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The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

How general insurance issues were examined, and what regulatory and legislative actions we should expect

October/November 2018


This information is general advice only and does not take into account your objectives, financial situations or needs. You should obtain and consider the relevant Product Disclosure Statement and Policy Wording (as applicable) from zurich.com.au before making a decision. The issuer of general insurance products is Zurich Australian Insurance Limited (ZAIL), ABN 13 000 296 640, AFS Licence Number 232507 of 5 Blue Street, North Sydney NSW 2060. ZU23764 V1 09/18 - LEWG-013611-2018


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Contents 6 Newsmakers »

58 Transforming times »

10 Regulatory revolution » The Hayne royal commission is sure to inspire a radical rethink of how financial services – including general insurance – is regulated. But what will it look like?

16 Irresistible force » The CBN deal continues Steadfast’s drive to be the master of Australia’s insurance distribution system.

Zurich’s Hilary Bates is seeing positive results as an overhaul of the group’s claims operations continues.

62 Dead tired » Lack of sleep is shortening our lives and increasing our risk of making catastrophic mistakes.

companyNEWS 66 Premium division »

21 Two tribes » Steadfast and AUB are still kicking goals, but in different games.

22 Blue skies ahead »

Chubb directs new service at larger clients.

66 Class act » Suncorp Learning Campus opens doors.

The Big Three have slimmed down to retain pole position as the market turns in their favour at last.

26 Running dry » Crippling drought is forcing cash-strapped rural businesses to cut back on expenses, including insurance.

66 Standing out » Insurance House gives AR network identity.

peopleNEWS 67 APIG pulls in a crowd »

30 Scorched earth » Deadly fires have ripped through many countries this year. Australia could be next.

34 We can’t ignore the Genoa bridge disaster » The Morandi Bridge collapse reminds Australians our own road infrastructure is ageing.

68 YIPs toast good year in Victoria, Queensland » 71 AILA hosts networking dinner » 72 Oracle applauds ARs » 74 Quill Club lunch draws strong support » 77 AIG celebrates All Blacks victory » 78 Resilium advisers enjoy island retreat »

40 Work still to do » The Dive In Festival goes from strength to strength, but the war is not yet won.

42 Cautious optimism » The global economy is moving along nicely at present, but that doesn’t mean all our problems are over.

46 Low income, low priority » Australia’s general insurers are struggling to come up with viable solutions for the people who need them most.

80 Adelaide hosts UAC Expo » 83 McLardy McShane swings into conference » 84 Claims Convention presents prizes » 86 Allianz shares insights with broker partners » 89 CQIB convention breaks records » 90 Brokers embrace Zurich events » 92 PSC connects with staff and partners » 95 HDI honours German origins » 96 Lloyd’s festival pushes for change »

52 The road to ruin » Driving without appropriate cover can turn even a minor crash into a major headache for all involved.

98 maglog »

54 A different take on ratings » AM Best wants to grow its local footprint by bringing its unique methodology to Australian insurers.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

How general insurance issues were examined, and what regulatory and legislative actions we should expect

October/November 2018

insuranceNEWS

June/July 2018

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newsmakers at

insuranceNEWS.com.au is a free weekly online news service for the general insurance industry. The website has more than 25,000 subscribers. In August/September we published 389 articles online. These were made up as follows:

55 61 65 LOCAL

REGULATORY & GOVERNMENT

60

LIFE INSURANCE

57

THE PROFESSIONAL

74 8 9

INTERNATIONAL

ANALYSIS

BREAKING NEWS More than 27,500 news articles – including 304 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. Access to news articles and other services provided by insuranceNEWS.com.au is free. 6

Reuters

CORPORATE Chaos: a boat stranded on a beach after Super-typhoon Mangkhut hit Hong Kong

Super-typhoon’s big cost Hong Kong insurers are bracing for up to $US1 billion in Mangkhutrelated losses, S&P Global Ratings says. Super-typhoon Mangkhut is the year’s most powerful storm so far. It severely damaged the financial hub’s roads, buildings, properties

and other physical infrastructures. Neighbouring Macau was also badly hit by the storm and will add to the claims loss burden facing the Hong Kong insurance industry. “The compounded effects of wind and storm surges will likely drive claims for property damage,

business interruption, and autos,” S&P says. “Furthermore, the inward reinsurance from Macau will further propel underwriting loss.”  ig claims loom after Mangkhut B flays Hong Kong, 24 September

There is a danger and an attendant unfairness in seizing upon a concession given at a high level of generality with respect to a protean term such as ‘fishing expedition’, especially when adopted by a non-lawyer. – Life insurer TAL fires back with a very lawyerly flourish after a company witness at the Hayne royal commission conceded reviews of claimants’ medical information amounted to fishing expeditions.

Rising cost of protection Insurers paid $2.08 billion in claims for professional indemnity (PI) and public and product liability (PL) classes of businesses last year, up 23.6% from 2016, the Australian Prudential Regulation Authority says. Non-facility PI claims went up 31.3% to $1.03 billion and non-facility PL claims increased 14.9% to $1 billion, according to the regulator’s National Claims and Policy Database. Claims payment for facility business shot up 88.5% to $43 million. As of December 31, insurers reported $3.78 billion in case estimates for non-facility business for further payments on open claims, up 8.7% from 2016. Insurers wrote $3.34 billion gross premium for PI and PL classes of non-facility business, up 0.4%. Gross written premium for non-facility PI relating to 763,035 risks rose 6.1% to $1.52 billion. The figure for non-facility PL relating to 2.9 million risks dropped 5% to $1.82 billion. PI and PL claims payouts rise 23.6%, 1 October

insuranceNEWS October/November 2018


Useless aids Product disclosure statements and key fact sheets are not helping consumers choose the best insurance cover, according to a study commissioned by the Financial Rights Legal Centre. Calling for a new approach, the centre says up to 42% of the 406 survey participants selected the worst home contents cover when given a choice between an “okay” and a “bad” product. This was despite the participants being given time to review the disclosure information. When the choice was expanded to include a “good” product, 34.9% still picked one of the inferior offerings. The study was undertaken by Monash University law professors Justin Malbon and Harmen Oppewal. “The Government has standardised the terminology for flood cover,” Professor Malbon says. “It should go further and standardise all terms such as for robbery, fire, earthquakes and so on.” The Financial Rights Legal Centre says further efforts to improve disclosure in insurance contracts are misplaced if the policy goal is for people to buy cover that best suits their needs. “Instead, policymakers should look to minimum standards for policies, or star rating systems that people actually understand,” Co-ordinator Karen Cox said.  DS and key facts sheets? Useless, say P researchers, 17 September

Reinsurers gloomy

Cyclone threat lower

Reinsurers and their insurance customers are gathering in the Mediterranean playground of Monaco for the annual Rendez-Vous de Septembre, but the mood is anything but playful. Premium rates are depressingly low and rises have stalled, which means little has changed since the last gathering. Events over the past year suggest a return to business as usual is becoming an increasingly remote option. Investors continue to flood the market with capital. The industry’s prolonged soft pricing cycle continues with no reprieve in sight. Profitability barely covers the cost of capital. “The ‘new normal’ for reinsurers looks to be one where returns are less impressive and underwriting and fee income become larger contributors to profits,” AM Best says in a report released before the gathering. “Better risk selection, greater diversification of product offerings, a wider geographic reach and conservative loss picks are keys to survival. “Those factors, combined with the ability to take advantage of the new ‘cheaper’ capital coming into the market from investors that may not have the reinsurance and underwriting expertise, could lead to significant success for some.” Rates were widely expected to rise after last year’s record $US100 billion of insured losses. But that did not materialise in a market brimming with excess capacity from investors, who did not flee after last year’s catastrophes. In fact, their appetite for such risk investments increased.

Australia can expect a below-average tropical cyclone season, the Bureau of Meteorology says in its annual outlook. The possible development of an El Nino system in the tropical Pacific Ocean and near-average ocean temperatures to the north and east have influenced the severe weather outlook. El Nino usually reduces the number of cyclone coastal crossings, the bureau says. There are 10-13 tropical cyclones on average each season, and four typically cross the coast. “Remember, though, Australia

 enewed pessimism grips Monte Carlo, R Analysis, 10 September

has never had a tropical cyclone season without a cyclone crossing the coast, and cyclones are rarely evenly spread across the season,” bureau meteorologist Adam Morgan said. The eastern region, including Queensland and NSW, can expect a below-average season, with a 60% chance of fewer tropical cyclones than average and a 40% likelihood of more. About one-quarter of tropical cyclones in the eastern region make landfall. The cyclone season starts in November and ends in April.  OM forecasts quieter cyclone B season, 8 October

Neal takes lead at Lloyd’s Former QBE chief John Neal (right) has been appointed Lloyd’s Chief Executive, and will start on October 15. He was chosen as successor to Inga Beale following a meeting of the Council of Lloyd’s, where his appointment was approved unanimously. Mr Neal was most recently group chief executive of QBE, based in Sydney, a role he began in 2012 and left in September last year. Prior to that he held a number of senior roles in QBE’s London office. Chairman of Lloyd’s Bruce Carnegie-Brown says Mr Neal will “continue Lloyd’s focus on delivering sustainable profitability, through a combination of underwriting discipline and market modernisation”. John Neal to lead Lloyd’s, 8 September

insuranceNEWS October/November 2018

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newsmakers at

Beale’s sexist abuse ordeal Retiring Lloyd’s Chief Executive Inga Beale (left) has revealed she suffered sexist and homophobic abuse when she took the job in 2014. Ms Beale, who is bisexual, told the UK Sunday Times newspaper that some of the abuse had come from “male financiers”, and also took a swipe at the fact that a man – former QBE chief executive John Neal – will succeed her. “Anonymous messages were sent to [then-chairman John Nelson] about me, and some emails and letters were sent directly to me,” she says in the interview. “They were rude, sexist and homophobic.” Ms Beale came out as bisexual in 2008 and has been a leader for the past five years of a drive for greater diversity and inclusion in the industry. She is the only woman to have held the top job at Lloyd’s since it was founded 332 years ago. She told the newspaper women who reach top jobs “are pretty certain” that a man will succeed them “because companies think ‘we’ve done that’ by appointing one woman”. Lloyd’s CEO endured ‘sexist abuse’, 8 October

Naomi Conway leaves Insurance News co-founder Naomi Conway has sold her shareholding and left the company. Ms Conway played a leading role in establishing the company and building it into the general insurance industry’s largest online and print publisher. Insurance News Managing Director and Publisher Terry McMullan says the McMullan Conway business partnership “lasted more than 21 very successful years”. “We worked together in communications and marketing and then in publishing,” he said. “Naomi was absolutely key to the achievements of Insurance News, and I wish her every success in the future.”  aomi Conway leaves Insurance News, N 10 September

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

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From the

PUBLISHER This edition of Insurance News marks a very special milestone in our development. After nine years as a print-only publication mailed to subscribers, we are making the magazine available online. Of course, it will still be available in print form for those established and future subscribers who prefer it. The decision to take the magazine online follows closely behind the launch on October 16 of our new Tuesday to Friday daily edition of insuranceNEWS.com.au. This new service complements our comprehensive Monday afternoon edition, which remains Insurance News’ “flagship” production. Much has changed in the 10 years we have been building the Insurance News brand. We now have around 26,000 subscribers to our weekly online news, and 9000 magazine subscribers – numbers that make them the mostread publications of their type in Australia by a very wide margin. The decision to develop the online magazine option and daily online news service didn’t come without a lot of research and a fair amount of debate, so the overwhelmingly positive feedback to these initiatives from readers in the survey we conducted over the past month came as a relief. Our reasons for the changes are both practical and economic. While we have no intention of limiting the magazine’s print run, the costs associated with printing and mailing continue to rise. Online production has the potential to raise readership levels for minimal cost. And then there’s the fact that many readers have told us they simply prefer the flexibility and practicality of reading from a tablet or computer screen – a trend that’s challenging the magazine publishing business around the world. Our decision to go with the global flow reflects our determination to keep the magazine’s circulation growing. Advertising is Insurance News’ main revenue source, and our priority has always been to provide our industry advertisers with the largest possible readership. They will now have much greater flexibility to devise innovative and exciting campaigns across a range of media. There’s another, more incidental, benefit. Our subscribers include an enthusiastic cohort of overseas readers – many of them expatriates – who will now be able to read the magazine without having to pay for mailing. Over the next few months we will make all previous editions of Insurance News magazine available online, providing a historical perspective to the issues we have covered over the past nine years. Insurance News magazine has always been praised by readers for the in-depth perspectives it brings to issues that we’ve covered more briefly in the online news. We are looking forward to bringing those industry insights to a wider audience. Along with the new daily online news service and the established Monday bulletin, we now have a range of productions that will increase our effectiveness to readers and advertisers. For now that’s enough. Our priority at present is to bed in these new services. But I’m sure we won’t be stopping here. The insurance world is evolving rapidly, and so are new and exciting ways to communicate that change. Terry McMullan

CONTRIBUTIONS: We welcome all material that is relevant to the Australasian and regional risk insurance industry, including all aspects of risk management. Please contact the Editor, +61 3 9499 5538. PRINTING: Printgraphics, 14 Hardner Road, Mt Waverley VIC 3149, Australia ART DIRECTOR: KRISZTINA STRZEBONSKI Email: kriss@insurancenews.com.au www.insurancenews.com.au/magazine

insuranceNEWS October/November 2018

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

ISSN 1837-4972


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Regulatory revolution The Hayne royal commission is sure to inspire a radical rethink of how financial services – including general insurance – is regulated. But what will it look like? By John Deex & Wendy Pugh “WHY DID IT HAPPEN? WHAT CAN BE DONE TO AVOID IT happening again?” These are the key questions raised by Commissioner Kenneth Hayne in his interim report to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The hearings to date have uncovered some deplorable behaviour, with the general insurance industry spending a week having some lamentable failings exposed to the full public gaze. General insurers had hoped to be nothing more than a sideshow, with the banks, financial advisers and life insurers hogging the limelight. And while it can be legitimately argued that those other sectors’ transgressions were worse, general insurers still had to endure their fair share of damaging revelations and horrible headlines. Commissioner Hayne was invited to find all the general insurers that appeared – Allianz, IAG, Youi and Suncorp – had engaged in misconduct following days of punishing questions over complacent attitudes to compliance, the selling of “junk” add-on insurance, and poor claims handling (see following article). While the executives in the witness box broadly bowed to the interpretation of Counsel Assisting Rowena Orr and colleagues during the hearings, insurers have attempted to claw back some credibility after the event through their submissions in response. 10

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But the damage may have been done, and the commissioner’s thoughts have already turned to what happens next. There is one more round of hearings, focusing on policy issues raised by the first six rounds, set to take place in November. The final report will be published early next year. But there are already clues as to what the repercussions might be. A “policy questions arising” paper, published after the insurance round of hearings, puts a series of suggestions to the commissioner. And while his interim report does not take into account the general insurance hearings, the report’s executive summary highlights potential regulatory changes that would affect the whole financial services sector. The report features a series of damning statements and points to ways the regulatory landscape might change. Why did the bad behaviour happen? Too often, the commissioner says, the answer is greed – “the pursuit of short-term profit at the expense of basic standards of honesty”. Selling often became the “sole focus of attention”, Commissioner Hayne says. “From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.” Commissioner Hayne is quite clear that past misconduct has not been appropriately dealt with by the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA). October/November 2018


“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct,” he says. “The prudential regulator, APRA, never went to court. Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn-out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.” Penalties were “immaterial” for the companies concerned, he says. As for what should happen now, Commissioner Hayne promotes a tougher application of current laws, rather than the creation of new ones. “The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’,” he says. “Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain? “Should the existing law be administered or enforced differently? Is different enforcement what is needed to have entities apply basic standards of fairness and honesty? “The basic ideas are very simple. Should the law be simplified to reflect those ideas better?” The “issues arising” document specifically tackles policy questions related to the insurance round of hearings, and asks whether the current regulatory regime for insurance is “adequate to minimise consumer detriment”. The document asks whether a failure to comply with the General Insurance Code of Practice should constitute a failure to comply with financial services laws, and questions the purpose of infringement notices. It asks whether there is “sufficient external oversight” of compliance systems, and whether there should be greater consequences for financial services entities that fail in this area. It questions whether the current disclosure regime is “adequately serving the interests of consumers”. “If not, why not, and how should it be changed?” On sales, the document questions whether “monetary and non-monetary benefits given in relation to general insurance products” should remain exempt from the ban on conflicted remuneration. It also asks whether there are some financial products that should only be sold with personal advice.

Key points arising from the royal commission • Regulators should have more aggressive oversight, with a new emphasis on penalties rather than negotiated settlements. • Tougher application and perhaps simplification of current laws, rather than the creation of new ones. • Codes of practice could be linked to existing financial services laws. • “Monetary and non-monetary benefits” related to the sale of general insurance products could be linked to the ban on conflicted remuneration.

insuranceNEWS

“Passing some new law to say, again, ‘do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?”

The document considers giving ASIC jurisdiction on claims handling, and asks whether the general insurance code should be amended in relation to cash settlements to force insurers to act fairly. So where does this leave us? One industry source told Insurance News the Federal Government now has a mandate to do whatever it likes. “Without a doubt there will be bigger penalties and fines, more suspensions and court orders,” he says. “The perception before the hearings was that some companies are clean and well-managed – but skeletons have been revealed in every closet. “After the evidence we heard, the Government can do whatever it wants regarding financial services regulation and the industry will find it very hard to push back.” Deloitte Partner Ethics, Conduct and Professionalism Deen Sanders tells Insurance News Commissioner Hayne’s comments in the interim report could well impact the general insurance industry. “It is likely that changes to the legislation in the context of banking and broader financial services will have an effect on general insurance also, especially as it relates to consumer access and protection,” he says. “Commissioner Hayne flagged that it is not necessarily about the laws being radically changed, but about them being more radically enforced, and that there is an opportunity and invitation to think about the regulatory system, rather than wholesale rethinking of the legislative system.” Dr Sanders is certain that tougher enforcement is coming, along with more prosecutions. “The media and Commissioner Hayne have made the point that there appears to be an insufficient number of people that have gone to jail. “We should expect to see criminal sanctions increase. There is no doubt also that civil sanctions – that is, fines – will also increase.” Ann Wardrop, Senior Lecturer in Law at Melbourne’s La Trobe University, agrees. “One of the key things the interim report focuses on is not only the culture of the regulated population of financial institutions, but also the culture of the regulators,” she tells Insurance News. “The emphasis will be more towards penalising than negotiated settlements. “[The commissioner] doesn’t seem particularly interested in producing new rules, but more in simplification. October/November 2018

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“But that in itself is a very big process. It could be an enormous change if they were going to do a root-and-branch simplification of financial services regulations.” Dr Wardrop says the commissioner’s focus on simple “basic ideas” suggests a principles-based approach to regulation. But principles are no good on their own, she says, arguing that there has to be some form of underlying rules. “Rules are more precise and more certain, but they promote loophole behaviour,” she says. “Principles can be uncertain and unpredictable. “There is no one single answer here.” There is also a strong suggestion that the financial services industry will be forced to move away from self-regulation. Dr Sanders says he is “a fan” of self-regulation, but Commissioner Hayne has made it obvious he is not. “He is right to draw the conclusion that the self-regulatory practices of the past have not worked.” Commissioner Hayne believes ethics and codes are best empowered by the law, Dr Sanders says. This means that while self-regulatory codes might still be promulgated by the industry, they are likely to be regulated by government entities. “I’d suggest that if industry codes and ethics are to have a role, then we will see them being adopted statutorily and therefore regulated, and having stronger sanctions attached to them by virtue of the responsible regulators.” Dr Wardrop also sees threats to self-regulation, because the commission has identified a lack of enforcement overseeing the process. “The idea of self-regulation always assumes that there is going to be some regulatory presence that would oversee all of this, and that seems to have been missing,” she says. But Dr Sanders still sees a “glimmer of hope” for self-regulation. “Ultimately it is very difficult for governments to properly establish or communicate expectations of practice, because that is not their role,” he says. “Experts in insurance and insurance broking will know better how to be an insurance broker, for example, than the regulator will. “So there should always be an opportunity for the industry to influence the way codes develop, but it certainly seems from Commissioner Hayne’s comments that he would prefer to see those empowered by law.” The culture of the financial services industry is often blamed for the wrongdoing that has been exposed. Commissioner Hayne talked about the “siren song of finance”, noting that people in the industry are broadly motivated by money. However, Dr Sanders says Commissioner Hayne believes the way to regulate culture is through enforcing individual accountabilities. “He was quite vocal that culture is poor and results from a magnification of individuals and groups behaving poorly or not being able to clearly see or understand their individual accountabilities, and when they come together it affects whole cultures,” Dr Sanders says. “So in fact, what we are most likely to see is an absolute laser-like focus on issues of individual accountability. “The argument is, if you really make very clear what individuals’ responsibilities and duties are, and you make those individuals accountable under law, then that will have a positive effect on culture. “That was one of Commissioner Hayne’s most compelling arguments. This is about individual accountability across the entire industry – all levels and all participants.” 12

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“Passing some new law to say, again, ‘do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?”

One of the industry’s concerns will be the cost of implementing any new regulatory requirements. “Building more compliance functions into a business can in fact be detrimental to the services that are offered, because consumers have to pay for it,” Dr Sanders says. “It is a very real concern and a challenge that we know the industry is grappling with, and so certainly going forward the question isn’t just about more and more compliance, but about more efficient ways of managing compliance and the way services are provided to consumers.” But Dr Wardrop thinks the industry is unlikely to garner much sympathy over costs. “The argument is always made that any new layers of regulation will increase cost and have a chilling effect. “Of course there will be costs for industry in the short term, but whether or not it would have a chilling effect as far as the business is concerned, I don’t know. “I think the commissioner is well aware of [the argument] and I don’t think he is impressed by it.” Dr Sanders believes the royal commission has revealed the financial services industry as it is seen by consumers – and it is not a pretty picture. “What the commission has done is change the framing of the conversation in a very powerful way,” he says. “By really leveraging and emphasising the element of community expectation, it has shifted the conversation away from what the industry normally thinks about good practice and good process, and stepped outside of that and said, ‘What does this look like to the community?’ “When you put your community lens on, then some of [the behaviour] was quite shocking. “The commission has challenged us all to think about what the client really needs and to step outside the boundaries of our established industry thinking.” As a result of this community focus, change is inevitable. The “compelling evidence” put before the commission places serious pressure on the Government to deliver, Dr Sanders says. “It is reasonable to suggest that the traditional approach of quiet and careful consideration won’=t be available, and that the public clamour will mean government will need to respond quickly and robustly.” October/November 2018


INSURERS INTERROGATED

Compliance fears: Allianz Chief Risk Officer Lori Callahan leaves the hearings

Quizzed: IAG’s Executive General Manager Business Distribution and Group Executive Ben Bessell

Allianz: misleading information

IAG: add-on failures

ALLIANZ DISPLAYED MISLEADING TRAVEL INSURANCE information online for years, gave incorrect policy details in a number of other areas and responded with a lack of urgency when problems were found, evidence to the royal commission showed. Travel errors came to light when the company moved to update the website in 2015, while problems were later also discovered for home, motor, life and boat insurance. An external law firm engaged to review the situation identified 39 incorrect or misleading statements on travel pages, with some issues dating back to 2012. False details included that a basic travel policy offered unlimited overseas medical expenses and that policies covered all countries. Counsel Assisting suggested Allianz had inadequate processes for overseeing website content and also for monitoring compliance incidents once they were identified. The insurer was pressed over whether it properly alerted ASIC to problems and for its handling of independent reports into its compliance. Counsel Assisting found three grounds for potential misconduct findings and three for conduct falling below community standards and expectations. In submissions following the hearings, Allianz accepts misconduct in leaving misleading information online for too long while it determined how to fix problems, and concedes processes have been inadequate. But it rejects suggestions that it was not frank in its dealings with ASIC or that it manipulated findings in an independent report on compliance to try to satisfy regulatory requirements. The company strongly argues against “sweeping and unqualified findings” that suggest the Allianz culture doesn’t consider risk and compliance as a priority and that it adopts a defensive attitude when challenged about its practices.

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IAG WAS QUESTIONED OVER SUBSIDIARY SWANN’S SALE OF sometimes worthless add-on insurance through vehicle dealerships. The insurer received about $1.07 billion in premiums from add-on policies over a decade and paid out about 10% on claims. In 2014 auto dealers delivered 71% of Swann’s gross written premium. Swann viewed dealers, rather than consumers, as its customers, and it offered commission and incentive schemes aimed at boosting sales and maintaining market share. Commissions could reach as high as 50% in some instances, raising questions over whether Swann had breached a 20% cap for consumer credit insurance under the National Credit Code. Light-touch monitoring was used for dealer representatives and products were sold that were of little or no value to consumers. In some cases there was little chance a person could claim, while customers also bought duplicate policies and more cover than needed. ASIC raised concerns over add-on products in general in 2013, and by 2015 IAG was aware the regulator had serious concerns. The company participated in a collective effort through the Insurance Council of Australia (ICA) to address the issue amid regulator frustration. Last December ASIC announced IAG had agreed to an add-on insurance refund program for consumers. The remediation involves payments totalling $37.1 million for 64,187 customers. Counsel Assisting outlined four ways in which Swann may have engaged in misconduct and five in which it engaged in behaviour below community standards and expectations. In submissions IAG rejects the misconduct allegations, saying it didn’t breach the credit code cap, had training for dealership representatives in place and responded to concerns over the products both through ICA and as a company. “It is difficult to see that becoming involved in an industry-wide solution through the Insurance Council of Australia was inefficient or unfair (let alone dishonest),” it says. Nevertheless, it accepts add-on insurance flaws left it open to findings conduct fell below community standards and expectations. October/November 2018


Offered apology: Suncorp Chief Executive Insurance Gary Dransfield

Facing up to delays: Youi Chief Operating Officer Claims Services Jason Storey

Suncorp: code breaches

Youi: unacceptable delays

SUNCORP CONCEDED MISTAKES AFTER A HUNTER VALLEY FAMILY endured a long battle over a storm damage claim, while the insurer also faced criticism over policies held by Wye River bushfire victims. The storm in April 2015 caused initial obvious damage, but more severe problems then led to disputes over the scope of repairs and whether a complete rebuild was needed. The family, including two children with health problems, contacted Legal Aid as cracks appeared and they feared a wall collapse amid delays. Suncorp tried to cash-settle for around $30,000 in October 2015, but in January 2018 the Financial Ombudsman Service awarded the family $744,000. Counsel Assisting suggested the company had engaged in misconduct by failing to act with utmost good faith and through four code of practice breaches. Counsel also identified four possible grounds for actions falling below community standards and expectations. Suncorp has apologised to the family, concedes code breaches and not meeting expectations in some aspects, but in submissions rejects failing its good-faith duty. “Put simply, it is quite possible to get things wrong, whilst seeking to act in good faith,” it says. In the Wye River case, counsel suggested misconduct as Suncorp’s complete replacement cover advertising indicated it would repair or rebuild no matter the cost, when a cash sum based on estimates could be paid to policyholders instead. Suncorp says cash settlement is explained in the PDS and no reasonable person would expect a blank cheque. Counsel flagged six instances where behaviour may have fallen below community standards and expectations, including that Suncorp had charged premiums on renewed policies for customers whose homes had been destroyed. Suncorp remediated the premiums error. It has defended the option to cash-settle based on lower quotes, and stands by a decision to launch a complete replacement cover advertising campaign while ASIC was still investigating a previous version. It also defends terms used in a PDS.

YOUI CUSTOMERS COMPLAINED ABOUT SUBSTANDARD REPAIRS and poor-quality service in resolving issues after natural disasters. A Broken Hill customer whose home was damaged in a November 2016 hailstorm was left with a partially removed roof and no airconditioning when builders said more funds were needed due to structural issues before they could complete the work. The family couldn’t pay the extra straight away and remained in the home, while additional stress was caused as backyard lead contamination problems couldn’t be fixed until after the repairs. Further work left holes in the ceiling and dirt inside the home, causing the family to move to temporary accommodation. They returned to find replaced roofing “flapping in the wind”. Repairs were by a builder that was the subject of previous complaints, and Youi in other cases was redirecting jobs to an alternative contractor. A new builder was later assigned for the Broken Hill family’s home, with roof work completed in May this year. Final repairs were still under way at the time of the hearings. A second case involved damage after Cyclone Debbie hit the Airlie Beach region in March last year. The claimant said a tarpaulin fixed to the family home was totally inadequate and there had been unacceptable delays in repairs and reimbursement for temporary accommodation. Counsel assisting suggested Youi breached three sections of the code of practice and failed its duty of utmost good faith. A policy term excluding extra costs if a building doesn’t comply with latest codes was also flagged for not meeting expectations. Youi, in submissions, accepts there were unacceptable delays but rejects the breaches asserted and says company executive admissions during the hearings were made with the benefit of hindsight. The context included serious defects in both properties and lack of available tradespeople, while claims handling should be viewed as a whole and not “with an eye keenly attuned” for individual delay points, it says. “These two case studies are not only unrepresentative of the vast majority of cases dealt with by Youi, particularly following natural disasters, but are case studies which Counsel Assisting has sought to 0 portray in the worst possible light,” it says.

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Irresistible force

The CBN deal continues Steadfast’s drive to be the master of Australia’s insurance distribution system By Terry McMullan

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STEADFAST’S DOMINATION OF THE insurance broking sector was sealed early in October with the acquisition of the country’s largest authorised representative network. The deal to acquire IAG’s Community Broker Network (CBN) – which was already a member of the Steadfast network – enabled IAG to dispense with a distribution unit that no longer fits its strategic plan. Steadfast’s payment of an undisclosed sum bought it a network of 367 authorised representatives (ARs) who place about $500 million of total billings, $418 million gross written premium and 135,000 SME clients across Australia. For Steadfast Managing Director and Chief Executive Robert Kelly – a former broker who co-founded Steadfast 23 years ago – the acquisition is one more step in his long-standing quest to build a corporation that provides brokers with everything they need in the insurance sales process, including its own broker systems and trading platform. The company already enjoys considerable influence in the industry, and this acquisition will only increase its ability to insuranceNEWS

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swing advantageous deals with insurers for specialised policies and enhanced distribution arrangements. Steadfast has owned a majority shareholding in the national Ausure AR network since 2014, but there will be no merger with CBN. Mr Kelly says this will “encourage robust competition. Steadfast has a strong track record of acquiring businesses that successfully compete against each other while operating independently.” He cites as an example the fact that Steadfast owns three underwriting agencies and three insurance brokerages that compete in the strata insurance market. “These companies win business on their own merit, have developed their own unique value proposition and actively compete for business. The fact that we can support these competing businesses further demonstrates the success of our diversified business model.” Paul Ayton, a long-serving IAG executive who was made managing director of CBN in 2016 after the acquisition of the Westcourt AR group, has left the company. He has


“Steadfast has a strong track record of acquiring businesses that successfully compete against each other while operating independently.”

Dancing to his own tune: Steadfast’s Robert Kelly

been replaced by former general manager of distribution Richard Crawford. For Mr Kelly, the CBN acquisition continues Steadfast’s headlong rush towards an intriguing future. The company has a strong – some would now say massive – footprint in Australia, a growing presence in the New Zealand broker market and a steadily developing international profile, particularly in Asia. Mr Kelly is a constant traveller across his far-flung Australian empire as well as overseas, where his reputation opens most doors in the global insurance industry. A forthright observer of the local and international insurance scene, he spoke to Insurance News shortly before the CBN acquisition was announced. What was your reaction to the general insurance hearings at the Royal Commission [into Misconduct in the Banking, Superannuation and Financial Services Industry]? In a couple of specific areas there were obviously some very poor practices in policy drafting for the consumer, and in the case of automotive add-on insurance, the remuneration paid to the distribution network.

Obviously the claims that were not met and should have been met that were purely due to poor processes contained within the insurance companies involved, and also where capped settlements were made in expediting the claim; they seemed to be a good idea for the client at the time, and the client wasn’t forced to take a capped settlement. But the reality was that subsequent events in some cases showed they weren’t appropriate when it came to actually getting the work done. You could say the insurer deliberately offered a capped settlement to reduce the quantum, and I wouldn’t comment on that because I wouldn’t know the specifics. In general, though, I think expediting the claim was the key motive. I’ve seen that happen in North America with [insurance company] State Farm, which goes out when a catastrophe occurs and settles on the spot, because it thinks that’s the best way to get people comfortable and back into a less desperate frame of mind. But there’s no doubt the evidence turned up some ambiguities. The remuneration levels for some of the add-ons were intentional, but on the cash settlement side insuranceNEWS

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it’s not so easy to say there was a deliberate motive to do the wrong thing. I think the way [IAG Group Chief Executive] Peter Harmer addressed the [add-on insurance] issues when he found them should be admired. He looked at what the processes were, decided they were not correct and said [IAG] did not want to operate that business any more, sold it off and did restitution for people who were wronged. When it went before the royal commission IAG had already ’fessed up to what it saw was a problem, rectified it and had given an undertaking that nothing like that would ever happen again. That was a brilliant way to handle it. Did it leave you with any impressions that the General Insurance Code of Practice is limited in its ability to actually work as a self-regulatory tool? Look, I’m a fan of self-regulation. But then again, I’ve been operating in a system of self-regulation since 1986, when we set out rules for Steadfast members, explained them and made sure they were followed. If the code of practice is adhered to, it’s foolproof. 17


“We control just under $2 billion of the $5.3 billion that goes through our Australian network, so the expansion potential for us is still massive.”

But I have empathy for some of the major insurers that have large areas to cover and probably weren’t able to drill down to the most efficient way to administer the self-regulatory side of the code of practice. Some people will now meet with their staff and make sure the code is understood and adhered to before things get to internal and external dispute resolution. General insurance – and particularly brokers – have grounds to complain about the way they are lumped in with all financial services intermediaries when it comes to regulation. If we’re about to enter an era of new regulatory controls, is there a risk that general insurance brokers will be forced to accept more stringent rules? That’s a difficult question. Financial services is a very broad canvas, and where there are issues in financial services a rug gets cast over the whole of financial services. I get really frustrated when I get lumped in with the others over a whole range of issues that are not related to general insurance. If this sounds like I’m pretending we are perfect, I don’t intend it to sound like that. When you run $17-$18 billion of gross written premium through intermediaries – and that’s about what we do in Australia over a vast range of intermediaries – you are going to get varying degrees of adherence to self-regulation. There are bound to be anomalies, and everybody isn’t going to get it right. But look at the facts. There were 13,500 complaints put to the ombudsman last year for general insurance, but just 277 were related to general insurance brokers, and of those 277 disputes 85% were found in favour of the insurance broker. That is a very small percentage of the policies these intermediaries handled. I’m buoyed by that; I think it’s fantastic. In comparison, you only have to look at the 300,000 or so problems that one financial services company was faced with – and there are some absolute horror stories out there – and you can only conclude such things don’t happen in general insurance distribution. 18

Let’s look at consolidation in the broker market. Obviously, it’s happening at all levels – your acquisition of CBN is the latest example of that. But at the upper end of the market we’ve also seen the acquisition of JLT by Marsh. How do you view that? Do you see that in any way significant for Steadfast? I think it points to the fact good-quality businesses are always going to be potential acquisitions for people with strong balance sheets. When you consider the success of JLT around the world as a big broker that doesn’t operate in all facets of the business like Aon and Marsh do in all jurisdictions, the sale looked to me simply like the acquisition of a very valuable asset by a bigger broker with the capital to make the deal. Locally, when you think about the number of people from Marsh who had been attracted to JLT over the years, you would have to say there are some old friends who will be coming back to the original school. That obviously will create some opportunities inside and outside that business, but I generally see it as a logical consolidation. When I look at the worldwide broking market, I can see the JLT acquisition pushes Marsh & McLennan’s market cap[italisation] up to $US70 billion or $US80 billion. So the company coming second may look at the company coming third or fourth and start wondering whether it’s time to do a few acquisitions along the same lines. From our point of view at Steadfast, it reaffirms the direction we’ve been on for 22 years, especially in the past nearly six years we’ve been in a public environment. We’ll continue to acquire good-quality assets and blend them together and put them into operational structures to produce greater profits.

The reality is that our network is now heading towards 290 brokers, of which we own only about 62. So our potential all the time is to acquire the businesses of people who reach a decision to retire in two or three years’ time, or take some money off the table. We control just under $2 billion of the $5.3 billion that goes through our Australian network, so the expansion potential for us is still massive. I run a network with a huge array of support services, and a hell of a lot of the money we gain via marketing and administration fees is kicked back into that network. Not by way of rebates back to them, but in the provision of a whole range of services that enable them to operate successfully and with greater certainty. So the reality is that contained within our network is a huge expansion opportunity. The services I mentioned – and particularly the IT we’ve developed – is attracting people from outside our network.

After the CBN acquisition, are there sufficient high-quality assets in the local market for Steadfast to keep expanding with certainty? Our prospectus when we listed said we would be a buyer and developer of businesses and an acquirer of our network.

Some people are confused by the Steadfast operation because it grows so fast it’s difficult to compare its performance year on year. But there are a significant number of large institutional investors on your register. Is their continuing involvement a declaration of faith in the future of Steadfast?

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You’ve moved into Asia, passing by the Australian insurers on their way out. Plus you’re into the New Zealand market and have various other interests around the world. What’s next? The reason we are in Asia and further afield is because we’ve come to understand that not a lot of people offer and blend what they do the way we do. So when we drop what we do into another jurisdiction and particularise what we offer in that jurisdiction, it’s very appealing. We will continue to work diligently in our Asia-Pacific business, because I think we have an obligation to our investors to offer them the opportunity to expand in other parts of the world, in a time appropriate to when we want to move that way.


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“The market is starting to agree that it can’t underwrite for losses, it has to underwrite for profits. That’s how insurance is meant to be.” I have a view that our investors are very, very important to this organisation and we owe them an incredible duty of care [over] their investment and to fully involve them in what we are doing. [Steadfast Chief Financial Officer] Stephen Humphrys, our Investment Relations Manager Simon Starr and I have just done 100 briefings over the past three weeks to analysts, investors and potential investors in Melbourne, Sydney, Singapore, Hong Kong, London, Boston and New York. I think the capital markets like the way we go about doing business. You’ve known me a long time and you’ll agree I’m fairly direct and fairly forthright about the world, and I don’t have a different view when I’m briefing somebody in Boston about the way we manage our business.

listed company and you’re an insurer, you should be making money out of your underwriting, not relying on your investments. If you look at the three key insurers here [IAG, Suncorp and QBE], they have all come out and said their prices have got to go up because they’ve got to make money. The market is starting to agree that it can’t underwrite for losses, it has to underwrite for profits. That’s how insurance is meant to be. You underwrite many contributed small amounts to make a profit big enough so claims can be paid out of a pool. It’s not very complicated. I often laugh to myself when people go, “Yeah, I know we are over 100% loss ratio on those, but it’s short tail.” That just means you lose it quicker!

We are starting to see premium rates trending up now. Do you see that continuing? I think there’s at least another couple of years of 5-6% growth each year. Although there is plenty of capital around, the markets are starting to say that if you run a publicly

The National Insurance Brokers Association (NIBA) and some member companies are talking about the need to continue raising professional standards. As a broking veteran with a lot of skin in the professional education game, what’s your opinion?

CLAIMS@ASTAGROUP.COM.AU | 1800 00 ASTA

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Firstly, there is never enough training for insurance brokers, because as soon as you train them in one thing, something new will come up that reflects on what you were taught in the past. So continuing professional development is crucial to the industry. There is a plethora of training available in the market if people want to avail themselves of it. The problem is there are many and varying degrees of specialisations in our industry. There are salesmen and there are technicians and there are crossovers between those, and sometimes you’ve got to be careful about what you’re training people for. If you think about the training NIBA used to do and that [the Australian and New Zealand Institute of Insurance and Finance] is doing, I think it’s fine – it’s just not used enough. When I see statistics that tell me the number of people training is dropping off, I get very worried, because I see the number of people who are coming into broking who see themselves as salesmen rather than 0 insurance professionals.


Diverse approach: Robert Kelly, left, and Mark Searles

Two tribes Steadfast and AUB are still kicking goals, but in different games

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By Bernice Han AUB GROUP AND STEADFAST HAVE AGAIN RAISED the bar, with the twin titans of Australian insurance broking returning another set of robust earnings figures. AUB’s net profit after tax surged 41% to $46.5 million last financial year, driven by growth in all operating areas. Meanwhile, Steadfast has reported an “excellent” year, with net profit rising 13.6% to $75.9 million. And once again the broking giants have demonstrated how different they have become, with Steadfast focused on acquisitions and organic growth, while AUB relies more on its established business partnerships to drive profit. AUB’s Australian broking business, Austbrokers, generated $53.5 million of before-tax profit, up 8.7%, and its underwriting agencies arm, supported partly by rate rises, increased before-tax profit by 11% to $13.9 million. Steadfast Managing Director and Chief Executive Robert Kelly says his group’s result was “driven by organic and acquisition growth”. “Our SME general insurance market has seen moderate premium price rises during [last financial year],” he says. “We expect this trend to continue through [this financial year] as insurers look to improve their profitability.” The Steadfast Network delivered a 6% rise in gross written premium (GWP) to $5.3 billion, powered by price growth and contributions from new brokers. Steadfast Underwriting Agencies increased GWP 18% to $914 million. At AUB, the commercial insurance premium rate environment has been positive, producing single-digit increases. Its risk services business’ profit improved 3.1% to $7.8 million as revenue grew 9%, and the New Zealand broking arm enjoyed an 18.5% increase to $6.5 million as premium rates hardened and new members joined the network. AUB Chief Executive and Managing Director Mark Searles, who will step down in October next year, believes he will leave the business in good shape. Since joining in 2013 the former CGU and Zurich UK executive has added risk services and New Zealand broking to the company’s register, to diversify the earnings base. Australian broking’s share of pre-tax contribution has fallen from 88% in 2011/12 to 66% today. “Six or seven years ago the growth engine was buying insurance brokers in Australia, but now it is organic growth,” Mr Searles told Insurance News. “Our New Zealand presence was not there three and a half years ago, and neither was our risk services business. I’m 0 very pleased and proud of what we have achieved.”

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Blue skies ahead The Big Three have slimmed down to retain pole position as the market turns in their favour at last By Bernice Han AUSTRALIA’S THREE BIGGEST insurers – IAG, Suncorp and QBE – have the tide firmly in their favour at last. The patchy recovery that began more than a year ago is gaining visible pace, igniting hopes that the next few years, at least, will be positive for the industry. What the Big Three have going for them right now is a sustained upswing in the pricing cycle. That is one of the key takeaways from the just-concluded earnings season. After many false starts, the market has definitely bottomed out, paving the way 22

for the market leaders to confidently push through with rate rises. Additionally, they have also adopted a “lean and fit” mantra. Their business models have been pruned, with money-losing foreign adventures dumped and non-core businesses that took up way too many resources ditched. The fine-tuning is most pronounced at QBE, which is back with a renewed vigour. The insurer turned in by far the most impressive results in the latest season. After-tax net profit jumped 4% to $US358 million for the half-year to June 30, a far cry from the gloom that engulfed QBE when it announced last year it had lost $US1.2 billion. As Group Chief Executive Pat Regan puts it, the “simplification agenda” was necessary as he embarked on the task of trimming the excess layers since taking on the job in January. “Since the start of the year, we have progressed four major work streams that contribute to the simplification agenda,” he says. insuranceNEWS

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“Our objective is to simplify the business so that QBE operates only in markets and products where we have a competitive advantage and can deliver attractive returns and profitable growth.” First on the chopping block was the troubled Latin American arm, which was sold to Zurich for $US409 million in February. In the months since, Mr Regan has moved to cull other businesses, including the Hong Kong operations and a travel subsidiary in Australia to Nib. It also expects to exit the North American personal lines market by the end of the year. “Travel insurance is very much a scale and high claims frequency logistics business. A review of our offering identified that we did not have a strong position in this market and without significant investment would not be able to generate an acceptable return,” Mr Regan says. On the pricing front, QBE enjoyed an average premium rate increase of 4.6%, building further on the 1% gain from a year earlier.


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In the key North American market, premium rates jumped an average 3.1% from 0.9% and pre-tax insurance profit increased to $US132 million from $US71 million. “They’re getting a lot of benefit out of a hardening price cycle, especially in North America,” Frank Mirenzi, Vice President and Senior Credit Officer with Moody’s Investors Service, tells Insurance News. “The first-half results out of North America look pretty good. “I think they are on the right path. What they have done to date is obviously starting to yield results.” The combined Australia and New Zealand business earned about $US213 million in insurance profit before tax, up 2%. Underwriting income grew 4% to $US134 million. Average premium rate, excluding the compulsory third party motor line, was 6.6% up from a year ago and retention stayed above 80% despite the price hike. “The rating environment remains strong,” Australia and New Zealand Chief Executive Vivek Bhatia says. It’s a road to redemption for QBE, analysts from Morgan Stanley say in a post-earnings analysis. “Fears of an underwhelming [first half] result were quelled with QBE delivering a quality set of underlying numbers, seemingly on track to meet full-year expectations,” the analysts say. “The greater underwriting scrutiny and current pricing trends should see QBE progressively improve margins.” It’s been a while since QBE’s performance outshone Suncorp and IAG, but neither of the two market giants’ headline profit numbers dazzled as much as QBE. But delving deeper into the details shows the outlook is far from downbeat for the two insurers. Like QBE, IAG and Suncorp have concluded it makes no sense to cling on to businesses that no longer offer a good strategic fit or cause more than pains than gains. 24

“I think [QBE is] on the right path. What they have done to date is obviously starting to yield results.”

IAG is selling its operations in Thailand, Indonesia and Vietnam as part of a strategic review of its Asian portfolio. The insurer is still weighing its options for its Malaysia and India businesses. Meanwhile, Suncorp has offloaded its Australian life arm for $725 million to TAL Dai-ichi. The two insurers are also benefiting from the hardening market, with the rise in premiums now solidly on trajectory and unlikely to reverse course in the short term. “We think the [bullish] thesis still holds,” Morgan Stanley equity analyst Ed Pham says. Brisbane-based Suncorp enjoyed an average premium increment of 3.8% in its core Australian home and motor portfolios, although the general insurance business did post a 1.2% fall in net profit to $681 million for the year to June 30. Similarly, IAG’s net profit dipped 0.6% to $923 million in 2017/18, but the pricing environment bodes well for the underwriting business going forward. Rates for short-tail lines increased 4-5% and commercial rates saw an average 5% rise. “Looking out to [this financial year] for our Australian business…we’re expecting continued premium growth, predominantly rate-driven,” IAG Chief Financial Officer Nick Hawkins says. The broader insurance industry, including reinsurance, is also in a relatively good insuranceNEWS

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state, according to the Australian Prudential Regulation Authority’s figures. After-tax net profit increased 23.9% to $3.8 billion last financial year as claims declined in the absence of major natural catastrophes. Gross incurred claims declined 10.1% to $30.2 billion while gross incurred claims were up 0.4% to $45.6 billion. Unpredictable weather, as usual, looms as a huge risk. As many as 80 bushfires engulfed New South Wales in the past winter, raising concerns the worst is yet to come as summer approaches. The outcome of the ongoing royal commission into financial services misconduct is also shaping up as a potential danger. General insurance took the spotlight in the sixth round of hearings with Suncorp, Allianz, IAG and Youi appearing before the commission in September. “Unlike in financial advice or mortgage lending, we do not expect there to be systemic issues,” Morgan Stanley analysts say. “We think the greatest potential brand risk comes from real or perceived mistreatment of customers who have suffered loss at the hand of catastrophes and either did not realise their insurance entitlements or suffered as a result of undue claims process.” Time will tell. For now, the market is shrugging off the effects of a business winter that lasted several years too long and is looking forward to a sunnier future as the cycle turns upward. 0


Running dry Crippling drought is forcing cash-strapped rural businesses to cut back on expenses, including insurance By Bernice Han

Tough times: much of rural Australia is gripped by drought

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BROKER PETER LEONARD HAS NEVER SEEN things looking so dire for his clients in rural New South Wales. So severe is the drought gripping the state that many have turned to drastic belt-tightening measures to ease the cash crisis, and insurance, inevitably, is an expense that several have decided needs to be cut. The MGA Insurance broker, based in Tamworth, has been fielding requests from clients seeking advice on ways to save on premiums. In some extreme cases, a few even contemplated ditching their covers altogether. It’s an indication of just how grim the situation is. Brokers like Mr Leonard are doing what they can, such as giving fee discounts, to support struggling communities. “Almost 40 years in the business, and I have never seen it this bad,” Mr Leonard tells Insurance News. “Covers that we would normally write such as crop insurance – we did some last season but this season we have done virtually no crop insurance at all. “There is nothing to grow. From talking with clients, they say this is the worst drought they have ever experienced.” NSW winter crop output is predicted to fall 46% to around 3.9 million tonnes this financial year, the lowest since 2006/07, according to the Australian Bureau of Agricultural and Resource Economics and Sciences. “What we have been doing is trying to remarket covers, trying to break things up as best as we can. We have approached underwriters in certain areas to try and look at discounts as well, plus we have cut back on broker fees. In some areas we have reduced some of our commission rates as well to help out,” Mr Leonard says. Crop insurance is not the only line taking a hit. Farm insurance and other products designed for the agricultural sector are on the casualty list too. One of Mr Leonard’s clients, a grazier, asked to reduce the scope of his farm insurance policy. And it is not an isolated request in these unusually tough times.

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“Some of the cattle farmers have destocked. Where they have had livestock insurance, they have cut right back on that or deleted the livestock insurance altogether,” Mr Leonard says. The prolonged dry spell, which is affecting Queensland and parts of Victoria too, has already started to impact the wider rural economy. With harvesting machines idling, no livestock to protect, no crops to take to wholesalers, many see no point in paying to insure items that are not going to be used until the parched conditions ease. And nobody knows when that will be. “We’re a very rural-based community. The drop in income will have a flow-on effect to businesses in the region and therefore it will impact our SME businesses as well,” Mr Leonard says. Apart from reviewing existing farm insurance polices – which protect not just the domestic homestead but also other areas such as farm vehicles, machinery breakdowns and livestock – many have also opted for laid-up covers where premiums are often lower because the insured items are not in use. “They give them a much reduced premium for the laid-up covers but the client has to be aware they can’t take machinery or other things out without first advising us and having the cover reinstated to the full cover,” Mr Leonard says. A rural Queensland client of MGA Insurance, who is a tyre retailer and provides harvesting support services, has terminated all his policies as business has ground to a halt. “There is no harvesting of crops, there are no paddocks to spray and the farmers aren’t buying any tyres so he has actually cancelled his policies,” broker Joe Regan, based in Roma, tells Insurance News. “As a result of no income over a full season, he has gone from being quite profitable to having no money whatsoever.” In times like these, providing sound risk advice to clients is even more crucial. Taking a long-term perspective must be a part of the equation.

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“We want to do what’s best for our clients and maintain the covers they and we feel are most important to them. You don’t want to reduce or cut out covers that are going to cause them hardship,” Mr Leonard says. “If they have a big storm and you have taken the house off or some items or machineries that are damaged in the storm, that will put them in a worse financial position than they were before.” Agricultural insurer Achmea says it is providing as much support as possible to its rural clients. Existing and new clients have been asking the Australian arm of the Dutch insurer for ways to stretch the dollar and its team of risk specialists is out on farms and in rural areas, taking stock of what each client needs. Where possible, Achmea has also sought to free up its risk specialists from administrative work so that they can make more visits to see their clients. “We are out there every day talking to clients and taking the time to get to know their business, find out what the pain points are, and whether they are adequately insured,” Achmea Australia Chief Executive Emma Thomas tells Insurance News. “Our duty to our clients is to ensure that they have that specialist insurance support available, particularly now when they need it most. It’s vital that farmers and growers don’t make financial decisions in haste and later on end up regretting those decisions. “So Achmea has specifically trained risk specialists to ask hard questions of the farmers to ensure that there are no insurance covers on the policies that they don’t need, and that they aren’t trading covers that they should have had.” Ms Thomas recently visited a number of drought-stricken areas where she saw up close the hardships clients were going through. With income streams virtually dried up, revisiting current policies makes good economic sense. “Insurance is more topical during tough times because every dollar is being scrutinised, and rightly so,” Ms Thomas says. “Our clients are speaking to us, and we are out on farms speaking with them most days. When they raise concerns about payment of premiums, we will sit down and see what is tolerable for that individual farmer as opposed to using a one-size-fits-all approach, making sure we are focused on our tailored service to our clients.” Many clients that John Malone, an Achmea risk specialist based in Dubbo, NSW, has met are in no doubt the drought is the worst they have seen in all their years on the land. And many of them belong to families who have owned properties for more than 100 years. “Many areas simply have nothing to compare this to. In

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terms of planning for drought, there’s only so much you can do when you’re in uncharted territory,” Mr Malone tells Insurance News. Driving two to three hours to the properties to assess the situations is what he has been doing. Some clients under his charge are thinking of lowering the sum insured to save on premiums, a situation that may leave them under insured in the event of a claim. It’s a balancing act that Mr Malone and Achmea risk specialists have to manage. They have to find the right balance between adequate insurance and making sure premiums are affordable for clients, most of whom are already financially stretched. “The vibe is drought-driven. Put simply, every dollar counts and having sufficient cover is key,” Mr Malone tells Insurance News. “Our key role is assisting in providing the correct levels of cover for farmers, reducing their premiums while also focusing on mitigating risks before they occur. “We talk to farmers about what they see as key assets and getting them to highlight what worries them. They value the face-to-face conversations we have with them and the time we spend on their farms.” QBE-owned rural insurance specialist Elders Insurance is working on a case-by-case basis with clients. Many of the clients have been suffering from the drought conditions in the last seven years, Elders’ General Manager Andrew Corbett says. “Our agents in the impacted areas are continuing to work closely with and support their local communities. This extends to farmers, but also the businesses and those living in the townships of those communities as well,” he tells Insurance News. “Our approach is very much a local and tailored one. Our agents work closely with and support their local clients to ensure the best approach for their individual situation. This may include payment solutions and flexibility to support those struggling or experiencing financial hardship. We also assist by offering monthly payment terms at no extra cost. “This isn’t unusual for us though. It’s the way we’ve always worked.” The insurer has also donated money to Drought Angels, a charity dedicated to helping farmers and their families, and parent company QBE gave more than $60,000 to a fundraiser for drought-stricken farmers. Mr Leonard of MGA Insurance believes no effort should be spared in helping the farming community during these brutal times. “It’s one of our major industries. Without grain growers, dairy producers, you have to then turn to imports so it is a 0 vital industry to support and uphold,” he says.

October/November 2018


WE ARE COMMITTED TO BEING THERE THROUGH THE GOOD TIMES AND THE BAD When it comes to supporting Aussie farmers, Allianz is here for the long term – not just when the industry is doing it easy. Today’s farmers are scientists, business owners and technology experts. They help feed the nation and the wider global population. So whether they are doing it tough during a drought, facing a rapid rise in agtech, or navigating the impacts of autonomous vehicles, advice from a local insurance broker provides them with the protection they need. Allianz offers specialised agricultural insurance solutions with a wide range of cover for farmers. We also deliver Australia’s widest range of Crop Cover through Primacy. Together, backed by our team of agricultural specialists, we’re here for the long term to support you and your clients in regional and rural Australia. To learn more about our rural and regional offering, speak with your Allianz Representative today.

Insurance underwritten by Allianz Australia Insurance Limited (ABN 15 000 122 850) AFSL 234708. For further details please refer to the PDS. This information is general advice only and does not take into account your objectives, financial situation or needs. Policy terms, conditions, limits and exclusions apply. Before making a decision, please consider the Product Disclosure Statement available www.allianz.com.au/business/farm


Scorched earth Deadly fires have ripped through many countries this year. Australia could be next By John Deex

Devastation: a local stands next to burnt cars after a wildfire near Athens, Greece

30 insuranceNEWS October/November 2018


2018 HAS ALREADY BEEN A YEAR TO

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forget for bushfires. Wildfires – as they are commonly called across the rest of the world – wreaked havoc through the northern hemisphere summer. California has seen almost 600,000 hectares burned and at least 10 deaths this year – the state’s second consecutive horror season. Six of the 20 most destructive fires in California’s history took place this year or last. Even the frigid forests within the Arctic Circle didn’t escape the summer wildfires. At least 11 fires raged in the region, with Sweden hardest hit. In Greece more than 90 people died as fire swept through the country, and even British residents were evacuated as crews struggled to contain a blaze on Saddleworth Moor, near Manchester. Australia, in the midst of winter, didn’t escape the impact of warmer and drier conditions. Fire crews in New South Wales and Queensland battled a concerning number of winter bushfires. Some areas experienced the earliest total fire ban in a decade, and with the last major bushfires in April authorities had just three months between seasons. In September the Bushfire & Natural Hazards Co-operative Research Centre released a worrying outlook for southern Australia, saying most of Australia’s east coast is set for an above-normal fire risk this summer as vast areas of the country continue to suffer severe drought. The centre’s Chief Executive, Richard Thornton, says Australia is looking at “a long and busy” fire season. “It has been unusually dry and warm over the last few months,” he told Insurance News. “When preceding conditions have been like this, and the bush and grass is so dry, it doesn’t take much for a fire to get going once the wind is up, regardless of the season.” Taking recent events into account, many suggest that climate change may have altered our relationship with fire for good. As global temperatures heat up, longer and more severe fire seasons are expected. Dr Thornton says heat, drought, flood and fire “are not new phenomena” for Australia, but he accepts climate change is playing its part. “What is different now is that there is an underlying one-degree increase in average temperatures, which means that the variability of ‘normal’ events sits on top of that. “We are seeing weather records routinely being broken, and all indications are that we are on a trajectory that will see temperatures continue to increase. insuranceNEWS

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“What this means for extreme hazards, we cannot be sure.” University of Melbourne Associate Professor Urban Planning Alan March leads a Bushfire & Natural Hazards Co-operative Research Centre project on emergency management, mitigation and planning. He told Insurance News there was a similar period of dryness prior to the devastating 2009 Black Saturday bushfires in Victoria. “It is certainly a bad year, and these conditions are no longer unprecedented,” he says. “I am always reluctant to talk about climate change, but we are under threat for much longer periods. That is not conjecture, it is fact. “It really does seem that we have to accept a new normal of very long fire seasons.” Understanding the growing extent of bushfire hazards and ways to counter and even co-exist with them leads Dr Thornton to agree there is a “critical need” for further research into weather prediction, land planning, infrastructure development, population trends and community awareness. He says demographic changes are just as important as rising temperatures and deserve equal attention. “Research has identified significant trends regarding a growing and ageing population and population shifts into traditionally hazard-prone areas.” He believes the extension of the fire season, across Australia and the globe, will force a fresh look at how resources are allocated. “With fire seasons lengthening and overlapping across the globe, we need to change and think of new ways of dealing with bushfires, floods, cyclones and heatwaves.

Southern Australia seasonal bushfire outlook 2018

Above normal fire potential Normal fire potential Source: Bushfire & Natural Hazards Co-operative Research Centre

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IT’S A QUESTION THAT MAKES conservative politicians bristle and ordinary Australians worry. But leading scientists say the answer is that it is the wrong question. “Climate scientists cannot say that extreme events are due to global warming, because that is a poorly posed question,” explains Kevin Trenberth, a scientist at the US National Centre for Atmospheric Research. “However, we can say it is highly likely that [extreme events] would not have had such extreme impacts without global warming. “Indeed, all weather events are affected by climate change, because the environment in which they occur is warmer and moister than it used to be.” The direct cause, or source of ignition of bushfires can usually be traced back to “human carelessness”, he says, including dropped cigarette butts and unattended campfires. Natural sources such as “dry lightning” can also start fires. But, he says, global warming raises the risk and increases the impact. Atmospheric scientist at Pennsylvania State University Michael Mann agrees. “We’re not saying climate change is literally causing the events to occur,” he says. “What we can conclude with a great deal of confidence now is that climate change is making these events more extreme. “It’s not rocket science. You warm the planet, you’re going to get more frequent and intense heatwaves. “You warm the soils, you dry them out, you get worse drought. You bring all that together, and those are all the ingredients for unprecedented wildfires.” If some think talk of a “new normal” in our environment is an exaggeration, Dr Mann sees such a way of thinking as an understatement. “It’s actually worse than that,” he says. “A new normal makes it sound like we have arrived in a new position, and that’s where we’re going to be. “But if we continue to burn fossil fuels and put carbon pollution into the atmosphere, we are going to continue to warm the surface of the Earth. “We’re going to get worse and worse droughts and heatwaves and super storms and floods and wildfires.”

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Rising risk: wind-driven flames roll towards homes near Lakeport, California

“The old ways of sharing resources around Australia and with the northern hemisphere may not always be possible, so we need to discover better ways to manage all our resources. Firefighting is still very much done by people, despite advances in technology, and a great many of these people are volunteers from the community. “Our evidence shows that those human resources are now being stretched with the bushfire seasons getting longer, while our emergency services still regularly deal with floods, cyclones and severe storms, plus other demands such as motor vehicle accidents, and search and rescue.” So what should we be doing to counter the increased risk? Should there be tougher rules on where homes can be built, and what materials are used to build them? “Building in some areas is clearly unwise,” Dr Thornton says. “It may be best not to build houses, roads, bridges or other infrastructure in some areas because the risk is unacceptably high. “For bushfire, this means that some locations may be too dangerous, such as on the tops of ridges, surrounded by bush, or with only one road out. “Not coincidently, these are also the areas we often choose to build because we value the location – surrounded by the bush. “Our research shows that many Australians struggle to understand that we live in a country where natural perils exist and that the actions required to increase our safety are sometimes inconvenient and threaten the very things we value. “Fire, flood, storm and earthquakes have always shaped our world, and they remain an inevitable part of living in Australia. “Natural disasters, however, are mostly human-caused because of where we choose to live and work.” insuranceNEWS October/November 2018

Professor March believes current building standards give good results in the majority of cases, but says there are certain highly exposed communities that need extra attention, such as those on slopes or in particularly remote locations. These areas require a “whole of government and whole of community” approach, he says. He also believes residents need to take a greater share of responsibility with ongoing property maintenance, and suggests the possibility of a “point-of-sale assessment”, much as there is with vehicles. “[People buying a property] are alerted to being in a bushfire-prone area, but there is huge variability in how seriously they take that,” he says. “It is difficult for local governments and fire brigades to enforce actions.” Dr Thornton says the challenge is complex, but doing nothing is not an option. “Much can be done to reduce the impacts of natural hazards if we put the effort into working out how to do things differently. “Even if natural hazards are increasing, better mitigation by governments, emergency services and the community will ensure better preparation.” While the Insurance Council says it has yet to record any trend of increasing bushfire claims, Professor March believes it is “highly likely” that the future will bring more frequent and extreme events. “There is still a tendency for communities to see bushfires as random acts of god, or nature, but we should have a different mindset to acknowledge that in fire-prone areas there will be a fire – we just don’t know which year it will happen. “With the ongoing push for tree-change, population growth, as well as the changing 0 climate, this risk is not going away.”

Reuters

Is climate change causing severe bushfires?


We can’t ignore the Genoa bridge disaster The Morandi Bridge collapse reminds Australians our own road infrastructure is ageing By Wendy Pugh

Deadly failure: more than 40 people were killed in Genoa

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THE COLLAPSE OF GENOA’S MORANDI

volumes, increase truck weights, reduce the quantum of inspections, reduce the budgets for inspection and maintenance and think it is all fine,” he tells Insurance News. High-profile bridge collapses blamed on structural engineering failures mostly seem to happen during construction or around commissioning. Earlier this year a pedestrian bridge near completion in Florida collapsed, crushing cars on the road below and killing six people. In Melbourne, a segment of the partially built West Gate Bridge crashed into the Yarra River in 1970, killing 35 workers in Australia’s worst industrial accident. Royal commission findings blamed the design, construction method and unwise attempts to rectify a problem. But now the spotlight is on bridges and other infrastructure that is getting older. The collapse of the Morandi Bridge is suspected to have been caused by

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Bridge, considered a highlight of Italian design excellence in the 1960s, has sent reverberations throughout the world. Australia is not exempt from concern about the safety of our ageing infrastructure. The failure of the landmark Italian structure in August sent cars and trucks tumbling to the ground, killing more than 40 people. The causes are under investigation, with early questions raised over structural issues and maintenance. Monash University Senior Lecturer in Structural Engineering Colin Caprani says the Genoa disaster throws a light on wider issues that shouldn’t be ignored, particularly with about 70% of Australia’s bridges estimated to be more than 50 years old and facing rising traffic and climate pressures. “There is a warning in it for us that we can’t be complacent, that we can’t continue to increase traffic

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“Because the cause of the accident is not yet known, and because the insurance cover is complex, our estimates of the insured loss are at this stage tentative.” Bridge disasters in Australia: Granville, January 18 1977: A crowded morning commuter train derailed in the western Sydney suburb Granville, hitting the supports of a road bridge that collapsed on two of the train’s passenger carriages. The accident killed 84 people and injured more than 213. It remains the worst rail disaster in Australian history. The Tasman Bridge, January 5 1975. A bulk ore carrier travelling up the Derwent River in Tasmania collided with several pylons of the Tasman Bridge that joined north and south Hobart. This caused a large section of the bridge deck to fall on the ship and into the river. Twelve people were killed, including seven crew on board the ship and the five occupants of four cars which fell 45 metres from the bridge deck. West Gate Bridge, October 15 1970: Two years into the construction of the Melbourne bridge, which crosses the Yarra River west of the city, a 112-metre span between two piers collapsed and fell 50 metres to the ground and water below, killing 35 construction workers and injuring 18. A royal commission into the collapse found flaws in the bridge’s design and the builders’ construction methods.

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the corrosion of stainless steel cables that had been encased in concrete – a design feature that 50 years ago was hailed as engineering genius. Dr Caprani says end-of-life failures highlight questions about corrosion and degradation of materials, and the potential for hidden defects to remain undetected if maintenance and inspection isn’t sufficient. He says more public information should be available on the state of Australia’s bridges and their maintenance, while improved funding approaches and the use of more sophisticated mathematical models to assess safety as assets age would also reduce risks. The implications are significant for insurers when there is a failure. JP Morgan Cazenove estimates the total insured loss from the Genoa collapse will be €400-600 million, with the structure causing wider damage as it crashed down over a river, railroad tracks, streets and buildings. The two main estimated exposures are property damage for the bridge and business interruption for the toll operator. There are also liability cover, life insurance and motor insurance implications and the railway line may also claim for business interruption. “Because the cause of the accident is not yet known, and because the insurance cover is complex, our estimates of the insured loss are at this stage tentative,” JP Morgan Cazenove said in a report soon after the collapse. It estimated insured large losses of around €70 million for Swiss Re, €50 million for Allianz and €20 million for Talanx, with various policies likely to be capped. Australian states typically have critical infrastructure self-insurance arrangements in place through organisations such as Insurance & Care NSW (icare) and the Victorian Managed Insurance Authority (VMIA), with reinsurance held through the private market. “For iconic structures such as the Sydney Harbour Bridge that icare insures, we undertake an annual risk engineering inspection,” a spokesman told Insurance News. If any issues arise and the risk profile needs amendment, findings are shared with NSW’s Roads and Maritime Services, the state agency responsible for building, maintaining and repairing roads and bridges. icare says it is confident that high standards are in place. Assets are covered through the NSW Treasury Managed Fund, while the state’s exposure is reduced through reinsurance. “We believe the potential for increasing risk in NSW from events like Genoa is low and do not insuranceNEWS

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“We are keen to understand the cause of the collapse, like road agencies throughout the world, to ensure that those lessons can be shared.” anticipate any major changes in the wider market for insurance cover,” the spokesman says. VMIA, which insures $195 billion of Victorian state assets including the now well-established West Gate Bridge, rail systems, hospitals and cultural institutions, says it has appropriate reinsurance cover for its risk profile and can respond in the event of a major catastrophe. “While our clients are responsible for the maintenance of infrastructure and monitoring and managing associated risks, we regularly work with our clients to help them understand their risks,” a spokesman said. Maintenance of major routes is carried out by VicRoads. Genoa’s bridge, which provided an impressive transport link to southern France, was named after its designer, Riccardo Morandi, and opened in the presence of Italian president Giuseppe Saragat in 1967. Its collapse in the middle of a summer storm shocked the local community, but also occurred amid rising concern over ageing infrastructure in a number of countries. An audit completed in France before the Italian disaster highlighted about 840 bridges at risk in coming years. The situation in the United States, which enjoyed a massive rise in the building of roads and bridges after World War II, may be even more dire. The American Road and Transportation Builders Association estimates nearly 9% of the nation’s 612,677 bridges are “structurally deficient”, and cars, trucks and school buses cross these structures 174 million times daily. 38

The average age of the deficient bridges is 67 years and at the current pace of repair or replacement, it will take 37 years to fix all of them, the association says. In Australia ownership and responsibility for bridges is complicated by a typical array of state and federal bodies and a mix of public and private involvement. But Austroads, the peak organisation for Australian and New Zealand road transport and traffic agencies, has undertaken a number of studies and has projects under way to improve bridge safety. These include looking at bridge assessment methodology and modelling, weight loadings and maintenance management. It is also keeping an eye on developments from Genoa. “We are keen to understand the cause of the collapse, like road agencies throughout the world, to ensure that those lessons can be shared with our member agencies,” a spokesman said. Separately, the Federal Government is funding a $480 million bridges renewal program that is targeting older rural and regional structures. Marsh Infrastructure Practice Leader Antony Butcher says that with more private-public partnerships and privatisations, there is increasing involvement for the insurance sector all the way from project bidding to the operational phases of major new road infrastructure projects. Close government involvement and stringent project agreements would mean plenty of interaction between the statutory insurance bodies and the private sector in the event of any failure of a significant structure. The wider impact of the Genoa incident remains to be seen but, as in the case of any catastrophe, there will be a careful look at possible lessons and repercussions. “You don’t really know until the exact cause is known, but I am sure that a lot of insurers and reinsurers are examining their books at the moment and determining their exposure,” Mr Butcher says. If failings in manufacturing, design or maintenance processes are found, there is also a role for the insurance sector in working with other parties to promote mitigation and ensure risks can be transferred to the market. Dr Caprani warns that wherever blame is laid in Genoa, the findings won’t take away the need to be vigilant in Australia, even if the factors of the Italian disaster are not seen as locally relevant. “You can get lulled into a false sense of security,” he tells Insurance News. “Every year we avoid a bridge 0 collapse is not more evidence that they are safe.”

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Work still to do The Dive In Festival goes from strength to strength, but the war is not yet won By Bernice Han

LLOYD’S DIVE IN FESTIVAL IS GETTING bigger every year – a sign that efforts to promote industry-wide diversity and inclusion have gained significant momentum since the event’s launch in 2015. But the playing field is still far from level for many out there as Lloyd’s outgoing Chief Executive Inga Beale, the driving force behind Dive In, will attest. Ms Beale, who came out as bisexual in 2008, recently told a UK newspaper she copped a barrage of sexist and homophobic abuse when she became the first woman to take the top Lloyd’s role in 2014. A Macquarie Bank survey on diversity within the Australian insurance industry, unveiled at Dive In, turned up some heartening results, but other areas score poorly. Gender imbalance remains an area that requires more effort. While women make up 49% of the 2031 survey respondents, just 2% held C-suite roles and there were no female chief executives. In contrast, about 7% of the male respondents were chief executives. None of the questions relating to how company activities and services promote diversity and inclusion passed the 50% threshold. For instance, only 14% felt external event sponsorships and partnerships were in the direction of promoting diversity and inclusion, 29% felt likewise for community volunteering, and 26% for internal information and communications. Eoghan Trehy, national head of insurance at Macquarie Bank’s business banking, tells Insurance News “there is still a way to go in terms of executive sponsorship”. But the survey, which follows on from last year’s inaugural edition, shows “encouraging progress” in other areas, he says. 40

Sexual orientation at work

Completely out Total

88% +5%*

LGBTl

64%

Only to a few close friends 3% +1% 22%

Not at all

Prefer not to respond

5%

7%

12%

2%

Source: Macquarie Bank Insurance Industry Diversity & Inclusion Survey *Denotes change from last year’s inaugural survey

About 75% believe their executives are committed to diversity and inclusion in the workplace, up 8% from last year, and the proportion who strongly agree went up four percentage points to 28%. Around 74% say comments focusing on personal characteristics are not tolerated within companies, 77% feel equipped to manage diversity and inclusion, and 80% are satisfied with their level of flexibility at work. More than 70% believe their point of view is welcomed and 62% say a diverse workplace has a positive impact on performance. Asked to describe their sexual orientation, 4% are attracted to the same sex, 2% are bisexual, 88% are heterosexual and 6% prefer not to say. About 64% who identify as lesbian, gay, bisexual, transgender or intersex are completely open to colleagues about their orientation. insuranceNEWS

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-2%


“It is shameful that Australian women working full-time need to work for, on average, an additional two months to earn what men earned in a year.”

Around 49% have caring responsibilities and 6% have a psychological condition such as depression or bipolar disorder. Insurance bosses who attended an inaugural roundtable in Sydney held as part of the Dive In Festival voiced support for greater diversity in the industry. The brainchild of Willis Towers Watson, the Sydney event saw a strong turnout from the likes of Lloyd’s Australia General Representative Chris Mackinnon, Insurance Council of Australia Chief Executive Rob Whelan, Zurich Chief Executive Tim Plant and Gallagher Chief Executive Sarah Lyons. “The theme for the event was managing for diversity at the leadership level,” Andrew Boal, Head of Australasia with Willis Towers Watson, tells Insurance News. “We’re trying to have a conversation with the insurance industry about what challenges we have all been facing in [providing] diversity at the leadership level and what actually we can take forward going into the future to make that change. “And we are very encouraged that we had such a fine turnout of CEOs across the industry to discuss the topics and the discussion was very engaging.” When it comes to pay, women continue to get less nationally, and the financial and insurance services sector has the worst record with a 26.6% salary gap, the Workplace Gender Equality Agency reports. Across all industries women working full-time are paid about $1433.60 on average a week, almost 15% lower than their male counterparts, the agency says, as it calls on employers to close the pay gap.

Diversity and inclusion in the workplace Tone from the top

28%

75% +8%

+4%

47%

Believe their executives Strongly Agree show commitment to D&I agree Diversity

23%

74% Believe their point of view is welcomed

18%

-4%

51%

Strongly Agree agree

5%

-6%

2% -1%

Neutral Disagree Strongly disagree

17%

6%

3%

Neutral Disagree Strongly disagree

“Women’s work is undervalued and this prevents them from reaching their full potential in the workplace,” Director Libby Lyons said. “This is detrimental for both individual women and the economy. It is shameful that Australian women working full-time need to work for, on average, an additional two months to earn what men earned in a year.” This year’s Dive In Festival attracted more than 1000 attendees to events spread out over three days in Perth, Adelaide, Melbourne, Sydney, Brisbane, Auckland and Wellington. Topics discussed were centred around the festi0 val’s global theme of #time4inclusion. insuranceNEWS

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Cautious optimism The global economy is moving along nicely at present, but that doesn’t mean all our problems are over By John Deex

FIRST, THE GOOD NEWS: TEN YEARS after the Global Financial Crisis struck, the global economic outlook is “extremely positive”, according to Swiss Re’s new Chief Economist, Jerome Haegeli. Underlying economic growth improved strongly last year, and should continue to do so this year, putting upward pressure on inflation and interest rates. And the bad news? According to a recent Swiss Re Sigma study, higher inflation and interest rates won’t be enough to close the general insurance profitability gap. The report says underwriting margins need to improve by about 6-9 percentage points in major Western markets if current shortfalls are to be addressed. However, Australian insurers are better off

Trade giant: vast numbers of containers sit at Yangshan Port, Shanghai. Trade war between China and the US remains a major threat to the global economy

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than their counterparts overseas, with only a one percentage point improvement required. Dr Haegeli says the current stronger economic conditions should see interest rates in mature markets continuing to rise moderately, “which should support insurers’ earnings through higher investment returns”. “[However], macroeconomic developments alone are unlikely to generate sustained improvement in non-life sector profitability. “The trend of declining investment yields has bottomed but at the same time, the increase in long-term interest rates that we foresee is not substantial.” At the start of the year Dr Haegeli took over as Chief Economist at Swiss Re from


Kurt Karl, who had held the role for more than six years. Speaking to Insurance News during a visit to Australia in August, Dr Haegeli explained that while the economic outlook is positive, caution is required. Swiss Re forecasts 2.9% growth this year for the United States, and 2.8% for Australia – a significant improvement on 2.3% last year. But President Donald Trump’s controversial fiscal stimulus moves in the US could result in a hangover as soon as next year, and the increasing risk of a trade war with China is also casting a significant global shadow. Dr Haegeli says the US stimulus is “coming at the wrong time”, providing the country with a “sugar hit” that will cause difficulties down the road.

“The US is almost doing too well, and providing too much sugar. It is almost on a sugar high. “If you give children too much candy, they get used to it, and when you take the candy away it’s not easy. “I don’t know if the US economy will have a hangover in 2019, but definitely it will be a different environment, because fiscal stimulus won’t be there so much anymore, and the central banks will continue hiking rates.” On the upside – and there’s apparently plenty of that – “all major regions have… growth figures north of their potential. Corporate earnings are great, the global economy is at its best, and that’s great news; we should welcome it.

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“But let’s not be foolish. Quantitative easing has helped asset prices, and when quantitative easing is not there any more the direction of growth in most of the advanced economies and regions [will be] softening and lowering to more sustainable levels.” Dr Haegeli says a China-US trade war is one significant risk, while inflation is a big unknown. He expects next year will still see moderate growth, but warns we should prepare for the unexpected. “What if we don’t have the productivity growth that most expect? The figures tell us that productivity growth today is not where it has been before the Global Financial Crisis. “What if growth is low and at the same time inflation is higher? That would definitely

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“Everybody loses if the trade war escalates. This is the number one risk factor to watch.” Mind the gap CLOSING THE PROTECTION GAP IS A key issue for Swiss Re Chief Economist Jerome Haegeli. He believes it is in everyone’s interest to narrow the gap, through increasing insurance solutions. “Without insurance New York would not have been built, without insurance households would not be able to take the economic risks that we are able to take. There is a lot to gain from increasing insurance penetration.” The global pension gap is a good example. “I don’t see any government tackling it. The gap today is $US70 trillion and growing by 5% every year. “I do believe we need more insurance solutions [and] more private market solutions. “The same goes with infrastructure spending, which has been a hot topic in Australia. If you spend one dollar on infrastructure, over time you get three dollars of output. “We need to have more infrastructure spending and private market solutions because governments all around the world are indebted. “We need more infrastructure investment because we need to make our economies more productive. Governments spending more money is not the solution. Today’s global debt situation, at 225% of world GDP, or $US150 trillion, is unsustainable.” Mr Haegeli says the global natural catastrophe protection gap is about $US200 billion, with exposure worse in low to middle-income countries. “They don’t have physical buffers or the access to private capital markets.” That’s why he believes insurance solutions are so important, and why money needs to be spent now to protect against natural catastrophe events. “When you have nat cat events and you don’t have access to capital markets and your budget is overstretched, the consequences can be much more severe on top of the already existing human tragedy.”

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be bad news for the insurance market, markets overall and households as well, as purchasing power is low.” Dr Haegeli singles out geopolitical risk as a major concern, as highlighted by Swiss Re’s annual Sonar report on emerging risks. Strong growth figures might lead to assumptions geopolitical risk is not affecting Australia, but he says this is not the case. “I believe if geopolitical risk had not been as high, growth would even be higher, globally,” he says. “It is multi-faceted. There is the trade war between China and the US. This is one factor to worry about in Australia, given the strong relationship with China as the biggest export market for Australia. “Another factor is populism. You see more and more populist parties coming to power, and more extreme parties coming to power than in any time in the past 20-30 years. That is quite extraordinary.” He sees rising economic inequality in advanced economies being a major driver of this political trend. “Globalisation may not be a win-win for all households, especially those on a low income. That is why you see people voting for more populist governments.” Dr Haegeli says the rise of China, and associated change in the superpower structure, has increased global tensions, and the US trade policy uncertainty index is at its highest level since 1994. “Everybody loses if the trade war escalates. This is the number one risk factor to watch. If it escalates further there are simulations that show that global growth would be lower in the order of 2% or 3%. “If it escalates that would bring the global economy close to a recession, no question about that.” And then there’s Brexit. Dr Haegeli sees this as a key risk for Europe – whether it goes well for the UK or not. “If it plays out disorderly it’s not just bad news for the UK but clearly bad news for insuranceNEWS

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continental Europe, because London is a financial centre. “It is hard to see how Brexit can be positive either for the UK or continental Europe.” In terms of insurance pricing, record natural catastrophe losses last year have led to an improvement. Dr Haegeli says we have reached a turning point, but there is not yet full hardening of the market. “The cycle might have got longer but the good news is the cycle has not vanished, and prices are firming. “Last year there were record losses but they were not outside the modelled spectrum of potential outcomes. “If you really want to see a hard market you need to have a combination of unrecognised, unmodelled risks, a negative claims trend, asset shock reducing capital earnings or even adverse development of prior-year claims. “You need a combination of all of them and we certainly don’t see all of them in place.” And while interest rates are rising this does not mean that alternative capital is about to disappear. Much higher increases in rates and much more global economic growth would be needed for alternative capital to look for other, more attractive homes. “For now, alternative capital is here to stay,” Dr Haegeli says. More capital leads to more competition, but Swiss Re says that’s no bad thing. “It can make you fitter and increase market breadth. I don’t wish for capital to vanish so there would be less competition. “Competition makes us more risk-conscious – it makes us look for more opportunities and use technology. “We don’t want to stand still. There are lots of opportunities out there not just in traditional places – and not just by tradi0 tional means.”


Insurance Australia

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


Low income, low priority Australia’s general insurers are struggling to come up with viable solutions for the people who need them most By Benjamin Levy

Under pressure: insurance can be unaffordable for those struggling to make ends meet

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THE INDUSTRY HAS GRAPPLED WITH providing sustainable insurance products for people on low incomes for years. In 2013 microfinance and financial wellbeing organisation Good Shepherd Microfinance put out a discussion paper noting a range of barriers to developing sustainable low-income insurance products. It included poor marketing, the poor financial viability of existing low-income products, mistrust and affordability. Five years have passed, and these same intractable challenges remain. The industry has previously tried to introduce low-income insurance policies. A product introduced by Good Shepherd in conjunction with Allianz and NAB, under its Good Insurance program, was withdrawn for lack of interest. IAG launched the trial product InsureLite in 2015 for families wanting a cheaper home insurance policy. It provided a new home built up to a value of $150,000 or $200,000, low annual premiums, and no excess. It discontinued the product late last year after two years of little consumer interest. IAG also launched Insurance 4 That as affordable insurance cover for single items. The insurer worked with Good Shepherd and a range of local community providers to distribute the product, but found Millennials and general renters more interested in the product than those struggling to make ends meet. It has since adapted the distribution model to target a wider range of customers. A report last year from the Brotherhood of St Laurence called for the industry to increase the number of insured low-income drivers through stamp duty reforms, an awareness campaign, and extensions to third party cover. Senior Manager Tony Robinson said the industry needs to rethink motor insurance because many couldn’t afford to insure their

vehicles yet were dependent on them for daily living. There appears to be a lack of trust on both sides, which is suffocating any chances of developing products for this market. Suncorp worked with Good Shepherd, legal aid organisations and RMIT to create affordable car and home and contents insurance policy Essentials in 2015. The concept of Essentials was to educate customers about insurance when they went to one of Good Shepherd’s community-facing Good Money Stores to get a small no-interest or low-interest loan, and they could then access the policy in-store. “The reality is that people don’t trust us,”

“There is a view, rightly or wrongly, that people on low incomes are high risk.”

says Annabelle Butler, Suncorp Executive Manager, Accessibility. Trust becomes even more important for a low-income person who has to give up a bigger proportion of their salary to insurance, she tells Insurance News. By using Good Shepherd, Suncorp could build a feeling of trust with the customer, Ms Butler says. Trust is at a low ebb at the moment. Senior Policy Officer for the Consumer Action Law Centre Susan Quinn tells Insurance News unfair claims outcomes have had a lot of attention recently and dented trust in insurers. That can impact whether people think it’s worth paying for insurance. The industry also has a pessimistic view of low-income earners. “There is a view, rightly or wrongly, that people on low incomes are high risk,” Ms Butler tells Insurance News. insuranceNEWS

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Essentials was created partly to combat this misconception. Suncorp had been thinking about how to develop a viable product for this group of people for some time. It wanted to take an industry-leading position and bring the industry with it, Ms Butler says. Denis Nelthorpe – CEO of Melbourne legal aid organisation WEstjustice – says there is an incorrect industry view that consumers won’t be able to maintain premium payments, or will make lots of claims. “It suggests that there are these long-term, inbuilt prejudices within the industry that makes it hard for the industry to recognise that we must have huge numbers of uninsured drivers driving low-value cars,” he says. There are huge numbers of uninsured drivers on the roads. The Brotherhood report noted that 2.3 million vehicles go uninsured, and motorists are paying $1.3 billion more than they would if everyone bought policies. Insurance News asked an Insurance Council of Australia (ICA) spokesman if there was an opportunity to offer cheaper insurance policies geared to those on low incomes. ICA says if insurers see an opportunity in responding to untapped demand they are “likely to develop appropriate products”. But that depends on underwriting criteria and normal commercial factors, the spokesman says. Some consumer groups and legal aid organisations question why insurance products for low-income earners are not advertised more widely to raise awareness that products are available. They aren’t getting answers. ICA says advertising is a matter for product providers, and IAG referred all questions about advertising to its distributors. Suncorp seems to have made a deliberate decision to eschew advertising. Both Ms Butler and Good Shepherd Innovation Lead Mark Morand say they 47


wanted to develop another approach to buying insurance. Good Shepherd’s role is not to sell or promote products, but to raise awareness of the need for insurance. It falls within its wider role of increasing financial wellbeing among people on low incomes. “If they come in there, and they’re having a conversation about buying a car, or a fridge, or washing machine, then we know that’s a teachable moment for financial literacy,” Mr Morand tells Insurance News. Traditional advertising isn’t going to meet the intention of Essentials itself, Ms Butler says. The relationship Suncorp has with Good Shepherd and financial counsellors works, but it would never be a mass distribution model, Ms Butler says. Essentials is distributed through about 20 organisations, including the Salvation Army. It has only 1855 customers as of June this year. While Ms Butler tells Insurance News she finds the low take-up frustrating, this is where the lack of trust comes into play. If people don’t trust insurers then they won’t pay attention to traditional advertising. “There’s 2000 people to date who are trusting us more than they were two years ago.” Mr Nelthorpe says WEstjustice provides a minimum of 10 appointments every fortnight for uninsured drivers in car accidents. “If you multiply that by 200 or 300 legal centres across the country, that means that there are an enormous number of drivers who fit that description,” he says. Financial Rights Legal Centre policy officer Julia Davis tells Insurance News it isn’t clear if insurers are afraid to widely advertise a cheap policy for fear of cannibalising their mainstream policies, or if they fear the risk of mis-selling to the wrong market.

The centre’s view that products weren’t heavily advertised is anecdotal, she says. Mr Nelthorpe tells Insurance News he feels that if insurers advertise a light version of an insurance product, then people on higher insurance coverage could drop to the cheaper policies. Insurers have to develop affordable, viable products before they can advertise, but it doesn’t seem like anyone is in a rush to do so. The industry needs to be more willing

“IAG knows that people’s needs continue to change. They are always looking at how we adapt and provide products and options to suit our customers’ needs now and in the future,” a statement from the insurer says. There is an industry belief, according to Mr Nelthorpe, that low-income earners don’t have the ability to pay premiums long-term. All the evidence is that people such as pensioners are very good payers, but they need payments that suit them, like Centrelink’s CentrePay, Mr Nelthorpe tells Insurance News. He says his understanding is that the drop-out rate on monthly payments is quite high. If you amend the product to fortnightly payments and a payment mechanism with a proven track record, the economics and affordability of that product would improve remarkably, he adds. Essentials is linked to CentrePay, and customers can choose to pay premiums on a fortnightly, monthly or annual basis. IAG’s Insurance 4 That can also be paid on a weekly, fortnightly or annual basis. An ICA spokesman says that policies are priced according to risk, and that the fastest way to reduce the cost of insurance is for state and territory governments to drop their punitive insurance taxes. Mitigation and resilience measures in natural disaster-prone areas would also improve premiums for the most exposed households, the spokesman adds. A new insurance product is never going to be in the black for the first two years, Ms Butler tells Insurance News. But in the longer term, Suncorp could prove to the industry that these products are a good idea, she says. “How many of my fellow insurers will 0 wish to follow us? I have no idea.”

“There is a market that the industry just hasn’t been sure how to meet, and is concerned about losing people from the comprehensive market.”

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to provide such products, Mr Nelthorpe tells Insurance News. But of course insurers are businesses, not charities, and may be reluctant to push resources into an area that could fail to reap any rewards, or worse still damage their existing products. “My feeling is that there is a market that the industry just hasn’t been sure how to meet, and is concerned about losing people from the comprehensive market,” he says. Although IAG provided a statement that it was taking into consideration what it learned about the failure of InsureLite as it explores further product development, a company spokesman had no information as to what it had learned. IAG’s approach to developing products for low-income earners is more of a broadbrush approach to all its customers. insuranceNEWS

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Opening the Black Box: Testing the New Australian Catastrophe Models By Michael Owen, Head of GC Analytics, Asia Pacific; and Rob Fortune, Senior Vice President, Cat Modelling, Pacific; Guy Carpenter & Company, LLC

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o incorporate new scientific data and claims insights, some of the major catastrophe risk modelling providers recently completed updates to their earthquake and tropical cyclone models for Australia – the first significant updates in over a decade. These commercial models provide critical guidance to insurers making decisions about selecting and pricing risk, purchasing reinsurance and managing capital. Given the importance of these models, insurers must do their best to understand the underlying assumptions within them and the degree to which they can accurately assess exposures. Guy Carpenter is currently testing the new versions with individual clients to help them better understand the model updates and how their portfolios respond to the changes.

A Closer Look at the Updates

Earlier this year, RMS announced its Version 18, the latest update of its catastrophe risk management software, which significantly strengthens the model’s offerings for the Asia Pacific region as a whole. For Australia specifically, RMS’s Version 18 features important updates for tropical cyclones and earthquakes. The updated cyclone model incorporates recent market and meteorological data from major events in the last decade, including Cyclone Debbie, which struck the Queensland coast in March 2017 and was the second most expensive cyclone in

Australian history with losses of US$1.3 billion (A$1.7 billion). RMS notes that property at risk for damage by these storms has grown over the last several years with the number of dwellings within 200 kilometres of the coast increasing by 15% between 2006 and 2016. Regarding earthquakes, RMS was not the only vendor to update its model for that risk. Risk Frontiers, a modelling firm based in Australia, also announced a new seismic hazard model in August. Both of the new models are rooted in the latest data from Geoscience Australia, the government agency focused on geoscientific research. The agency recently revised its Australian earthquake catalogue based on its 2018 National Seismic Hazard Assessment project that also supports updates to national construction codes. Compared to the previous iteration, the agency’s new catalogue reduced the number of earthquakes exceeding 4.5 in magnitude since 1900 by more than half due to adjustments in magnitudes. AIR Worldwide, another global modelling vendor, made changes to its Australian models for tropical cyclone, earthquake and bushfire in 2017. At that time, it also added a new model for severe thunderstorms in the country and the perils those storm events incur – hail, tornado and straightline wind. The model was developed based on historical data, as well as local and seasonal weather patterns.

For more information, please visit guycarp.com or contact your Guy Carpenter broker


ADVERTORIAL

Guy Carpenter’s Model Suitability Analysis (MSA)®

Over the last few decades, commercial catastrophe models have become increasingly sophisticated, backed by new scientific discoveries and more granular data from past claims. Despite these improvements, models may still miss significant loss drivers for a particular peril, and we’ve seen this happen with earthquakes in the Asia Pacific region in the last few years where liquefaction and high-intensity events were not included in some models and ultimately caused major losses. To the extent possible, insurers want to anticipate any gaps in models – both those that apply to the industry as a whole as well as for individual portfolios. Because these models are developed with data from multiple engineering sources, insurers with different underwriting and loss adjusting practices and other sources, they are not a perfect fit for any single insurer, unless that specific insurer’s data was heavily used to guide the model vendor’s development methodology. Therefore, testing the model is imperative. Through its Model Suitability Analysis (MSA)® initiative, Guy Carpenter helps clients with the effort to dig deeply into a model, apply a series of tests to evaluate the model’s accuracy for their risk situations and ultimately decide how and when the model can be used to define their internal views of catastrophe risk. Our modelling team opens these “black box” models by testing them against benchmark data sets, historical loss data and other sensitivity measures to determine if the updated modelling results make sense for specific portfolios and perils. For example, with tropical cyclones, our team compares the modelled number of cyclones per year, the intensity of events and the locations of landfall to see how well they compare to historical data and other reference data sets. Actual claims from recent cyclones, especially the most recent large event with Cyclone Debbie, are essentially the most important model validation tool. By examining the modelled losses of exposures at the time of an event and comparing

that to the actual claims data (taking care to ensure they are stated on the same basis), we are able to see how the model performed for a specific client portfolio experiencing a major cyclone event. In the areas where the modelled results align with actual claims data, the insurer can put more stock in a model’s reliability; however, differences between the simulated and actual results can shine a light on where the model may not be reflecting exposure precisely enough. Testing for suitability of the earthquake models can be difficult given that Australia has relatively low earthquake risk compared to other locations, such as neighbouring New Zealand. There may not be much historical loss data to test against, especially for major earthquakes in well-populated areas. In those cases, we can compare the modelled results to earthquake hazard estimates published by the Australian government and other sources, including data from other countries with adjustments made to reflect local conditions. In addition, more datasets are emerging for ground motion caused by earthquakes of moderate magnitudes, so we are looking at how the model results stack up against that information as well.

Still in the Early Stages

There’s no doubt that commercial cat models are important to insurers, with underwriters using models to price risk and leadership drawing on them to develop strategy. But insurers cannot blindly trust an off-the-shelf model; rather they must fully understand and “own” how these risk quantification tools apply to their portfolios. In fact, regulators require that insurers demonstrate their understanding of the models they use and how their results justify their reinsurance arrangements. We are still in the early stages of testing the new model changes in Australia in a comprehensive fashion, and the market hasn’t reached a consensus yet about the validity of the updates. We will continue to put these models to the test to make sure they are strong enough to bear the weight of our clients’ risk management decisions in the years to come.

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


Out of control: uninsured drivers are pushing up premium costs

The road to ruin Driving without appropriate cover can turn even a minor crash into a major headache for all involved By Andy Swales

FOR MANY PEOPLE, GENERAL insurance is bought begrudgingly, forking out hard-earned cash for a product we hope never to call upon. But even if our homes somehow remain blissfully unflooded and unburgled, chances are all of us will make a claim at some point – most likely on the road. Driving without holding at least thirdparty property insurance (TPPI) is a serious gamble, but according to some observers it is a major and growing problem. Research published late last year by poverty campaign group the Brotherhood of St Laurence estimated (using vehicle registration and the prudential regulator’s vehicle insurance data) that 11.9% of vehicles in Australia lacked insurance coverage, equivalent to 2.3 million drivers. By its calculations, this meant insured drivers paid about $1.3 billion more for their coverage than they would if motor vehicle insurance were universal. As QBE says, accidents involving uninsured drivers can hit insurers’ bottom lines, and in turn affect policyholders’ premiums. “Attempting to recover costs from an uninsured third party that has damaged the property of an insured can be a lengthy process for the insurer involved, and doesn’t always result in the recovery of funds,” a spokesman tells Insurance News. 52

“Once the claim is processed and approved, the insured’s costs are paid by their insurer. However, these funds may not always be recoverable from the at-fault third party. “For example, QBE follows the financial hardship guidelines and may allow third parties to delay payment, pay via instalments or, in extreme hardship cases, have their debt waived. This means in some circumstances, costs are completely absorbed by the insurer.” The words “extreme hardship” point to one obvious reason why many drivers hit the road without property insurance. Brotherhood of St Laurence Principal Research Fellow for Work and Economic Security Dina Bowman has conducted a separate study on the way financial hardship influences decisions around risk and insurance. For her research subjects in low-income areas of Melbourne, small yet high-impact risk is “an everyday thing”, and she tells Insurance News motor cover can fall well down the list of priorities. “Will your car get to where you want to go, will $5 of petrol last, will the tyres last, will it break down? All these kind of risks – what can you put off and what do you absolutely have to pay? Often, insurance is too distant, and so they are [instead] dealing with the immediate.” insuranceNEWS

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Her research report argues poorer households are having more “financial and emotional” risk piled upon them due to “rising income inequality, less secure employment and more conditional access to welfare payments”. She likens it to a juggling act, in which risk mitigation may mean “saving on food costs by a parent quietly forgoing dinner” to cover the cost of “a lost school tie or… a new car battery”. Dr Bowman also notes: “The trend in private insurance towards a more granular rating of each individual’s risk is rapidly gaining pace. In a social and economic context where fewer people will be treated as ‘average risk’, far more Australians will soon be unable to afford insurance or will be assessed as uninsurable.” Taxicare, a licensed mutual serving the taxi industry, has issued a call for action on the “enormous problem” of uninsured drivers. General Manager Australia Don Storace has written to government figures urging an end to insurance stamp duties to reduce premiums (a common rallying cry industry-wide), plus a more radical overhaul: steps to make TPPI compulsory, in line with overseas markets such as the UK. “Millions of dollars are lost a year in unclaimed or unrecovered damages from


“Motor vehicle owners who do not have insurance that covers them for third-party property claims risk significant financial stress if they are involved in an at-fault claim.” uninsured third parties,” Mr Storace tells Insurance News. “It’s a catch-22: the more we don’t have something such as compulsory third-party property, the greater the problem becomes. “Insurance becomes completely unaffordable, because [policyholders] are going to be paying for an insurance company’s inability to recover their costs through uninsured third parties: nine times out of 10, if you don’t have insurance on your vehicle, then you probably don’t have a lot of money.” He says the results of compulsory TPPI reform would be almost “instantaneous”. “If all of that were to change tomorrow… from that day you would see a dramatic change [in premiums]. The market would change almost overnight. “Premiums would definitely stabilise, and insurance companies could probably think about charging a little bit less.” Mr Storace identifies another possible reason for the insurance gap: confusion around the extent of compulsory third party (CTP, or greenslip) personal injury cover that accompanies vehicle registrations. “There is a small percentage of people who believe they have property cover,” Mr Storace says. “We’ve had scenarios where we’ve contacted the third party… we get their [insurance] details and then we have

to tell them, ‘This is your CTP – it doesn’t cover you for that.’ ” He wants an awareness campaign outlining the differences between CTP and wider third-party property cover. QBE’s spokesman says: “Communicating the benefits and limitations of insurance cover to customers and potential customers is key to encouraging drivers to take up policies that protect them appropriately. Communicating technical or complex information in a digestible way so customers understand what their policies do and don’t cover them for is also key.” He says it is important that insurers work with the Insurance Council of Australia (ICA) and government bodies on consumer education. The Brotherhood of St Laurence backs calls for a CTP awareness campaign, and the removal of stamp duties from premiums. It also recommends action to standardise across all TPPI policies the “inconsistent” uninsured motorist extension, available on some TPPI covers and providing a degree of protection for drivers if their vehicle is damaged by an uninsured motorist who cannot pay. This “would benefit many low-income Australians who cannot afford to purchase comprehensive coverage”. On previous government investigations insuranceNEWS

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considering compulsory TPPI schemes in Australia, mostly in the 1970s, ’80s and ’90s, it notes: “For governments, the costs of a new mandatory scheme have always to be weighed against the benefits created. For insurers, any mandatory scheme risks undercutting the market share and product diversity they have worked to establish, particularly if that mandated scheme involves a government provider as opposed to forprofit providers.” ICA General Manager Communications and Media Relations Campbell Fuller says the peak body “does not believe third-party property policies should be mandatory” for vehicle owners. “Individuals should be free to make decisions about insurance products that best meet their financial resources and risk analysis,” he tells Insurance News. “However, motor vehicle owners who do not have insurance that covers them for third-party property claims risk significant financial stress if they are involved in an at-fault claim.” He says ICA’s Understand Insurance website helps inform motorists about the role third-party property and comprehensive policies play. ICA does not have data showing how much uninsured motorists add to the cost 0 of claims. 53


A different take on ratings AM Best wants to grow its local footprint by bringing its unique methodology to Australian insurers By Terry McMullan

AM BEST IS THE ONLY RATINGS agency to specialise solely in insurance, which gives it a few advantages when it comes to drilling down into an insurer’s operations. While the US-based company has had a relatively low profile in the Australian market over the past few years, it has nevertheless continued to work with a number of local insurers. But it will take on more prominence with the recent appointment of Doron Grossman as the ratings agency’s Director, Market Development – Southeast Asia. Singapore-based Mr Grossman took up the appointment in August after 18 years at QBE in a variety of locations and roles, most recently at its Singapore office as head of distribution – Asia Pacific. Best known to brokers as the founding chief executive of Insurance Brokers Network Australia, he has been charged with further developing AM Best’s business activities and profile across Southeast Asia, Australia and New Zealand. Apart from his long familiarity with those markets, he is moving into the role with the strength of a global heavyweight at his back. “In the US, AM Best is head and shoulders above the competition in terms of market lead, and it’s a company you’ll find operating in all of the major insurance markets,” Mr Grossman tells Insurance News. He says he is looking forward to bringing the company’s insights and experience to more Australian insurers. “I think there is a lack of awareness or even a perceived need for an insurer to have an AM Best rating, because there

Digging deeper for more accuracy: AM Best’s Doron Grossman

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“The company’s ratings system provides a deep insight on all the different facets underpinning the financial strength of the insurer.” is no catalyst or trigger in the Australian market for them to have one. I hope I can help to change that.” He cites as an example the use by brokers of unauthorised foreign insurers, many of whom “are certainly not rated, or even compliant”. Mr Grossman says the company’s ratings system provides a deep insight on all the different facets underpinning the financial strength of the insurer. AM Best analysts work closely with insurers’ management teams during the interactive rating process “to ensure they fully understand the business and are able to provide an independent and expert opinion on the company’s financial strength”. “We don’t just look at a company’s annual reports. The way we conduct

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our analysis is much deeper than just assessing balance sheet strength. Balance sheet strength is just one of four building blocks that we look at, as part of the rating process.” The three other “building blocks” are operating performance, business profile and enterprise risk management, “which is a major issue on all company directors’ tables at the moment”. Mr Grossman says he will work to build awareness among Australian directors in all industries of the need for them to have greater detail about the standing of insurers that provide cover to their companies. “This is something that should be on every board’s agenda – to say to their broker, we don’t want a company insuring our business that is not rated.” That may take a while. In the meantime, one of his first priorities will be to grow AM Best’s footprint in the Australian insurance market. “The first step is to raise the awareness of the importance of having a rating, and then build on the reputation we already have.” Mr Grossman wants to work with such bodies as the Australian and New Zealand Institute of Insurance and Finance “to make ratings part of the education process [because] insurance professionals need to better understand the value a credit rating adds to the business of the insurer”. The appointment of Mr Grossman – given his familiarity with the Southeast Asian and Australian markets – can be viewed as demonstrating AM Best’s commitment to the region and to Australia. 56

“Knowing the market really well is a big advantage”, he says. “We opened our Singapore office in 2015. We already have a presence in Hong Kong, which is well established, so our investment and staffing on the ground does show our support for clients in the region.” Apart from rating a significant numbers of insurers and reinsurers in Asia Pacific and Southeast Asia, Mr Grossman says AM Best has a strong presence in niche sectors, with its methodology also covering niche sectors such as takaful and captives. “We are the market leaders globally in terms of rating captives – it’s a specific strength of ours. We rate 200 captives in total, including a growing number of captives domiciled in the region.” Another of AM Best’s unique features is its ability to rate start-up companies in the industry. “We have a specific methodology and expertise in the industry which enable us to rate new companies. It is a big differentiator for us.” AM Best is also unique as it operates a “country risk tier” system as part of its ratings process. This is another important differentiator in its ratings, identifying relevant factors within a country that have an impact on a company’s ability to operate effectively and perform. A country’s sovereign rating is only one of the factors that are considered while assessing country risk. “Country-specific factors could adversely affect an insurer’s ability to pay its financial obligations,” Mr Grossman says. “Sovereign default risk is the probinsuranceNEWS

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“This is something that should be on every board’s agenda – to say to their broker, we don’t want a company insuring our business that is not rated.” ability that a sovereign government does not pay back its debts on time and in their entirety. So AM Best’s rating methodology doesn’t cap the credit ratings of insurers at the sovereign rating.” When Mr Grossman’s appointment was announced, AM Best said his role was to support its franchise growth across the Southeast Asia and Oceania insurance and reinsurance markets. “It’s an exciting time for the region and ratings development,” he says. “The (re)insurance markets are in a state of evolution, with the Hayne royal commission likely to create an environment where there is a greater need for an independent evaluation 0 of (re)insurers.”


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Transforming times Zurich’s Hilary Bates is seeing positive results as an overhaul of the group’s claims operations continues By Wendy Pugh

CONFRONTING FEEDBACK from brokers highlighted a challenging scenario for Hilary Bates when she was appointed Zurich Australia and New Zealand Chief Claims Officer two years ago with a mandate to drive change. The company globally had been going through a difficult period. Decisions were made to exit some lines, while impacts on staff, morale and the business overall were showing up in customer satisfaction ratings. “We were hearing it loud and clear, we were seeing it in the TNPS (transactional net promoter score) results, and our brokers were really letting us know that we needed to do more than a tweak,” Ms Bates tells Insurance News. The company also faced technological challenges, with consumers increasingly embracing digital and online services, and commercial clients looking for similar innovation from their insurers. “We took a deep dive into what our customers were telling us, both the brokers and the end-insureds, in terms of the service they were getting,” Ms Bates says. She and her team started with motor claims. “Around two-thirds of our claims come in motor, and obviously if you can’t get a motor claim right you are going to start losing the trust of your stakeholders and partners, and it needed to be a priority area for us.” Feedback suggested the

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company needed to be more prompt and responsive in its communications, while external frustrations were echoed internally as team members faced barriers that affected service levels. Ms Bates says new measures were introduced to change the way the team operated, while system innovations improved the customer experience and brought processes into the digital age. Experienced people were appointed to work at the front end of a claim, specialist expert teams were introduced and Zurich launched a priority motor repair service in partnership with Gemini, to more speedily handle straightforward cases. Under the priority process, vehicles weighing less than 2.7 tonnes and with damage of up to $20,000 are eligible for a rapid turnaround at a designated repair centre, bypassing the need to chase quotes or wait for an assessor. Zurich also introduced a priority settlement service for relatively simple property claims, providing a swifter response in cases where more complex engineering or construction expertise is not a critical requirement. Claims eligible for fast tracking have an anticipated loss of under $30,000 and the company aims to make payment within 24-48 hours of receiving required information. Attention is now focused on the long-tail area, where liability


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“Diversity of thought and experience and background, and the ability to interact with a customer base that is equally as diverse, is critical.”

– Hilary Bates

claims management expertise is highly valued as matters are shepherded through legal processes to a resolution. “In that space it is really looking at how we can change some of the processes within the team and remove some of the administrative bottlenecks that can occur,” Ms Bates says. “That means people have the time to focus on the technical side of things, rather than getting caught up in the paperwork or the administrative part of their roles.” The Zurich claims operation has around 200 people in Australia and New Zealand and provides services across motor, property, workers’ compensation, liability, financial lines, marine and accident and health. The team has remained around the same size over the past couple of years, while back-office administrative work once completed by contractors is now outsourced offshore. System innovations have 60

harnessed data and new technologies to better assist insureds, as demand for greater financial services transparency and access has inevitably followed increased use of consumer digital applications in areas ranging from tracking parcels to ordering pizzas. Ms Bates, who was head of strategy and technical at QBE before joining Zurich, says clients are looking for easier interaction with their insurers and they want more input when it comes to the claims process and decision-making. “It is across the full spectrum, from the smaller SMEs all the way to the larger companies who may have entire departments focused on their insurance claims, there is absolutely that expectation,” she says. Zurich has introduced a platform called Z Track that feeds into the mainframe system to allow customers to monitor claims and request status updates. Brokers are also insuranceNEWS

able to generate claims experience reports. In motor, Z Fleet Navigator data measures and tracks operational performance, providing insights into the causes of accidents and claims. Aggregated analytics offers performance comparison information. “We are seeing our customers use that very much as a risk mitigation tool for training their own drivers and for feedback for their drivers,” Ms Bates says. The intersection of insurance and new technologies has highlighted the benefit of bringing in people with different backgrounds and skill sets who can look past legacy system limitations to offer fresh perspectives on what is possible. “I am seeing this opportunity around insurtech as a bridge between the challenges that sit in the legacy systems and bringing to life what people within claims are wanting to deliver for the customer,” she says. Diversity more generally is recognised as an advantage in claims handling teams. More women are making decisions on the other side of the table and varied cultural and language backgrounds are important in responding to customers who may be facing difficult circumstances due to events that trigger claims. “I am huge advocate of diversity, and for me that is all different types. Diversity of thought and experience and background, and the ability to interact with a customer base October/November 2018

that is equally as diverse, is critical,” Ms Bates says. Zurich’s claims overhaul has gained traction, with TNPS data showing customers and brokers are much more likely now, compared with two years ago, to recommend Zurich based on their experience of a specific claims transaction. The group is pushing further ahead with its transformation. “We’ve been exploring technology options and have landed on a new claim system that will allow us to deliver additional improvements to both the customer and employee experience. “We are currently working with a vendor and building towards an anticipated launch in the second half of 2019 for the first three lines of business. This opens up additional opportunities to innovate how we manage claims and deliver on our customer promise.” Continuing demand by businesses for advice also provides opportunities for Zurich and its intermediary partners to emphasise the importance of the claims promise, and Ms Bates says this allows the company to demonstrate that it’s putting customer requirements front and centre. “We are exclusively in that broker channel and that is something we are proud about. As the environment we are in gets more and more complex, the need for advice and education is greater than 0 ever before.”


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Workplace Relations Advice and Employment Practices Liability Cover By Sharlene Wellard

We have seen a shift in recent times in the focus on Employment Practices Liability (EPL) insurance. Where once it was largely an add-on to other insurance offerings, EPL is now often a core product highly valued by employers. In the last year alone, the Fair Work Commission reports that approximately 14,000 unfair dismissal claims and around 5,000 general protections disputes were commenced. Having regard to the legal costs, time away from the business, staff involvement in giving evidence in proceedings and other impacts on business, it is not surprising that greater numbers of employers are insuring against the risk. Some insurers have teamed up with workplace relations advisers and law firms to provide end-to-end workplace relations advice and representation. While this “teaming-up” provides a business development opportunity, there are also reputational risks to consider. Perusing Payment Case Zintix (Australia) Pty Ltd, an Italian food importer, entered into a contract with Employsure Pty Ltd, which offers workplace relations advice and representation. Its EPL insurance was provided by QBE. The contract in question had dual logos, that of Employsure and QBE, and provided a bundle of services including documents, advice and “fair work” insurance. The five-year contract provided that Zintix make payments of $300 plus GST in 60 monthly instalments and a failure to make the

payments would result in the total balance of the outstanding amount becoming payable immediately and in full. Zintix stopped making periodic payments after about eight months. Pursuing the payment, Employsure commenced legal proceedings. It asserted that Zintix was in breach of the contract, which did not provide for early termination. Employsure argued that in accordance with the term of the contract, its client owed it $18,463, being the total balance of the outstanding amount for the fiveyear contract, immediately and in full. At first instance the Local Court agreed with Employsure. Zintix appealed to the Supreme Court. In written submissions Employsure told the court in a written submission it “was entitled to the money when the ink dried” on the contract; “it did not need to further ‘earn’ its fee”. Overturning the Local Court decision, the Supreme Court viewed the term requiring the full and immediate payment as a void and unenforceable penalty provision. It had regard to the fact that the clause would apply regardless of whether the breach was trivial or late or early in the term of the contract and that Zintix was otherwise unable to end the contract. The court also noted that the amount of the payment was not a genuine pre-estimate of the losses and damage to Employsure and that “the purpose of the clause is plainly to coerce performance of the contract”.

Employsure was ordered to pay Zintix’s legal costs. Complaints of Misleading Conduct The Fair Work Ombudsman (FWO) has issued a statement following complaints by people who claim they have been misled into believing that private businesses are, or were, connected or affiliated with the FWO or other government agencies. Complaints were received about the telephone advisory services and the site fairworkhelp.com.au both operated by Employsure. The FWO statement (see www.fairwork.gov.au) says it considers engaging in conduct that misleads consumers about a connection with the FWO to be a serious issue and will consider the full range of options available to take appropriate steps to prevent misrepresentations likely to mislead consumers. Employsure has denied it has engaged in any misleading conduct. True Value Add The insurance market is tight and consumers want and expect additional “value add” benefits. There is no doubt there are benefits to insurers in partnering with other providers to provide those value add specialist services. Care needs to be taken to ensure that those providers are providing the service at a level required by your joint customers or there can be brand and business repercussions.

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Dead tired Lack of sleep is shortening our lives and increasing our risk of making catastrophic mistakes By Andy Swales

THE WORDS THREE MILE ISLAND AND CHERNOBYL immediately trigger thoughts of nuclear meltdown, environmental catastrophe and brushes with world-altering death and destruction. But these two accidental disasters – in 1979 and 1986 respectively – have something else in common: they have both been linked, in part, with sleep deprivation among workers. Whether you’re running a nuclear power plant, piloting a plane or driving a hatchback, weary minds are dangerous things, and researchers reckon the world is now sleepier than ever. A report from the Sleep Health Foundation says about 40% of Australian adults experience some form of inadequate sleep, with almost 20% suffering “excessive daytime sleepiness”. “There were estimated to be 7.4 million Australian adults who did not regularly get the sleep they need in 2016/17... this lack of sleep was estimated to result in 3017 deaths in 2016/17,” the foundation says. “It is expected that more than one Australian will die every day – 394 over the year – from falling asleep at the wheel of a vehicle or from industrial accidents due to lack of sleep. The remaining mortality is due to sequelae such as heart diseases and diabetes.” The research, published last year, shows the economic cost of sleep deprivation in 2016/17 was $26.2 billion, comprising productivity losses of $17.9 billion, “other financial costs” of $5.9 billion, health system expenses of $1.8 billion and informal care costs of $600 million. Added to this is a $40.1 billion cost for “lost wellbeing” – years lost to ill health and death. David Hillman, Founding Chairman of the Sleep Health Foundation, tells Insurance News sleep deprivation is a growing problem, with the pattern in Australia repeating elsewhere across the developed world. “When you see this study replicated in Great Britain, the US, Finland, France, Germany… you find the problems are very, very similar,” he says. Swiss Re’s recent Sonar report on global emerging risks notes sleep deprivation is a serious and worsening issue, with implications for general and life insurers alike. “Firstly, two out of three losses worldwide are due to human failure,” it notes. “Based on Swiss Re’s Sigma [study] research, this would mean people trigger a loss volume of $US3 billion per year. Secondly, life insurance generated premiums of $US2.6 trillion [last year]. “These two facts are linked because tired people make more errors and insomniacs are at a greater risk of dying earlier than would otherwise be the case… if these trends change the loss patterns in property and casualty or mortality rates, this could have a multibillion-dollar impact on the insurance industry in the long run.” 62

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The reinsurer warns property and casualty business may be affected by more mistakes in “sensitive work environments” such as oil rigs, planes and trains, and hospitals. “For industrial facilities this could mean more man-made losses such as explosions. In the medical context, such human failures could lead to an increase in medical malpractice claims. Motor liability in general could face changing loss patterns, with more tired drivers at the wheel.” The Sleep Health Foundation notes lack of sleep is already responsible for almost one-quarter of motor accidents. Swiss Re says the world “is indeed sleeping less”, driven by changing lifestyles and new demands on workers. “Flexible work schedules, teleworking breadwinners holding multiple jobs or making long commutes, mean that people are spending less time sleeping and more time awake. “More artificial lighting and new light qualities and technologies (LED, OLED and so on), as well as extensive use of smartphone and computer games, are adding to the problem.” Professor Hillman says the foundation’s latest research reveals the growing influence of late-night “screen time”. It shows a new “bubble” of sleepiness in the under-25 age group, “and that can only be explained, I think, by the growth of social media”, he tells Insurance News. October/November 2018


Serious risk: tired workers can make catastrophic errors

“When we surveyed in 2010, we saw a fairly even distribution of sleepiness across young and middle-aged adults… a really big thing in recent years is the development of social media and everything that goes with it.” A Sleep Health Foundation study published in July uncovers a trend called “social jet lag” – misalignment between a person’s body clock and their environment due to social impositions such as work or school. “For instance, a person who is naturally a night owl but must start work at 7am is at a higher risk of being socially jet-lagged,” lead researcher Robert Adams says. “And the same can be said of morning larks who routinely stay up late on international work calls.” The research, published in international journal Sleep Medicine, shows about one-third of Australian adults regularly experience more than one hour of social jet lag, mirroring results from a Dutch study. It also reveals a correlation between social jet lag and device use. “We found those with social jet lag were more likely to have a laptop, phone or other device in the bedroom and frequently use the internet in the hour before sleep, either for work or entertainment,” Professor Adams says. He wants to see a national inquiry “to examine the full extent of Australia’s sleep deprivation problem and bring in policy initiatives

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“A really big thing in recent years is the development of social media and everything that goes with it.” to support our nation prioritising sleep for [people’s] own wellbeing, and for the health and safety of those around us”. This is in line with the foundation’s previous calls for broad action across government, industry, the workforce and scientific community. Possible steps include tighter regulations in industries such as defence, transport and health, changes to shift patterns, education around healthy sleep patterns and tougher road laws, with sleepiness treated along the same lines as intoxication. October/November 2018

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“I think it’s in insurers’ interests to be right on the front line. What’s in the insurance industry’s interests is [also] in the community’s interest.” Professor Hillman says the insurance industry has a role to play in improving behaviours. “I think it’s in insurers’ interests to be right on the front line. The insurance industry is in a very interesting position. What’s in the insurance industry’s interests is [also] in the community’s interest… when you get to risky behaviour such as inadequate sleep, it’s something the insurance industry needs to be intensely aware of and to penalise through its premiums… and reward good behaviour, so it’s an agent for social change, and it’s in its interests to be in there. “The risk will not disappear and the reasons for insurance will be as strong as ever, but the responsible companies can protect themselves… by encouraging better behaviour.” He says insurers in the commercial transport industry have been leaders in this area, wielding premiums as the stick in the classic “carrot and stick” metaphor. “Years and years ago, risk was shared fairly evenly between all the people signed up to policies, then the insurance industry started to get into stratification of risk, so companies running risky behaviour and having poor outcomes – road crashes, for example – would attract higher premiums, whatever the causes of those crashes.” He says transport insurers have taken an interest in mitigation through, for example, drivers’ shift rostering. Advances in telematics – such as in-vehicle analysis of drivers’ blink patterns – may bring improvements on that front. In Japan tech company SAP and telco NTT have teamed up to develop an Internet of Things “hitoe” vest that monitors heart rate and “nervous agitation” to trigger driver fatigue alerts. Heavy vehicle specialist National Transport Insurance (NTI) has long tracked the issue of driver tiredness through its independent National Truck Accident Research Centre. 64

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Last year’s biennial Major Accident Investigation Report (examining crashes reported to NTI) shows fatigue was the second most common crash cause in 2015 behind excessive speed, accounting for 12.2% of incidents. This represented “neither an improvement nor deterioration” on the previous report, but followed “considerable improvement” after the September 2008 introduction of new legislation on heavy vehicle driving hours. More change is on the way. In early October the National Heavy Vehicle Regulator hosted a forum examining industry members’ initiatives to manage fatigue, and asking stakeholders to “provide the essential elements for a new draft fatigue management regulatory framework”. This will inform a “wider review of the Heavy Vehicle National Law to be considered by responsible ministers later this year”. Fatigue is also an area of concern for workers’ compensation body Insurance & Care NSW (icare), whose Health and Community Engagement unit has researched the effects of sleep disturbance on mental health and its links to post-traumatic stress disorder (PTSD). Its findings include that inadequate sleep increases the risk of mental illness such as depression, and that sleep disturbance before a traumatic event such as a workplace injury is a risk factor for development of post-traumatic psychiatric disorder. Sleep problems may also play a “causal or maintaining role in ongoing PTSD symptoms”. icare Manager Research and Design Caroline Howe says there is a clear link between work environment and sleep, and in turn health and ability to work. “Advice for employers is that sleep or good sleep is often connected to what happens for a person during the day,” she tells Insurance News. “Stress, diet, feeling like you add value at work and work in a place you think cares for you. The basics of social connection are what contribute to ensuring people have a good day at work, and so… have a good night’s rest. Each works to help the other.” icare has also advised workers to do their bit by maintaining healthy and balanced diets, regular physical activity and bedtime routines. The Sleep Health Foundation’s Professor Hillman says general awareness of the problems caused by sleep loss, and ways to combat it, is crucial. The foundation and clinicians’ peak body the Australasian Sleep Association are “agitating” for a wide-scale education campaign, and hope to announce something soon. But it has been slow progress. “We’d love to be taking great strides. We’re forced into baby 0 steps, but we’re moving in the right direction.” October/November 2018


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Class act: Suncorp Learning Campus opens doors SUNCORP IS GIVING INTERMEDIARY PARTNERS ACCESS TO AFFORDABLE

Experience and understanding: Chubb’s major accounts chief Demetra Day

Premium division: Chubb directs new service at larger clients CHUBB HAS LAUNCHED A NEW “all-rounder” service for major accounts, further cementing its success in a section of the market that is made up of large, global, and multinational clients and business partners. The insurance giant describes the Major Accounts Division for Australia and New Zealand as a “premium service encompassing underwriting, risk engineering and claims”. A similar service was launched in August for the Asia Pacific region. Chubb says the new setup, which reflects its ongoing strategy to be more customer-centric across all product offerings, will enhance client experience. “Over the years, Chubb has developed a well-known reputation for servicing clients in the major accounts segment,” Jarrod Hill, Country President for Australia and New Zealand, says. “The creation of the new division will boost the delivery of product, service and advice to this key client segment where we have strong business relationships.” Demetra Day, previously Chubb’s Financial Institution and Commercial Crime Underwriting Manager Asia Pacific, will lead the division as Major Accounts Division Manager Australia and New Zealand. She will oversee the management of underwriting teams, global client executives, claims client relationship managers and risk engineers. The team will focus on delivering crafted solutions and bespoke services. “With [her] depth of experience and understanding of the risk management landscape our clients operate in, she is well placed to lead the charge for this important client segment,” Mr 0 Hill says. 66

education and training from institutions such as Kaplan, the Australian Institute of Management, Phuel and Harvard ManageMentor through a new program. The Suncorp Learning Campus offers a range of training choices including face-to-face workshops, events and online courses on technical skills, compliance, self-development and business planning. “Ongoing education and learning will be a vital part of our industry’s future,” Executive General Manager Intermediaries Andrew Mair says. “This program has been designed for all brokers, whether they are just starting out or have decades of experience. It will enhance and broaden their skills and competencies which will benefit their clients, business and the industry.” The company says it has worked closely with its partners and leveraged its strong position in the market to deliver a range of affordable learning experiences. Topics and skills covered in the training options include bias in decisions, building client relationships, communication, self-development, business partnering and business ownership. Harvard ManageMentor offers 41 leadership modules while a Diploma in Finance and Mortgage Broking and other qualifications are available from Kaplan. Suncorp says the learning centre helps those who don’t have their own learning and development function, or want to supplement their existing resources. “It gives partners the ability to tailor their learning by picking courses to suit their needs, budget, timeframe and location,” Mr Mair says. “This is an investment in helping our partners to develop the skills and knowledge of their people, build stronger businesses and deliver better advice-based products, services and outcomes for their clients.” 0 All the courses are CPD-accredited with key industry bodies.

Standing out: Insurance House gives AR network identity THE INSURANCE HOUSE AUTHORISED REPRESENTATIVE NETWORK has been given a stronger identity within the group, reflecting its recent expansion and growth plans. More than 45 “authorised partners” will come under the new Insurance House Advance banner, providing a higher profile within the group and the wider industry. The company says it is time for the network to stand out from the broader Insurance House brand as it builds on an expansion that has taken it into Western Australia and provided a national footprint. “It is about creating our own unique identity and steady and consistent growth,” Head of Insurance House Advance Jim Karafilis tells Insurance News. Partners in Insurance House Advance operate and own their businesses and trade under their own names as part of the wider group, which may hold equity in some cases. Mr Karafilis joined Insurance House six years ago to develop the authorised representative model. Significant investment in enhanced and upgraded services and back-end support has also been made following the recent appointment of Lyn Rankin as Manager – Strategic Development. Insurance House Advance says it is focusing on expanding its value proposition for partners through development of enhanced products and services, training and compliance as well as business coaching and marketing support. Mr Karafilis says those seeking to join the group should reflect the Insurance House Advance core values of care, professionalism, imagination and leadership. 0 insuranceNEWS

October/November 2018


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APIG pulls in a crowd The Australian Professional Indemnity Group (APIG) annual conference and gala dinner brought together a large crowd of underwriters, brokers, reinsurers, claims handlers and lawyers. About 470 people attended the dinner, hosted by performer and media personality Paul McDermott and held at The Westin in Sydney. The Kennedys Frank Earl Award, recognising the values of honesty, integrity and transparency, was presented during the evening to Chubb Chief Underwriting Officer, Financial Lines, Asia Pacific Jason Howard. The Wotton + Kearney APIG scholarship awarded to a young professional under the age of 36 went to Dual Australia Senior Claims Officer James Skiba. Earlier, conference presentations and discussions covered a diverse range of key industry issues. Topics on the agenda included trends in class actions, likely repercussions from the royal commission and changes in the global insurance market.

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YIPs toast good year in Victoria, Queensland Victorian Young Insurance Professionals (YIPs) cruised down the Yarra River, while in Queensland members gathered at the Cloudland restaurant and bar for endof-financial year celebrations. About 165 Melbourne participants admired the city lights on a warm and rainy night as they enjoyed good company, music, lucky door prizes and food and wine aboard the Yarra Countess. The Brisbane event was a sell-out, with 150 members from across a range of insurance areas celebrating in style at the beautiful and eclectic venue. The end-of-financial year functions have become a highlight on the YIPs calendar as membership grows. Events are held around Australia and in New Zealand. Celebrations include charity raffles, lucky door prizes and the opportunity for branch presidents to welcome and thank a range of sponsors.

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AILA hosts networking dinner The Australian Insurance Law Association (AILA) Young Professionals hosted their ninth annual Luminaries Dinner at the Royal Motor Yacht Club in Point Piper in August. The evening gave young and up-and-coming insurance professionals an opportunity to mix and mingle with top executives from an number of insurers, reinsurers, brokers, underwriting agencies, law firms, accountants, and loss adjusters. The 110-strong crowd was entertained by the comedic timing of Jeff Green while enjoying a spectacular harbour-side setting.

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Oracle applauds ARs Oracle Group held its annual authorised representative (AR) conference in Sydney where the Perth-based broker and partners celebrated another successful year. More than 80 guests including directors, underwriting agencies and premium funders attended the event. Jacob Ross of Affinity Insurance Services received the AR of the year award and Pacific Indemnity’s Ed Rawnsley was recognised as insurer partner of the year. Oracle Managing Director Steve Campbell and his team shared plans for future strategies to grow the business. Guests later converged for networking drinks.

Talk to insurance Celebrating as part of your planning. a company We can help you make the most of it. milestone? Holding an event?

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Quill Club lunch draws strong support Melbourne’s Quill Club has done it again. Its annual charity lunch was a resounding success as guests donated generously to the tune of $45,000 in support of Yellow Ladybugs, a community group that helps autistic girls and women. More than 530 guests including brokers, loss adjusters, premium funders and lawyers attended the August lunch at Central Pier in Docklands. The event, which has been running for 12 years, achieved its highest raffle sales and the live auction also had a strong response. An Argentinian soccer shirt signed by superstars Lionel Messi and Diego Maradona sold in the auction for $3000.

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AIG celebrates All Blacks victory AIG brokers and guests were treated to a Bledisloe Cup prematch event that featured appearances by New Zealand All Blacks stars and traditional dance performances. Guests were welcomed to a gardens marquee at Sydney Olympic Park with Polynesian songs, dances, the haka and fire twirling from Matavei Cultural Arts ahead of a rugby double header. The women’s Black Ferns versus Wallaroos game, streamed live, featured a hat-trick of tries by New Zealand captain Fiao’o Faamausili that helped secure a convincing victory for the team. All Blacks players Jordie Barrett, Te Toiroa Tahuriorangi and Luke Whitelock then attended the marquee to lead a rugby trivia game, with Pat Brennan from Marsh demonstrating his expertise to win a signed All Blacks jersey. Guests later walked across to the stadium to take prime seats as the AIG-sponsored All Blacks stormed home in the second half to defeat the Wallabies.

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Resilium advisers enjoy island retreat Almost 300 advisers and exhibitors joined the Resilium family for the Suncorp-owned authorised representative network’s annual conference at Hamilton Island. Former Liberal leader Brendan Nelson was among the keynote speakers at the event, which also raised $25,440 to support the Hunter Research Medical Institute’s study into childhood cancer. FIS Insurance Services won the Resilium Insurance Broking Practice of the Year award and CPS General Insurance took out the coveted Resilium Fire Helmet Award.

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Adelaide hosts UAC Expo Brokers gained first-hand insights from 64 exhibitors covering a range of specialties at this year’s Underwriting Agencies Council (UAC) Adelaide Expo. A light lunch was served during the event and brokers were able to participate in a draw for two $1000 travel vouchers if they visited a minimum of 30 exhibitors on the day and scanned the codes. The two winners were Candice Klau, who joined MBA Insurance Services in February, and Rhiana Roberts who entered the industry with Webber Insurance Services this year. More than 250 brokers attended the event, held at the Hilton Hotel.

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McLardy McShane swings into conference McLardy McShane held its annual golf day in August, followed by its conference the very next day. Golfers competed for the Victory Cup, with players raising more than $20,000 for Fight MND and The Reach Foundation. Paul Kaiser and Michael Lewis were joint winners. About 150 delegates then attended the conference, held at the Moama Bowling Club, New South Wales. It opened with cocktails on the historic Echuca Wharf on the Murray River, followed by a welcome dinner. AFL journalist and Crocmedia owner Craig Hutchison enthralled delegates with a keynote speech about the world of media, television and journalism, while former Aussie Rules player Beau Vernon lifted the audience with tales of how he overcame a paralysing spinal cord injury. The conference finished with a gala dinner hosted by Australian radio and TV personality John Blackman. Special guests included MND advocates Neale and Jan Daniher and former Brisbane Lions captain Jonathan Brown. Branch of the year was awarded to McLardy McShane Sydney, while authorised representative of the year went to Stewart Insurance Group. Employee of the year was Rachel Sozzi, QBE’s Jerome Wong entered the Hall of Fame, while culture and community awards were given to Chelsea Richardson, Amanda Freeman and Penny Collins.

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Claims Convention presents prizes Dinner, dancing and the presentation of awards wrapped up the 12th Claims Convention, held this year at the Sheraton on the Park in Sydney. About 280 people attended the event, hosted by the Australasian Institute of Chartered Loss Adjusters (AICLA) and the Australian and New Zealand Institute of Insurance and Finance. (ANZIIF). Evening festivities included the presentation of awards to students studying the ANZIIF Diploma of Loss Adjusting. Haryo Suseno from Sedgwick Indonesia won the Diploma of Loss Adjusting Prize for achieving the highest average mark with at least two distinctions. The Charles Buchanan Prize, for the student gaining the highest mark in any single diploma module, went to Melanie Richardson of Sedgwick, Queensland. Paul McConnell of Crawford & Company NSW was presented with the Syd McDonald Young Adjuster Award for an AICLA member aged under 35 achieving the highest mark. The program earlier in the day looked at changes to the General Insurance Code of Practice, global claims trends, cyber developments, technological disruption and building cladding. Presentations concluded with motivational speaker Michael Crossland addressing the audience on the power of perspective.

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Get in touch 1800 764 661 brokersolutions@allianz-assistance.com.au www.agabroker.com.au Roadside Assistance, Emergency Home Assistance and Home Safety Service are provided by AWP Australia Pty Ltd ABN 52 097 227 177 trading as Allianz Global Assistance. Exclusions, limitations and terms and conditions apply. See our website for details: https://www.allianzworldwidepartners.com.au/. Allianz Global Assistance Overseas Visitors Health Cover policies are issued and managed by AWP Australia Pty Ltd ABN 52 097 227 177 trading as Allianz Global Assistance. Peoplecare Health Limited ABN 95 087 648 753 is a private health insurer under the Private Health Insurance Act 2007 (Cth) and is the underwriter of the Allianz Global Assistance Overseas Visitors Health Cover policies.


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Allianz shares insights with broker partners Allianz served up a packed agenda for broker partners who attended its annual training day programs in August and September in the capital cities. Speakers took on topics built around the one-day session’s theme of “Take The Next Step”. Emerging risks, technology, the future of motor, and evolution of the insurance customer were among the issues examined. Allianz’s Chief General Manager Broker and Agency, David Hosking, says the program aims to provide attendees with valuable market and industry insights. “The training day has been designed to encourage you to take the next step, both professionally and personally,” he said. Sessions were held in Brisbane, Adelaide, Melbourne, Perth and Sydney.

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CQIB convention breaks records The Council of Queensland Insurance Brokers (CQIB) annual convention enjoyed record attendance as 180 brokers turned up for the three-day event at the Royal Pines Resort on the Gold Coast. CHU Chief Executive Bobby Lehane and other speakers tackled a range of topics aligned with the conference themes of “change, quality, innovate and build”. The new two-day, two-night format gave delegates maximum educational and networking time. CQIB streamlined the speaking sessions to TED talk style to allow for more discussion of topics facing brokers. On the final night, attendees danced the night away to hit songs from the ‘60s to ‘80s. Delegates raised $47,000 for the Mater Foundation’s Tiny Heartbeats Appeal.

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Brokers embrace Zurich events Almost 500 brokers attended Zurich’s 1872 Marketplace events in Sydney, Melbourne, Perth, Adelaide and Brisbane. The Sydney session attracted more than 130 key broker partners who relished the opportunity to hear from the insurer’s underwriters on key issues facing the business. Chief Distribution Officer Steven Ord opened proceedings at the Sydney event and Head of Commercial Giles Crowley was panel discussion moderator. The Zurich discussion panelists comprised of Head of Marine Matt O’Sullivan, Head of Liability Alex Tarantino, Head of Motor Nick Dendrinos and Head of Risk Engineering Merv Rea. Zurich says brokers like the format, which facilitates good interaction with Zurich executives. 1872 Marketplace aims to demonstrate Zurich’s capability and risk appetite across all its lines of business.

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LEADING THE WAY FOR

clients industry AND THE

Insurance Advisernet were very proud to be awarded the inaugural Authorised Representative Group of the Year at the prestigious 2018 ANZIIF Awards.The result is testament to our national network of more than 150 practices and their unwavering focus on providing clients with advice they can genuinely trust, every day. We would also like to thank our Insurer and Funder partners for their dedicated support of Insurance Advisernet.

2018 WINNER Authorised Representative Group of the Year

Call 1300 366 085 or visit insuranceadviser.net to find out more.


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PSC connects with staff and partners More than 300 attendees were wined and dined at the eighth annual conference of PSC Connect in Sydney. PSC staff, business partners, and industry sponsors enjoyed a welcome dinner at the Opera House, with pre-dinner drinks on a harbour cruise from the Hyatt Regency Hotel. The closing gala dinner took place in the Maritime Room at the Hyatt, with an after-party at the Zephyr Bar. Awards were given out to AR of the Year, High Achiever, and Rising Star of the Year. Attendees heard about everything from healthy lifestyles and running a small business, to claims, compliance and governance, including a QBE-hosted session with Sydney Swans great Adam Goodes.

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HDI honours German origins Bratwurst, bretzels, gluhwein and other German cuisine was the flavour of the day at HDI Global’s third annual Winterfest event. Celebrating HDI’s German origins, staff, brokers and clients enjoyed the gemütlich atmosphere on the James Craig ship in Pyrmont, Sydney. The celebration was held in August from late afternoon and lasted into the night. Attendees listened to a speech from Managing Director Stefan Feldmann, who thanked everyone for coming and supporting the business.

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Lloyd’s festival pushes for change This year’s Lloyd’s-inspired festival for diversity and inclusion in insurance, Dive In, has been hailed a huge success. The festival was the biggest to date, with 50 events across 26 countries, including 16 in Australia and New Zealand. Presentations, panels and networking events were held across three days in Sydney, Melbourne, Perth, Adelaide, Brisbane, Auckland and Wellington, covering subjects including LGBTIQ+ inclusion, mental health, and gender and cultural diversity. The theme for the festival was #time4inclusion, as the emphasis shifts from talk to action. Lloyd’s General Representative in Australia and festival organising committee Chairman Chris Mackinnon told Insurance News more than 1000 people attended. “The industry response to the festival has been extraordinary, and is growing every year,” he said.

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maglog

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Standing firm: John Devaney with his precious Mustang and, inset, the genuine windscreen complete with Ford logo

A BROKER IN CAIRNS, FAR NORTH QUEENSLAND, relates his experiences when he recently claimed against a direct insurer’s motor policy. Of course, he acted as any consumer would – sort of. Twelve months ago I had what She Who Must Be Consulted says was probably my fourth mid-life crisis. This time it resulted in the acquisition of a brand new Ford Mustang in “Grabber Blue” livery – the V8, of course. When it came to insurance I could have gone to our overworked colleague who handles all the staff’s personal insurance, but I didn’t. (The worst portfolio in a brokerage has to be a client base of your fellow insurance brokers. Surely such poor souls will be rewarded in the next life.) So I did it myself. I was very taken with one direct insurer’s product offering of a “new for old” car in the unfortunate event of a total loss, even in 10 years’ time, provided I met the qualifying conditions. Not a problem there, so having scanned the PDS I signed up. Queensland insurance brokers living and working in regional coastal towns in Far North Queensland will tell you that our portion of National Highway 1 does a pretty good imitation of a goat track, and as a result the inevitable windscreen breakage happened. So the Consulted One and I turn up at the local Windscreens O’Brien and she wisely asks, “Are these guys going to fit an original Mustang windscreen?” “Of course they are,” I harrumph. (Men having a mid-life crisis often harrumph.) 98

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John Devaney Contributor

I have, after all, read my PDS. And sure, while the policy says the insurer might elect to replace the windscreen with a non-genuine one, I’m supremely confident I will get the real deal as the car is only six months old. “Perhaps you better check, dear,” she says. “Nah mate,” the windscreen guy says. “We’ve only got an order for a non-genuine out of Thailand. They’re quite good.” “Does it have the Ford logo etched into the glass like this?” I point to my car’s cracked screen. He goes away to check and reports it does not. This is obviously something to discuss with the insurer. “No, I’m sorry,” the bright young thing (BYT) in claims service says, even though the on-hold message tells me that my insurer is committed to a positive customer experience. “All we are prepared to pay for is a non-genuine screen. You would have to make up the difference.” Then she utters her killer point: “It’s in your PDS.” “Actually,” I say, “your PDS says you might pay for a non-genuine windscreen. Can you tell me when you might pay for a genuine screen as opposed to when you might not?” BYT repeats her non-genuine spiel. “Perhaps,” I say, trying to be helpful, “you’d like to look up the definition of the word “might” in the dictionary?” BYT is not having a bar of this. Nor can I speak to her supervisor. “So I guess we go to dispute resolution,” I say. “Oh, you know about that? Well, yes,” she says primly, although her brain is obviously saying, “We know your type.” Baby Boomers and possibly even Gen X’ers will recall the English comedy Yes Minister, a TV show that depicted a government minister’s losing battle with public servants who were supposedly there to assist him. The internal dispute resolution process proved to be kind of like that. Sadly, not once did the insurer make comment on my original and consistent argument about their interpretation of one word they used in the policy – that one simple word “might”. It was time for larger calibre artillery – the Financial Ombudsman Service, which is referred to universally as FOS. Within 48 hours of my FOS lodgement there was a phone call from the insurer’s head office. Another customer relations department officer, let’s call her Judy. This time a commonsense conversation ensued. Judy lamented that my correct interpretation of the policy wording’s clear intention had not been understood right at the very outset. I lamented in turn that the insurer’s personnel involved in the entire internal dispute resolution process had completely failed to recognise that very fact. To them, my “dispute” was just a process to be followed and endured. At the end I was faced with paying $1000 on my claim in order to secure an “original” windscreen with a distinctive logo etched into it for a six-month-old car. And insurers object about losing their exemption to 0 unfair contract terms legislation?


Bolder together XL is now part of the AXA family. A bold new force of expertise and leading technology to reinvent solutions for even your most complex risks. So if you’re moving your business and the world forward, we’re the partner to help you do it. Find out more on axaxl.com

AXA, the AXA and XL logos are trademarks of AXA SA or its affiliates. AXA XL is a division of AXA Group providing products and services through four business groups: AXA XL Insurance, AXA XL Reinsurance, AXA XL Art & Lifestyle and AXA XL Risk Consulting © 2018 AXA SA or its affiliates.


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OCT/NOV 2018 - Insurance News (the magazine)  

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