questions to inform itself about such matters. The court queried how a reasonable insured in the circumstances could be expected to know these matters were relevant to the insurer. The future of the duty of disclosure The industry must work to reconcile traditional approaches to the duty of disclosure with the new ways in which insurers are collecting and processing policyholder information and pricing risk. Insurers that focus underwriting and risk pricing on aggregated data at the expense of specific information are likely to find it difficult to fall back on non-disclosure defences at claims time. But insurers may not be ready to let go of the safety net of the duty of disclosure altogether, even for small business. That step would require confidence that the cost of paying claims, which might otherwise have been declined because of non-disclosure, could be fully offset by the savings from streamlining the underwriting process and the improved customer experience generated by simpler applications and fewer claims disputes.
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“There has also been an argument that too much information would confuse consumers. But that is really patronising and a cowardly excuse.”
Ms Davis says access to information on key risks facing a property would let consumers “take action to reduce their exposure. It could also show up errors, for example, if someone lives high on a hill but in a postcode where other properties are prone to flooding. “The customer could contact the insurer and show more specific data. More information creates the opportunity to communicate. Right now, it’s non-transparent.” The move could also increase competition between insurers and drive down prices, Ms Davis believes. “There have been lots of inquiries into unaffordable premiums in northern Australia and this is one of the few things the Government could regulate. “It’s just about information, and it’s a pro-competitive approach. We feel there is a chance something could move on this issue.” Ms Davis understands insurers’ reluctance to release commercially sensitive information, but says this is not what the Financial Rights Legal Centre wants. She also believes warnings about the cost of implementing such changes are exaggerated. “We have been putting this idea forward for years, but there has been pushback from industry. “They say it is not feasible and the reason is always the same – that they cannot release commercially sensitive material. We don’t think this is insurmountable. 70
“There has also been an argument that too much information would confuse consumers. But that is really patronising and a cowardly excuse. “Consumers can make up their own minds as to what information is relevant to them. “There would be a cost to insurers, but not much. They are already doing this work – it is just a matter of displaying it to the consumer.” Susan Quinn, Senior Policy Officer at the Consumer Action Law Centre, agrees pricing transparency is crucial. She wants to see component pricing work in tandem with disclosure of the previous year’s premium in renewal letters. “Component pricing would give context for price increases,” she tells Insurance News. “Firstly, so consumers can understand products and choose with knowledge, and secondly, to build trust. This should give meaningful information to people about how they can mitigate their risk. “It is usually talked about in terms of home and contents, but could be applied more broadly, including motor insurance. Mystery doesn’t serve anyone well.” ICA tells Insurance News more clarity is needed, because component pricing means different things to different people. “For some, it is a broad breakdown of the premium into, for example, the costs of underwriting, administration, reinsurance and profitability,” it says. “For others it is the insuranceNEWS
proportion of the premium attributable to various hazard risks.” ICA says a cost-benefit review is needed to establish the aims, and the costs and implications. It recognises that information on the nature and level of hazards consumers face helps them better manage those risks. “An ICA priority is to improve access to natural hazard information including flood, earthquake, bushfire, storm surge and cyclone exposure information at an individual property level.” But it clearly has significant doubts about the premium disclosure proposal. “Depending on what is proposed, component pricing may not improve consumer decision-making and could require the disclosure of commercially sensitive pricing calculations that are adjusted frequently for insurers to remain competitive and commercial. “It would also require expensive systems changes.” Despite these reservations, it looks likely component pricing will be investigated further. And Ms Davis believes that while previous governments have been put off by insurer concerns, this time could be different. “Is it a panacea? No. But more information can only help,” she tells Insurance News. “When someone’s premium doubles and the insurer can’t give any useful information as to why, that is infuriating. “They must have that information to cre0 ate the quote. How hard can it be?”
‘Free’ rides The emerging credit hire industry is beginning to face scrutiny from motor insurers and regulators alike Andy Swales AS THE BIRTHPLACE OF THE MODERN insurance industry, Britain is still in many ways a trendsetter, with market developments in the Old Dart tending to be mirrored in Australia and elsewhere. These include profitable innovations, controversial inventions (online comparators), and even criminal enterprises (organised motor claims fraud). The industry here is still forming its view on one of the more recent imports – the 72
credit hire sector – but the early signs are not so great. “This is a long-established British practice that is now a fledgling market in Australia… I guess these companies look at the experience in other markets and see there’s an opportunity in Australia,” Insurance Council of Australia (ICA) spokesman Campbell Fuller tells Insurance News. Credit hire companies provide replacement cars to not-at-fault drivers while their vehicles are repaired after smashes. So far, so helpful – but the question of payment has caused headaches in Britain and now in Australia. Mr Fuller says not-at-fault drivers are usually referred to credit hire companies by tow-truck drivers or smash repairers, and their service is often “presented to the driver as a free replacement car”. However, somebody must pay: the bill is sent to the at-fault driver’s insurer, and Mr Fuller tells Insurance News fees for credit hire cars are often “way out of proportion to the real market cost of hiring a vehicle”. insuranceNEWS
If the at-fault driver’s insurer baulks at this charge, things may start to get complicated. In December the Australian Competition and Consumer Commission (ACCC) announced credit hire company Compass Claims would change its advertising and sales practices after an investigation. Compass customers had been told they would not be liable for hire car charges or associated costs, but the watchdog considered this misrepresentation. “Although Compass waived those charges, its contract required Compass to do so only if it was able to recover the charges from the at-fault party or their insurer,” the ACCC said. Compass also said consumers would not have to take further steps to recover costs. In fact, they were required to assist Compass by authorising court action in the consumer’s name, providing witness statements and attending court.
Costly solution: the credit hire industry is causing headaches for insurers
Compass co-operated with the investigation and changed its advertising, call centre procedures and sales practices, to inform consumers of hire charges and their obligation to provide assistance in recovering payment. The ACCC announced it would “review marketing and sales practices of other credit hire businesses and will pursue businesses that mislead consumers”. In February the watchdog told Insurance News it had “been in contact” with 16 credit hire businesses and its review was ongoing. “However, we are pleased to report that a number of traders have amended their business practices in light of our review,” it says. “Should concerns remain following engagement with traders we will consider further action that might be required.” Last year, before the ACCC action, there were also media reports that credit hire companies were involved in “claims farming”, passing smash victims’ details to lawyers who would pursue compensation for injuries.
Mr Fuller notes there is nothing illegal about the credit hire process, but says transparency is a concern. “The driver might be told, ‘just sign this, you’ll get a free hire car while your car’s being repaired, the other insurer will pay for it’,” he tells Insurance News. “But ultimately, by signing the agreement and receiving that car, they’re basically saying that if everything goes wrong, they’ll have to cover the costs of their own repairs and the hire car.” He says ICA is presently “unable to quantify the impact” of credit hire on motor insurers and their customers. “It is growing in prevalence, it is putting upwards pressure on insurance premiums because of those increased costs, and the Insurance Council and its members are pretty concerned about it,” he says. “The Insurance Council is looking at researching the economic impact this year, so we can… start looking for ways to reduce its impact on consumers and insurers.” insuranceNEWS
He says once the effect on consumers and premiums is clearer, “we’ll be discussing that with members… our members will form a view about the steps that should be taken”. “There’s definitely a clear argument for better information for consumers… insurers are concerned consumers are inadvertently signing documents that expose them to a great deal of liability,” Mr Fuller says. Suncorp says it agrees with the ACCC finding that “credit hire companies should clearly communicate the terms and conditions of their hire arrangements”. A spokesman tells Insurance News it has “observed that some credit hire companies do not accurately communicate” with customers. “We often see examples where customers think they are getting a ‘free’ hire car. “However, they’re unaware they are fundamentally liable for the cost if the other, at-fault driver, or their insurer doesn’t pay. 73
“Some credit hire companies aggressively use litigation to secure their demands, rather than to negotiate a fair and reasonable price.”
“Customers are often not told how much the hire car costs, and many aren’t aware they are authorising the credit hire company to take legal action in their name to recover hire car costs.” The insurer – owner of the AAMI, GIO and Bingle brands – wants to see “more transparency in the way these offers work”. Suncorp says many credit hire companies charge “well over” the market rate for hire cars. “In some instances, the provision of a ‘free’ hire car can also result in some repairers extending the time required to fix the customer’s car,” the spokesman adds. “This often leads to an overall inflated cost – much higher than what Suncorp would incur. We have also observed that some credit hire companies aggressively use litigation to secure their demands, rather than to negotiate a fair and reasonable price.” While ICA formulates its strategy on the matter, can insurers do anything to shut the door on credit hire companies? 74
Late last year IAG introduced free hire cars for customers of its NRMA Insurance and RACV Insurance brands who are the not-at-fault parties in smashes. “We know customers want to stay mobile after an accident, so it’s no surprise credit hire activity is increasing,” IAG’s Executive General Manager Short-Tail Claims Steve Fitzpatrick says. “From late September for NRMA Insurance customers and mid-October for RACV Insurance, not at fault customers have been offered a complementary hire car when |they make a claim and drop off their car for repair. “We felt this was a really positive new option because it allows us to provide a one-stop solution for our customers. We’ll be able to process their claim, arrange for their vehicle to be repaired and organise a replacement vehicle to help them stay mobile until their own car has been repaired.” That’s a win for IAG’s not-at-fault customers – assuming they are aware of insuranceNEWS
and take up the insurer’s replacement offer before signing a credit hire contract. It may also help the “at-fault” insurer on the other side of the smash. But Mr Fuller says for at-fault insurers, “often, the first time [they] know a credit hire car is involved is when they get the invoice. It’s hard for them to insert themselves into the process, because the customer who is accepting the car is unlikely to be their customer – even if they are, they might not be aware of it until the document has been signed and the… motorist has accepted a very expensive replacement vehicle.” Suncorp says: “Increasingly, the insurance industry is looking to offer mobility solutions to its customers, to support them when their car is being repaired. Suncorp is exploring a range of mobility solutions to provide appropriate options for its customers.” Insurance News approached Compass and Right2Drive, a leader in the Australian credit hire market, for comment on the issues raised 0 by ICA, but has received no response.
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Insurtech survey results Stage of the company
Far from threatening to disrupt the traditional value chain, most insurtechs want to work with its incumbent players By Andy Swales WHEN THE FIRST insurtechs arrived on the scene, much of the talk was around the threat they might pose to traditional insurers, which had grown vast and unwieldy over decades of largely unopposed industry dominance. But as the digital revolution gathers pace, it seems smaller-scale, innovative start-ups are more likely to be enablers than disrupters. A new report on the Australian insurtech “ecosystem” makes that clear. “The majority of insurtechs exist to enable incumbents to drive new customer experiences and deliver more value,” the report from Insurtech Australia and consultant EY says. “In the process, they are evolving traditional underwriting and pricing models, interpreting large sets of data to inform risk modelling and enhancing portfolio performance.” A survey of Australian insurtech and traditional industry participants shows 65% of insurtech organisations are considered enablers of the value chain, 25% are new entrants that complement the chain and only 10% are disrupting the status quo. There can be little doubt that insurers must adapt or die amid changing consumer expectations and buying habits, margin pressure and new trends and technologies such as the 76
Post-launch (post-profit) Post-launch (post-revenue) Post-launch (pre-revenue) Pre-launch
Years of operation Internet of Things, Big Data, artificial intelligence, machine learning and blockchain. “We’re here to help,” seems to be the message from the tech start-ups. But whether the incumbents are listening remains to be seen. “Some, like Suncorp and QBE, have already started initiatives to collaborate with insurtechs and encourage innovation,” the report says. “However, our survey results demonstrate that insurtechs struggle getting in touch with large players and getting their messages across.” Survey respondents rank collaboration with incumbents as their No.1 ambition for the coming year. About 60% are already doing so, driven by the need for access to customers, help scaling into new markets, data sharing opportunities and underwriting capability. However, 81% of insurtechs disagree with the statement: “Incumbent players are doing enough to collaborate with insurtechs in driving innovation into the industry’s practices.” About 70% say incumbents are “largely reactive” in the collaboration process. If this is to change, it needs to happen soon, before insurtechs clear off overseas in search of opportunities – or simply fold. More than 80% of survey respondents are bootstrapped insuranceNEWS
by their founders, relying on personal funding and using revenue to drive growth. And 56% say, based on their current financial position, they cannot operate beyond the next year. Among the leading external challenges identified by insurtech founders are building relationships with distribution channels, difficult sales and procurement processes within the industry, and a lack of capital to fuel growth. Insurtech Australia Chief Executive Simon O’Dell says the study shows start-ups are “struggling to gain traction with large insurance companies, and many are getting a warmer response abroad than at home”. The report identifies five distinct business areas in which insurtechs are working to add value, and suggests ways in which incumbents can respond. Under “new products to address customer value proposition” the report notes innovative products “allow incumbents and insurtechs to quickly capitalise on the value of digital investments. However, being a first mover does not always guarantee a true competitive advantage, because innovation can be replicated by other players. “Incumbents will need to be wary of losing market share to risk-transfer solutions that sit outside the existing value chain. June/July 2018
0-1 years 20%
2-3 years 3-5 years
6+ years 40%
Capital raised to date 7% 10%
$100k-$500k $501k-$2m $2.1m-$5m
Top 5 external challenges • Building relationships with channels to market • Clients/prospects too slow to make decisions/long-winded procurement process • Customer acquisition • A lack of funding/raising capital • Getting through to C-level decision makers
Top 5 internal challenges • Managing capital • Attracting qualified and suitable talent • Product and market fit • Product development • Business model viability Source: Insurtech Australia/EY
“Insurtechs operate to a different rhythm to incumbents. Each brings differing and complementary propositions to the table.”
Planned geographic expansion 25%
15% 8% 10%
Africa America Asia Europe Australia Other
Priority of value propositions for insurtech companies 24%
Integrating new products into existing systems successfully and efficiently will create a competitive advantage in the market.” The second target area is “innovative marketing and distribution”, in which insurtechs are helping to match consumers’ buying processes with their “needs and values”. They are “applying connected devices, Big Data and analytics to create nuanced terms and pricing aligned to an individual’s risk profile”, leading to “a new type of personalised relationship between insurers and insureds, rewarding consumers for behaviours that lower risk”. The report urges incumbents to adopt blockchain insurance models that “enable efficiency in claims [and] policy administration, and negate the need for intermediaries where advisory services are not being offered”. It adds: “Biometrics such as facial, voice and audio data are leading the consumer experience in driving distribution and innovation marketing. Leveraging such unstructured data has the potential for uniquely identifying consumers reliably and securely in their interactions.” In the field of “pricing and underwriting agility”, insurtechs are using Big Data to “gain the deep insights that allow players to penetrate new market segments”. 78
Such insights allow informed risk analysis and “will shift pricing strategies from reactive estimation models (exposure protection) to usage-based models (proactive exposure management), in turn driving dynamic underwriting strategy decisions”. Insurtechs will also help create “usage-based solutions” that allow for pay-as-you-go cover with flexible terms. The fourth target area is “efficient insurance administration”, where insurtechs are creating solutions with a “fairly even spread across the insurance value chain, from sales and distribution through to claims and risk management”. The report notes that, with cost pressures mounting and tactical expense-cutting measures failing to make a dent, many insurers are implementing “core platform transformation programs”. “With the appropriate technical capabilities in place, we expect many of the local incumbents to be in a position… to partner with insurtechs to rapidly on-board new capabilities and generate near-term value,” the report says. Under “smarter loss prevention and remediation”, incumbents have a chance to “leverage consumer-driven initiatives where smart home security and monitoring technology is being insuranceNEWS
implemented in support of convenience”. Insurers are aware of the potential to “leverage both consumer and commercial technology to provide proactive monitoring and smarter loss prevention and associated remediation activities… the question is whether insurers will embrace and fully incorporate these benefits, or whether they will be delivered separately by tech firms.” EY and Insurtech Australia say insurtechs in the local market have “had a slow start” and represent only 1% of the global insurtech community. But the sector shows “high potential for rapid growth in the next few years”. Collaboration – and mutual understanding – is the key to unlocking this. “Insurers may not necessarily know how to engage insurtech or understand their digital offerings. In principle, when two parties seek to enter a partnership, a minimum level of understanding of the other party’s ‘DNA’ needs to be achieved. “Insurtechs operate to a different rhythm to incumbents. Each brings differing and complementary propositions to the table. “The DNA of each party needs to be understood and leveraged in the way the partnership is constructed, and also leveraged in a commercial sense.”0 June/July 2018
New products to address customer value proposition Innovative marketing and distribution Pricing and underwriting agility Efficient insurance administration Smarter loss prevention and remediation
Technologies that insurtechs predominantly utilise 12% 9%
17% 9% 12% IoT/connected devices AI and machine learning Big Data and analytics Blockchain New business model Platforms and other technology
Top 5 ambitions • Engage in a collaborative relationship with an insurer or other incumbent • Geographic expansion • Find new/more funding • Work more collaboratively within an existing relationship with an insurer or incumbent • Perfect/finalise our product/value proposition Source: Insurtech Australia/EY
Working the land
Team effort: from left, Paul Wilkes (Country Wide), Brendan Peck (Adroit), Paul George (MGA), Mark Kent (Country Wide), Kym Bache (MGA), Anthony Di Fiore (Adroit) and Josh McDonald (MGA)
A new broker partnership is brainstorming ideas for a viable multi-peril crop cover By Bernice Han AUSTRALIAN CROP MONITOR (ACM), an informal group formed last year by three broking businesses, has taken on what has largely proved Mission Impossible for the industry: cracking the multi-peril crop insurance market. The partners – MGA Insurance Brokers in South Australia, Country Wide Insurance Brokers in Western Australia and Adroit Insurance in Victoria – aim to review and evaluate the market and potentially produce a sustainable offering for farmers. ACM recently held its first face-to-face meeting in Melbourne after numerous discussions over the phone. Joining the group were representatives from insurer partners CGU and Allianz-owned Primacy Underwriting Agency. An Eyre Peninsula farming couple who have taken out multi-peril crop insurance 80
for the past four years were invited to share their experiences. “This group intends to understand what the farmers are thinking and what they want,” Paul George, Managing Director of Adelaide-based MGA, tells Insurance News. “We also want to know what the market can provide and establish better communications with the market, to see if we can distribute appropriate products. We are looking for feasibility solutions out there.” Unlike named-peril products, which enjoy take-up of more than 75% among farmers, the multi-peril crop line has struggled to gain traction and remains commercially unviable. Last December Assetinsure walked away from the market, blaming low interest and lack of government subsidies. There has been no lack of effort among insurers. Many have tried the market, but the numbers simply have not added up. High premiums, lacklustre demand and an absence of government subsidies are often cited as reasons. In developed economies where the product enjoys huge success, government subsidies have played a central role. The US Government foots about 62% of premiums for multi-peril crop covers, which had a insuranceNEWS
take-up rate above 80% in 2015. ACM is undaunted by what many in the industry consider a virtually untenable product without subsidies. “In the US and Europe, it’s a mature market,” Paul Wilkes, Managing Director with Country Wide, tells Insurance News. “What has enabled it has been notable government subsidies, making it more viable for the grower to make it a component of their risk management. “What we are aiming to do is see if there can be effective solutions for Australian growers that have value and sustainability.” The group is determined to find a winwin solution for both the farming community and the insurance industry. “This could take some time,” Mr George says. “The more we talk, the more we ask, the more insight we are going to get as to how we are going to potentially source the right products. “There is a pool of farmers who want it. So it comes down to what is affordable for them and what risk they are trying to cover.” For many insurers, the demand does not justify the underwriting risk. This partly explains why farmers who are willing to take up multi-peril crop coverage have to pay very high premiums: the risk
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pool is small relative to the volume of policies it supports. A New South Wales Government-commissioned study released in 2016 found some insurers charged average annual premiums of $35,000-$50,000. At the lower end of the scale were Allianz and Latevo, which charged $25,000 and $27,000 respectively. For the 2016 winter cropping season, only 150-200 policies were written nationally. The study shows take-up of such cover in New South Wales was less than 1%. But the market is showing promising signs after various false starts since the re-emergence of multi-peril insurance in the Australian market in 2014. Crop insurer Latevo reported a 40% rise in policies sold in 2016, the study says. “This indicates that multi-peril crop insurance is becoming competitive with other risk management strategies,” the study report says. “We also note the potential use of emerging satellite and drone imagery to reduce the administration costs associated with assessing claims and loss adjustment. “Therefore, there is potential for multiperil crop insurance to become a commercially viable product over the medium to 0 longer term.”
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Driving change: QBE is investing in positive projects
Investing with impact: QBE launches Premiums4Good QBE HAS COMMITTED A MINIMUM $100 million investment in projects that create positive environmental or social change. The insurer says its Premiums4Good program takes a slice of premiums to support social impact bonds or green bonds, at no additional cost to the policyholder. It hopes other insurers will follow its lead and the $100 million figure is expected to increase in future years. Australia & New Zealand Chief Executive Vivek Bhatia believes the industry can drive positive change while generating acceptable financial returns for investors. “Research shows Australians are increasingly mindful about what they invest in,” he said. “We look at an investment, we want a return, but know investments can do more. And fortunately, with more social and environmental investments available, insurance businesses can do both. “Premiums4Good invests for social, environmental and financial benefit. “At the same time this initiative gives our customers and partners comfort they’re helping drive positive change.” QBE lenders’ mortgage insurance Chief Executive Phil White tells Insurance News the project’s roots date back to 2014 when a number of schemes were pitched to an international leaders conference. Premiums4Good was launched in Europe in 2015, and a pilot has been running within the Elders business in Australia since 2016. Last year it was extended into the local lenders’ mortgage insurance sector. “Now we have opened it up to all QBE 82
customers – part of everybody’s premium will be invested in this,” Mr White says. “We are making a firm commitment. There is no downside to customers and we have a rigorous process to make sure investments qualify under the Premiums4Good banner. “We are hoping that by providing the investment we will help the market to grow. We are hoping that those who create social bonds and green bonds will make more, and we are already seeing it start to evolve.” Mr White believes that while charities such as the QBE Foundation are vital, their growth is limited and investment initiatives such as Premiums4Good stand to make a far greater difference if they take off. “It is a fantastic opportunity if we can get the country behind this. Hopefully others will follow.” Social impact bonds can help reduce homelessness, or improve family resilience for children at risk of being removed into foster care. They can also improve school performance of children from at risk households. Green bonds drive investment in projects with environmental benefits such as renewable energy, waste management and water conservation. One of QBE’s Australian investments is the Aspire Social Impact Bond, which funds the Aspire Program run by Adelaide-based homelessness services specialist the Hutt Street Centre. The centre partners with community housing providers to facilitate a housing first program for up to 600 people who are 0 homeless or at risk of homelessness. insuranceNEWS
Stronger together: Law firms McCabes and Curwoods join forces MCCABES LAWYERS AND CURWOODS Lawyers will merge by July 1, creating a new entity called McCabe Curwood. The deal brings McCabes’ strong corporate/commercial offering and specialist insurance lines together with Curwoods’ broad insurance practice. Both companies, which say they have similar values and culture, believe the merger creates an opportunity for growth across all business lines. Andrew Lacey, McCabes’ current Managing Principal, will be Managing Partner of the new entity. Scott Kennedy, current Managing Partner of Curwoods, will be head of insurance. Mr Kennedy tells Insurance News the merger provides a platform to establish a broader insurance practice, and a stronger national presence. “We look forward to making further announcements as we progress with these exciting developments. “We continue to have in-depth discussions with our clients and targets about how McCabe Curwood will add value and be a strategic partner, to manage claims and reduce pain points, as we grow together.” Mr Lacey says the businesses are complementary. “We are ambitious, and we want to build a strong, large-scale legal business with an expanded interstate presence,” 0 he said.
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• • •••••••••• •• • AUSTRALIAN INSURANCE INDUSTRY AWARDS
Underwriting Agency of the Year
AUSTRALIAN INSURANCE INDUSTRY AWARDS
Innovation of the Year
AUSTRALIAN INSURANCE INDUSTRY AWARDS
Professional of the Year
CHU Underwriting Agencies Pty Ltd (CHU) created the very first strata insurance plan in Australia and started trading in Sydney in 1978. Now 40 years on, CHU has grown to become recognized as a leading strata insurance specialist within Australia, underwriting more than 100,000 schemes across Australia.
All pictures: Lloyd Homer/GNS Science
A life in pictures
The work of New Zealand landscape photographer Lloyd Homer is celebrated in a new exhibition By Bernice Han FOR THREE DECADES, LLOYD HOMER WAS FIRST ON THE scene of many New Zealand natural disasters including earthquakes, volcanic eruptions, floods and landslides. Now for the first time, an exhibition chronicling the works of the acclaimed photographer, known as “disaster man”, are on public display. The showcase at the Exhibitions Gallery in Upper Hutt, New Zealand, is the brainchild of Simon Nathan, a geologist who worked for many years with the now retired photographer. “Lloyd’s landscape images are one of a kind. Over three decades he amassed an extraordinary collection of photos and many of them have historical significance,” Dr Nathan says. “The images cover a wide geographical spread as well as a broad range of landforms and earth science themes.” On display are photos of some of the worst natural disasters captured by Mr Homer and his trusty Hasselblad and Leica cameras during his 32-year career with GNS Science and its predecessor. Before leaving the organisation in the late 1990s he built a collection of over 100,000 images, mostly aerial shots, which have been catalogued and stored by GNS. For many of the photographs, Mr Homer braved extreme conditions in pursuit of the perfect shot. He would be strapped securely in a high-winged Cessna 207 minus the back door, 20,000 feet above ground level, with his cameras clicking furiously away to capture as many photos as possible. It took Dr Nathan three months to comb through his former colleague’s vast volume of works and select the 30 photos for display. The exhibition, which runs until July 1, is supported by GNS Science. 0 84
1. The Mount Ruapehu eruption, June 1996 2. Road damage following the 1987 Edgecumbe earthquake 3. Buckled railway lines following the Inangahua earthquake in May 1967 4. Damaged houses after the 1979 Abbotsford landslide 5. A rupture of the Edgecumbe fault occurred during a magnitude-6.3 earthquake in March 1987 6. A rock avalanche at Aoraki/Mount Cook in December 19
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AILA marks 35-year milestone The Australian Insurance Law Association (AILA) held a cocktail function for almost 200 people to celebrate its 35th anniversary. The invitation-only event for AILAâ€™s top supporting firms in New South Wales was held at Sydneyâ€™s Park Hyatt hotel on May 31, with the Vivid festival providing a stunning backdrop. Other events marking the milestone were held across the country.
Great and good turn out for ICA dinner The Insurance Council of Australia (ICA) hosted another successful annual dinner as more than 360 guests turned out for the opportunity to network and catch up with the whoâ€™s who of the industry. Hollard Chief Executive Richard Enthoven, who took on the ICA presidency last November, gave an address that touched on the industryâ€™s achievements and a preview of what would be needed to stay relevant. ICA Chief Executive Rob Whelan also made a speech focusing on the ongoing review of the Code of Practice and its importance to the industry. Stand-up comedian Tommy Dean had guests in stitches with his banter about the history of Australian sports, Corona beer production and the essentials of keeping a lemon.
Steadfast tackles world of challenges The Steadfast Convention played to a packed house as more than 2500 delegates gathered in Melbourne for the annual event. In keeping with its One World theme, panel and plenary discussions touched on many challenges and issues that will shape the industry for years to come. National Insurance Brokers Association Chief Executive Dallas Booth and Allianz Chief General Manager Broker and Agency David Hosking headlined a stellar cast of speakers during the four-day event at the Melbourne Convention and Exhibition Centre. Steadfast Managing Director and Chief Executive Robert Kelly and his senior leadership team were present to catch up with the network. The convention concluded with its customary gala dinner, which was attended by 1500 guests. Australian singer Kate Ceberano and cover band Superbrand entertained guests with a medley of songs. The convention raised about $268,367 for Reach, this yearâ€™s choice of charity. Next yearâ€™s event will take place on the Gold Coast in March.
Elvis brings AIG guests to their feet Broker Mike Cole brought the house down with an impromptu Elvis show at an AIG dinner party with the broking community at Melbourneâ€™s Eureka89, on the top floor of the Eureka Tower. His rendition of some of the Kingâ€™s greatest hits drew thunderous applause from AIG executives and guests including some 100 brokers. AIG hosted the dinner on the sidelines of the Steadfast Convention in April. Chief Executive Noel Condon gave a speech about the importance of the Steadfast network.
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AIMS conference delivers clear vision Perth Zoo, Sandalford Winery and Crown Ballroom provided perfect destinations for social events at this year’s annual Austbrokers & IBNA Member Services (AIMS) conference. The three-day conference hosted more than 470 delegates, including more than 115 sponsors, while there was also a strong contingent of local day-pass attendees. This year’s theme was “Clarity is the Future” and an array of speakers provided insights on adapting to change and delivering products and services to clients in an evolving business environment. Businessman, adventurer and television panellist Todd Sampson delivered the opening keynote address, while other speakers included digital futurist Chris Riddell and scientist and innovator Catherine Ball. CSIRO senior researcher Rob Hanson presented on blockchain technology, how it might be used and the implications for insurance. The conference, at Crown Tower in Perth in mid April, is held in Australia on alternate years. The event travelled to Shanghai last year and is next destined for Los Angeles.
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Sam Pentecost Contributor
THE MANSFIELD AWARDS FOR CLAIMS EXCELLENCE ARE on again next month – on July 5 in Sydney to be exact – and we’re already busy collating information, sorting out surveys and doing all the hundred and one other things that make for a successful event. As the details began to fit into place we received an email from a loss adjuster asking for our help in sorting out a friend’s claim problem. Apparently his friend’s bike had been damaged in an accident. He had all the necessary information, but a staff member for the insurer (a bank), had told him that settlement was at her discretion and the bike would be replaced with another make that was $700 cheaper. When the customer complained (politely, via email) that wasn’t what he understood by “new for old”, they cut off communications. It’s about then you discover that some personal lines claims operations don’t publish their phone number or even a contact name. Presumably this non-contact is intended to force the claimant to curl up into a whimpering fetal position until he realises he’ll get nothing unless he agrees in writing to the bank ripping him off. Our loss adjuster, however, is made of sterner and more qualified stuff. He wrote to senior people at the bank on behalf of his friend pointing out their commitments under various sections of legislation and the general insurance code of practice. It was totally useless, of course. Even if he had managed to force a response – which he didn’t – the bank would have fallen back on its privacy rules to avoid having to deal with him. The adjuster wanted to know if we could help by adding a bit of media pressure. Stop laughing – he was desperate. And we know it will take more than a critical royal commission and some snarky headlines to force the smallest long-term alteration in the way the banks operate – even in insurance. That bank doesn’t expect to win a Mansfield Award for claims excellence and it probably never will. By seeing claims solely through the prism of its own self-interest it keeps alive the stereotype of the cold and untrustworthy insurance company. Which got me thinking about that article at the other end of this magazine about the new ASIC Chairman, James Shipton, who wants financial services companies – which includes the banks as well as insurers – to embrace a culture of “doing the right thing”. As Steadfast’s Robert Kelly said last year in a comment on the Mansfield Awards: “Claims professionals deserve to have their ingenuity, their efficiency and their willingness to go the extra yard for their customer recognised”. The Mansfield Awards recognise insurers and their staff that are the exact opposite of that bank operation. They already meet the measure of James Shipton’s crusade for companies that “do the right thing”. We look forward to the non-performers being pulled into line with community standards, and we’ll see you at the Mansfields on July 5! 0 98
QBE is now using insurance premiums to help make a real, sustainable difference to our communities. We are investing $100million a year on social and environmental initiatives. Simply by choosing QBE Insurance, your customers will be helping create positive change. Every policy purchased will contribute to the global Premiums4Good investment pool that we’ll invest towards social impact bonds, green bonds and other social investments. Plus, if your customer’s annual premium is more than $100,000, they can choose to have QBE invest an additional 25% of their net premium towards Premiums4Good. To find out more, speak with your QBE representative or visit qbe.com.au/premiums4good/corp
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James Shipton, the new Chairman of the Australian Securities and Investments Commission, says financial services – which includes general in...
Published on Jun 12, 2018
James Shipton, the new Chairman of the Australian Securities and Investments Commission, says financial services – which includes general in...