December/January 2020/21 Insurance News (magazine)

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GOOD RIDDANCE TO A YEAR THAT CHANGED EVERYTHING Influences and influencers Testing cases How COVID has affected the insurance industry in many unexpected ways

Business interruption rulings and reactions

Don’t panic

Why brokers are a vital part of the commercial scene

Next year will see recovery

Advice and support December 2020/January 2021



Contents 4 Newsmakers 8 Courting trouble

Australian insurers have lost a crucial test case over business interruption cover as more legal battles loom

12 The Top 10 Influences

This year we’re taking a slightly different approach, in deference to the overwhelming variety of challenges and changes forced on the insurance industry

20 That sinking feeling

Insurer profitability just “fell off a cliff”, but actuarial firm Finity believes there’s no need to panic

24 Hard times

As businesses battle a COVID-induced economic slowdown, they’re also facing a hard insurance market with some way yet to run

26 Standing tall

Deloitte has compiled a report for NIBA to ensure the role of brokers and their value to the economy is clearly understood

30 An explosive problem

The Beirut port blast in August highlighted the risks associated with ammonium nitrate, which is most commonly considered a fertiliser

42 Lessons learned from a $6 billion season

Insurers stepped up to manage more than 300,000 claims after a massive run of natural disasters

46 In the heart of the storm

RACQ Insurance chief Tracy Green is ready for an active summer as pressures rise in northern regions

companyNEWS 50 Expanding fast

Blue Zebra rolls out more products

50 Progressive perks

Zurich dumps ‘parental leave’ in favour of family flexibility

53 Brokers give back

A new report shows how brokers value their communities and go above and beyond when it comes to philanthropy

peopleNEWS 56 Networking returns

UAC Brisbane expo enjoys strong support

58 Maglog

36 Insurance Ad Oscars 2020

Our annual advertising awards ask: which insurance ads hit the mark this year, and could they have been even better?

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insuranceNEWS.com.au is a free daily online news service for the general insurance industry. The website has more than 29,000 subscribers. In October/November we published 512 articles online. These were made up as follows:

68 Local

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Corporate

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Regulatory & Government

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INSURERS FAIL BI WORDING TEST The NSW Court of Appeal has ruled against the insurance industry in the COVID-19 business interruption test case. insuranceNEWS.com.au reported in a Breaking News bulletin in November that the crunch decision had gone against insurers. The Insurance Council of Australia (ICA) and Australian Financial Complaints Authority (AFCA) agreed to launch the case to resolve uncertainty about outdated wording in pandemic exclusions. Some Australian insurers’ policies included exclusions referring to the repealed Quarantine Act 1908, which was replaced by the Biosecurity Act 2015. As a result, some claimants hope the exclusions will not apply to COVID-19 claims.

Life Insurance

The Professional

John Berrill, Principal at Berrill & Watson lawyers, after the NSW Court of Appeal ruled against insurers on the COVID-19 business interruption test case.

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Analysis

136 Daily

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Breaking News More than 33,432 news articles – including 328 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. 0

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be “some time off”. Insurers are yet to decide if they will appeal the NSW Court of Appeal decision and there could yet be a second test case. “This test outcome remains only one piece of a much larger puzzle, with a number of other BI contract triggers yet to be evaluated ahead of understanding the full liability for insurers,” AM Best says. “In particular, outstanding policy matters include proximity and prevention of access triggers, which are expected to also face a legal test cases in the same manner as the first.” AM Best says there’s also further uncertainty on how any claim settlements for COVIDrelated shutdowns would be 0 calculated.

It has got to be said that “ this is the end of the beginning, not the beginning of the end. ”

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International

The test case consisted of two separate small business claims that were lodged with AFCA as part of its dispute resolution process. The claims were with HDI Global Specialty and Hollard. The insurers argued during a hearing on October 2 that the intention of the policies was clear, despite the reference to the repealed act. But the court held that COVID-19 is not a disease “declared to be a quarantinable disease under the Quarantine Act 1908 and subsequent amendments”, and “accordingly was not excluded from the disease benefit clauses”. AM Best says, despite the ruling, clarity over business interruption claim impacts as a result of the COVID-19 pandemic is likely to

NEW COVER-MORE CHIEF LOOKS TO INNOVATION Cover-More Group Chief Executive Cara Morton says the travel insurer is set to take an innovative approach to the products and services it offers as domestic and international restrictions ease. Ms Morton, who was formally appointed to the job in November after acting on an interim basis since June, says changes will include new offerings to individuals, while there are also opportunities to work with hotels, airlines or regions seeking to revive tourism. “There are other parts of the travel life cycle wanting to get involved to make sure the protection is there,” she said. Plans for individuals include

December 2020/January 2021

a leisure travel assistance app that will include both medical assistance and security assistance, which in the past has been more the domain of the corporate market. Ms Morton says there is a focus on making wordings simpler and ensuring travellers clearly understand the cover, and there are plans to introduce a “travel disrupter” into the market. “Our business is quite different in the different geographies, but the one commonality at this time has been the requirement to be agile around product development, and that is going to have to continue,” she said. Cover-More owner Zurich reported earlier this year that sales

at Cover-More halved in March compared to a year-earlier, and were at less than 10% of year-ago monthly levels in April, May and June. Ms Morton joined CoverMore two years ago as CEO of Global Medical Assistance. Previously she held executive positions at QBE and was also 0 with Accenture.


INDUSTRY PROFITABILITY FALLING FAST Bushfires and other costly natural disasters from last summer plus the fallout from COVID-19 on financial markets have significantly affected general insurance earnings, the Australian Prudential Regulation Authority (APRA) says. APRA’s latest prudential update shows the industry recorded an annual 73.3% fall in net profit after-tax to $900 million for the year to September and a 2.8% decline on a quarterly basis to $836 million during the three months to September. “This was due to lower underwriting results

from the catastrophic bushfire and storm events in late December and early 2020, and large falls in investment income mainly from the negative impact of the COVID-19 pandemic on investments markets in the March quarter,” APRA says of the year to September earnings fall. Underwriting profit dropped 16.4% to $1.6 billion and investment income fell 68.2% to $1.2 billion during the 12-month period while gross claims expense increased 11.4%. “Within the underwriting results, insurers

PAY GAP PROGRESS ‘TOO SLOW’

reported increases in gross earned premium in most classes of business,” APRA says. “This was particularly evident in the householders, fire and [industrial special risk] and professional indemnity classes as premiums increased in response to rising claims costs.” Householders’ gross earned premium increased to $9.88 billion from $9.3 billion a year earlier, fire and industrial special risk to $5.46 billion from $4.86 billion and professional indemnity 0 to $2.46 billion from $2 billion.

Insurance ranks near the top of Australian industries for allowing discrepancies in remuneration between men and women, according to the latest statistics from the Government’s Workplace Gender Equality Agency. Across all industries, Australian men still out-earn women on average by $25,534 a year, or 20%. In general insurance, the gap is 23.2%. That was narrower than in construction (26.1%) and banking (24.7%), but wider than most other industries, including agriculture, forestry and fishing (22.5%), transport, postal and warehousing (18.7%), accounting (17.5%) and metal ore mining (13.1%). Women make up just 18% of chief executives and 28% of board members in Australia, and in general insurance the percentages are only 13.5% and 25%. Agency Director Libby Lyons says

gender balance at the top levels of leadership is still decades away, describing progress as “glacial,” and the overall survey results suggest employers are in the grip of ‘gender equality fatigue.’ “Even before the COVID-19 pandemic hit, I was concerned that Australian employers had become complacent,” Ms Lyons said. “I’m very disappointed that almost nothing has changed this year. It appears to me that Australian employers are on autopilot when it comes to improving gender equality.” Organisations with a combined 4.3 million employees, or more than 40% of Australia’s workforce, were surveyed in the year to March 31. The General Insurance category has 48,541 employees within 40 organisations. Ms Lyons says that without increased employer action, Australia is likely to 0 erode recent gains.

ASIC WINS COURT ACTION AGAINST YOUI The Australian Securities and Investments Commission (ASIC) has sent a warning that firms must handle claims fairly after the Federal Court ruled Youi breached utmost good faith requirements under the Insurance Contracts Act on five occasions. ASIC launched the action against Youi earlier this year over its handling of a Broken Hill hailstorm claim that was the subject of a Hayne royal commission case study. “The value of an insurance policy is in the promise, so that a consumer can feel confident and secure that they will be looked after when something goes wrong,” ASIC Commissioner Sean Hughes said. “The community expects their insurer to be

there when something does go wrong, to be treated fairly and with dignity and respect.” The Insurance Contracts Act didn’t impose monetary penalties at the time of the Broken Hill claim dispute, but that has changed for offences taking place since March 13 last year. The Federal Government has this month also introduced legislation into Parliament that makes claims handling a financial service, bringing it under Corporations Act obligations to act efficiently, honestly and fairly. The Broken Hill claim examined by the Federal Court was lodged in January 2017 after a hailstorm caused extensive damage to the policyholder’s property. After continual delays, repairs were not completed until some 22 months later.

Chief Justice James Allsop says the insurer failed to act with utmost good faith in relation to the property repairs and in responding to policyholder complaints and Youi failed to exhibit “decency and fairness”. Youi says it acknowledges its response to the claim was inadequate and accepts the Federal Court judgment. The insurer has since reviewed its service provider network and the management of repair quality, and has improved temporary accommodation and customer complaints processes. “Youi has made significant changes to the way claims are managed to ensure repairs occur in a timely manner and all customers consistently receive outstanding service,” a spokeswoman told 0 insuranceNEWS.com.au.

ICA SAYS GOODBYE TO LONG-SERVING STAFF Several key executives will leave the Insurance Council of Australia (ICA), following a strategic review. New Chief Executive Andrew Hall took over from Rob Whelan in September, and a number of departures were announced in November. The Government and Stakeholder Relations and Communications teams have been combined into one Public Affairs group. As a result, the roles of Head of Communications Campbell Fuller and Head

of Government and Stakeholder Relations Richard Shields have been made redundant. Mathew Jones has joined ICA as GM Public Affairs. He was most recently the Executive Director Communications and Engagement for the NSW Department of Premier and Cabinet for more than three years. Prior to that he held senior roles in the state’s Department of Planning  and Environment, and was a Chief of Staff to a former NSW Treasurer. He has also been MD of the public affairs agency Parker and

Partners. ICA’s Head of Regulation Policy John Anning, who joined in 2007, will retire from his full-time position next month. He will work on a part-time basis next year on ICA special projects. ICA Head of Risk and Operations Karl Sullivan had already announced his departure after 14 years. Mr Hall says the restructure “will better align our skills and capabilities” to the 0 delivery of ICA’s strategic plan.

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From the

PUBLISHER

NSW FACES INCREASED SUMMER BUSHFIRE RISK Large parts of New South Wales west of the Great Dividing Range, along with grassland areas in the ACT and north-eastern Victoria face above normal fire conditions this coming summer, according to a new weather outlook. Some southern areas in South Australia and Western Australia are also at risk, having missed out on recent heavy rainfalls that have left huge portions of forested areas in very, very dry conditions, the Bushfire and Natural Hazards Co-operative Research Centre says. The arrival of La Nina, a climate event that brings with it higher-than-usual rainfall, is not enough to reduce the fire threat in the coming months. “With La Nina climate conditions reached in mid-September, the rainfall outlook through to the end of summer suggests above average rainfall is likely over much of the country,” the centre’s Australian Seasonal Bushfire Outlook: December 2020 - February 2021 says. “However, these months are a drier time of the year for much of southern Australia. Satellite monitoring of vegetation health suggests some

areas that have experienced above average rainfall in recent months are now observing a significant increase in grass vegetation growth. “This includes large areas of NSW to the west of the ranges, parts of western Victoria, and southeast South Australia. A period of dry weather in summer can rapidly dry out this type of vegetation, creating fuel for grass fires.” The outlook says the longterm warming trend means that above-average temperatures now dominate most years, and recent months have generally followed this pattern. “The tendency for fire seasons to become more intense and for fire danger to occur earlier in the season is a clear trend in Australia’s climate, reflecting reduced and/or less reliable cool season (April to October) rainfall and rising temperatures,” the outlook says. “Fire season severity is increasing across much of Australia as measured by annual (July to June) indices of the Forest Fire Danger Index, with increases tending to be greatest across inland eastern Australia and coastal 0 Western Australia.”

We all want to see the back of 2020, a year that has brought us little more than misery. It began with terrible bushfires and has ended with a collective sigh of relief that we survived everything 2020 has thrown at us. But from adversity has come strength. We’ve learned that yes, you can run a company effectively while everyone you employ is working remotely. Hectares of empty offices around our major cities attest to the fact that we’ve proved to be more resilient than we thought we were. Technology has been the major enabler, keeping operations working smoothly. Keeping teams together via Zoom and other technologies has also given us all a new perspective on how families have worked through history – doing things together without getting too much in each other’s way. While for some being stuck at home every day through lockdowns must have been a trial, the social experiment that emptied out the buildings of our cities should nevertheless be considered a success. Continuing to work from home is not only possible; for many people it’s preferable and adds to that one-time utopian ideal of work/life balance. We will see further change happen over the next couple of years as companies adapt to the idea that many employees are happiest working from home some days and from the office when they’re needed there. A flexible work life also enables a flexible home life, so everyone can profit. From adversity has also come opportunity. Again it’s technology that is the hero, with insurers seeing for themselves how older customers have adapted to dealing with machines that talk to them, joining Gen X and Millennial customers in buying what they want when they want it, even if it’s 4am. The way forward for personal lines insurance is so obviously responsive policies that are flexible enough to meet the needs of people who don’t see the point in insuring everything all the time. So let’s look at 2020 with less of a jaundiced eye. It was a hell of a year, for sure. And at times it seemed it would never end. But it is ending, and we’ve learned a lot from the experiences we’ve lived and worked through. 2021 will be different again, as the risks from the coronavirus gradually diminish and change begins to percolate through the giant buildings that once housed thousands of insurance industry employees every day. Things will be both different and the same, but the things we thrive on will endure.

Terry McMullan

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Courting trouble Australian insurers have lost a crucial test case over business interruption cover as more legal battles loom By Wendy Pugh

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hat is absurdity? In the view of NSW Court of Appeal judges, it’s not insurers declining pandemic claims by relying on exclusions that refer to an old quarantine law that they didn’t know was replaced four years ago by new legislation. Australian insurers have been supremely confident that business interruption policies exclude losses related to the COVID-19 pandemic, even where wordings point to a repealed law, but they have been dealt an early blow. The Insurance Council of Australia (ICA) brought a test case to the Appeal Court to remove any lingering doubts that wordings citing the Quarantine Act 1908 “and subsequent amendments” should include the replacement Biosecurity Act 2015. While the Acts had different names, they had essentially the same purpose and function, insurers contended. The policy wording allowed for legislative changes that might evolve over time and it would clearly be absurd to base an exclusion around a law that no longer exists. The matter was considered important enough for five judges to hear the expedited case, but unfortunately for insurers, they ruled 5-0 in favour of policyholders in a decision handed down on November 18. The judges, taking slightly differing paths to reach the same conclusions on some of the issues, took a literal reading view when it came to the words. Justices Anthony Meagher and Michael Ball said it was “many steps too far” to suggest the Biosecurity Act, which has differences to its predecessor, could be considered a “subsequent amendment” under the ordinary meaning of the words.

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The other problem for insurers is that diseases declared under the Quarantine Act until its 2016 repeal still exist and could still be covered by the exclusion. The list includes avian influenza in humans, Severe Acute Respiratory Syndrome (SARS), cholera and yellow fever, but not COVID-19, which emerged late last year. While it would have made more sense to use the current law to ensure new diseases are also excluded, the wording was not a clear mistake, and it did not “rise to the level of absurdity”, Justice David Hammerschlag said. “In a commercial context, absurdity is more than just lacking in genuine commercial good sense. It entails commercial nonsense,” he said. Insurers have until mid-December to decide on an appeal to the High Court, but lawyers contacted by Insurance News have suggested overturning the NSW court’s ruling may be difficult, even if the matter is heard as a matter of public interest. “It looks like a pretty solid judgment, I have to say, on basic contractual interpretation principles, and it was five-nil,” Herbert Smith Freehills Partner Mark Darwin says. “There are no obvious points of appeal that leap off the page.” ICA is also consulting on the possibilities of running a second test case that explores issues such as proximity and prevention of access, as the industry digs in for more battles over COVID-19 pandemic cover. A victory in the first case for insurers could have knocked out a large number of potential claims, but for policyholders the win simply keeps the door open, with more hurdles still to be cleared before any payments are agreed.


The two policies examined in the test case still require the loss to be caused by an infectious or contagious disease occurring within 20km of the premises. Berrill & Watson Lawyers Principal John Berrill says the first test case was narrowly focused and the other issues, which have already been examined in a UK action, have been left “swinging in the breeze”. “The problem in Australia is we are doing test cases by drip-feed at the moment. That’s what it looks like, and it is stringing it out,” he told Insurance News. Mr Berrill says the two main avenues to claim under policies are via an infectious diseases clause or a prevention of access clause, and exclusions referencing the quarantine or biosecurity legislation really only apply to the former in most policies. “With one exception, I have not seen any policy where the exclusion clause applies to the prevention of access cover; it only applies to the infectious diseases cover,” he said. The insurance industry globally has been arguing all year that pandemics are meant to be excluded as there is no risk diversification for an event that can affect all regions and industries at once. Paying all claims would be beyond the industry’s capital resources and would lead to bankruptcies, they say. Mr Berrill notes potential losses from business interruption claims would be curbed by one-year timeframes, sub-limits and reinsurance arrangements. While insurers are holding firm, the economic toll of the COVID-19 pandemic and policyholder anger over claim denials has fuelled legal actions around the world including in the UK, the US, Europe and South Africa.

In the UK, the regulator has taken the lead in seeking clarity, with the Financial Conduct Authority (FCA) bringing together 21 policies from eight insurers to tackle many key issues at the same time in a single case. The matter was heard in the UK High Court in July, with the judgment backing policyholders on the majority of key issues, according to the FCA. Appeals from both sides have since been heard in the Supreme Court, the UK’s highest jurisdiction, in an expedited process and a decision could be delivered as soon as this month or early next year. Herbert Smith Freehills suggests the UK judgment will be relevant to how Australian courts approach causation and payment calculation issues, although there are legal and factual differences, particularly given differing pandemic experiences in the two countries. Mr Darwin says the rapid disease spread by the time of UK lockdowns was reflected in a map put up for the UK court of confirmed COVID cases that showed a sea of red dots across the country. “If you did that here, it would be a much different-looking map,” he says. Australian lockdowns occurred when there were relatively few cases, adding to complexities about disease proximity and the actual causes of the disruption. “You have questions about, if the Government did something because of an outbreak, is the cause of the loss the outbreak or the Government action,” Mr Darwin said. ICA says the industry intends to again meet the costs of policyholders and insurers in any legal process for a further test case. The cases are brought in conjunction with the Australian Financial Complaints Authority

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“Our expectation is that while there will be a hit to current-year earnings, the impact on ratings is negated by conservative reserving, reinsurance protection, and maintenance of robust capital buffers.” (AFCA), which provides free dispute resolution for consumers and small business. The other legal avenue that provides affordable access to justice for small firms is through potential class actions, which are being investigated in Australia and internationally. Separate actions, launched independently to the ICA test case approach, are also being closely watched. In Victoria, the Federal Court is considering a case brought by an Oakleigh café and restaurant over a claim denial that was based on an exclusion wording citing the Biosecurity Act. At the large end of town, The Star Entertainment Group, which operates casinos in Sydney, the Gold Coast and Brisbane, is also pursuing a Federal Court case over losses, with a two-day hearing scheduled for late April. US insurers, meanwhile, have faced a stream of lawsuits since March in multiple jurisdictions over business interruption claim denials, with many of the disputes coming from food services and drinking venues. The COVID Coverage Litigation Tracker, produced by Insurance Law Analytics, shows the number of cumulative case filings was at 1289 by early October, and business income coverage was sought in nearly all of those. “In the United States insurers have been largely successful in court challenges,” Insurance Information Institute Chief Actuary James Lynch told Insurance News from New York. “Many if not most policies specifically exclude losses caused by virus, and virtually all policies require direct physical damage to property to be activated.” The institute launched the Future of American Insurance & Reinsurance (FAIR) campaign in May to explain why pandemics are uninsurable and how only the Federal Government has the financial capacity to provide the relief small and large businesses need. With legal tussles set to continue, Australia’s listed insurers have provided updates to the market to keep investors informed on potential exposures. IAG said following the Appeal Court decision that it expects to make an after-tax provision of $865 million, or $1.2 billion before tax. The insurer noted it had about 76,000 business interruption policies and half of those had been using the Quarantine Act wording earlier this year. The provision includes $150 million for possible claims under prevention of access extensions, which the firm says cover property damage events where an authority makes an order preventing or restricting

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access to a premises, if that would pose a risk to either persons or property. “There is in the minds of some a bit of confusion as to whether or not cover is afforded under that extension,” retiring IAG Chief Executive Peter Harmer told the full-year results briefing in August. “Our view in relation to our policies – and I understand this is the position of the industry – is that the pandemic exclusion applies broadly across the entire cover and is not able to be selected as to which part of the cover it applies to.” Suncorp has topped up its provision by $125 million, taking it to $195 million in total pre-tax, while QBE, which is also involved in the UK test case, has said previously its exposure will be limited by reinsurance. “The net cost of any business interruption claims in Australia is likely to be limited to $US5 million per occurrence,” QBE says in an update after the NSW court decision. “This is subject to contributing losses (after recoveries under the group’s main catastrophe and quota share reinsurance treaties) not exceeding the group’s catastrophe aggregate reinsurance treaty limit of $US500 million.” Citigroup insurance analyst Nigel Pittaway says in a research report that the Appeal Court ruling could have “significant impacts” for the industry and it’s possible those may be greater for unlisted insurers compared to the listed firms. Nevertheless, S&P Global Ratings says Australia’s general insurance industry is still on track to achieve “a good solid return” and it’s early days in relation to how particular policies will respond. “Our expectation is that while there will be a hit to current-year earnings, the impact on ratings is negated by conservative reserving, reinsurance protection, and maintenance of robust capital buffers,” it says. In the wake of the Court of Appeal decision, Finlaysons Lawyers have suggested insureds should not just accept rejection of claims at face value and explore appeal avenues, such as through AFCA. Courts are not particularly interested in the broad arguments maintaining that pandemics were never meant to be covered, but they are interested in whether policies as written are being correctly applied. Absurd or not, Australian insurers have tripped at their first hurdle, with legal battles still having a 0 long way to run.



The Top 10 Influences By Terry McMullan

COVID-19

F I

n 2008 Insurance News presented the first annual list of the Top 10 influencers in the insurance industry. This year we’re taking a slightly different approach, in deference to the overwhelming variety of challenges and changes forced on the insurance industry by the emergence of a virus named coronavirus-2019 (COVID-19 for short). By the end of November the virus had caused the deaths of 907 Australians and some 1.38 million people worldwide. Its impact on economies, businesses, societies and families globally has been wide-ranging and incredibly destructive. Severe lockdowns have decimated many businesses and forced people to adopt new ways of living and working. Every major factor that influenced the insurance industry’s direction in 2020 has some form of linkage to the pandemic crisis. It would be remiss of us not to look more closely at these factors. So this year we’re examining not just the influencers who we believe have the power and push to move the industry forward into an uncertain and complex future, but also the influences that are already dictating the direction.

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or the insurance industry in Australia – and globally – the COVID-19 pandemic changed everything. A few local examples: It brought the industry’s gradual return to underwriting stability via a hard market to a halt. It decimated investment returns, which underpin insurers’ profitability, even as they worked on natural disaster claims of more than $6 billion from the storms of fire, flood and hail that battered the country in the summer. It caused controversies over travel insurers’ varied reactions to cancellations and – most remarkably – over a wording slip in many business interruption policies that exposes insurers to claims for risks they did not intend to cover. And it forced the industry to devise new ways of working that kept employees at home but connected. The offices of insurers, brokers and the army of service organisations that work alongside them – lawyers and loss adjusters, for example – have been empty in most cities as employees spent most of the year working from home. “Zooming” has entered the popular lexicon. Some of the temporary solutions adopted may well become standard practice. If there is an upside to the past nine months of challenge, it is this: the insurance industry is changing more quickly in ways that once may have seemed a long way from becoming reality. While opinions vary, there’s a strong feeling among analysts and industry leaders that 2021 will mark the beginning of what will hopefully be a rapid recovery. Time will tell.


THE HARD MARKET

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the premium is often on a “take it or try elsewhere” basis. Brokers, who have earned their commissions this year negotiating alternative approaches for their clients, have been vocal in making the point that for some risks there is no “elsewhere”. Underwriting agencies – the logical fallback when insurers decline new business – are suffering their own capacity problems, and focused on established relationships. Even unauthorised foreign insurers – or at least the UFIs brokers should be dealing with – are more cautious. This is a global problem. That’s not particularly good news for brokers and their clients, who over the past couple of years have seen local premium growth run well ahead of other developed insurance markets. The issue the industry will have to consider this year as it imposes

further premium rises is the issue of affordability, particularly in some of the higher-risk classes. Consider the impact on bottom lines of business interruption arguments and the risk of class actions, the cost of natural catastrophe claims and the growing list of liability losses insurers are facing. Nevertheless, industries large and small are suffering from revenue shortfalls every bit as severe as that faced by underwriters. But insurance is a business, shareholders are restless and premium rates have to be calculated against losses and risks. That’s why further premium rises next year seem inevitable. Swiss Re expects the local industry will experience gross written premium (GWP) growth of 3% next year, following nominal growth of about 5% this year.

CLIMATE CHANGE

that address climate change-related issues like mitigation to protect properties and people and keep insurance affordable. The record levels of claims for the past year’s spate of frightening bushfires, as well as floods and hailstorms, have demonstrated again the need for the industry to push harder for meaningful action to address climate change issues. While federal politicians continue to downplay the likely impacts of climate change, the previous summer of crippling natural catastrophes, coupled with temperatures that regularly break records, have brought home to Australians the inescapable conclusion that change is already happening. Insurers have spent much of the past 10 years pointing out the need to build stronger in cyclone-affected areas, while flood-prone areas need greater levels of protection as rainstorms become more volatile.

Last summer’s devastating bushfires, floods and hailstorms left a claims burden of more than $6 billion. With reinsurers becoming more skittish about Australian weather risks and investment markets depressed, the industry’s ability to continue offering affordable cover to at-risk customers is being stretched. The Government’s announcement of a new National Resilience, Relief and Recovery Agency to align and co-ordinate efforts to build resilience and better prepare for disasters came in response to the 80 recommendations of the bushfires royal commission, and its in-principle support of insurers helping individual customers adopt mitigation actions could will help to slow the pace of rising premiums. There’s a lot left to do, and the direction of the newly installed Insurance Council management will be crucial in driving the industry’s agenda.

he hard market was about 18 months old when the pandemic struck in the first quarter of 2020. Steep premium rises in many commercial classes (and personal lines) were well advanced in countering falling investment returns and returning insurers to more acceptable levels of profitability. And they need to. APRA’s latest prudential update shows the industry recorded an annual 73.3% fall in net profit after-tax to $900 million for the year to September. Following record losses (and consequent rises in reinsurance rates) incurred through the summer bushfires, floods and hailstorms, insurers’ risk appetites have become even more muted. Renewals are usually possible, but with restricted conditions and higher premiums. If they are high-risk,

U

nlike the coronavirus, climate change can’t be controlled by rolling out a vaccine. Governments around the world are falling well short in their efforts to lower atmospheric emissions that are warming the planet. While commitments to zero emissions in 30 years abound, climate change isn’t hitting the world with the sharp and sudden impact of a pandemic. Instead it is proving to be a slow and gradual progress that is raising temperatures around the world, giving us record-breaking storms of all kinds, melting ice and raising sea levels – to name just a few of the effects. This is already pushing insurers’ losses to unprecedented levels. Over the past 10 years the insurance industry has moved from its normal configuration of raising premiums as risks grow to actively lobbying for government policies

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REGULATION: SO MANY CHANGES…

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nsurers are already having to deal with a long list of significant regulatory changes, and it’s only going to get worse next year. Putting aside the introduction in July of a challenging new code of practice which imposes new practices and socially aware attitudes, the wash-up from the Hayne royal commission continues and the industry faces new compliance and governance measures. Major changes to product design and distribution of retail products will come into effect on April 5, tackling issues of improper

selling by requiring “product issuers” like insurers, coverholders and underwriting agencies to provide a “target market determination” which sets the target market and restrictions on selling each product. Unfair contract terms legislation is also expected to be enforced from April 5, with the regulators focusing on a number of common terms related to insurers allowing cash settlements based on the cost of a repair to them, others that are an unnecessary barrier to a claim being lodged and terms that reduce the cover offered where compliance with preconditions is unfeasible. One of the most notable changes is

related to the decision to put claims-handling under the Australian Financial Services Licence regime. An alternative for the legion of people involved in claims handling activities – loss adjusters and even company-appointed assessors among them – is to become an authorised representative. Then there’s the Financial Accountability Regime for insurers, which will be based off the Banking Executive Accountability Regime. So many changes and new regulations, in fact, that we don’t have the room to cover them all here.

THE CFO RISES

New Zealand CEO Paul Smeaton as Chief Operating Officer Insurance. Much the same thing happened at IAG in November, with the board appointing longtime CFO Nick Hawkins to succeed Peter Harmer as MD. That was swiftly followed by the splitting-up of the dominant Australian division into direct and intermediated divisions, to be run by acting managers. Mark Milliner, a highly regarded manager who ran the Australia division and most key areas of the company’s operations – and who was Mr Hawkins’ rival for the top job – was out the door. The third-largest local insurer, QBE, has yet to appoint a new group CEO to replace Pat Regan, who left the company in September shortly after the board investigated allegations of “poor performance” in relation to a female employee. Mr Regan was appointed to the top job in 2017 from Australian and New Zealand CEO. Prior to that he was the Group CFO, having been lured to QBE in 2014 from British insurer Aviva, where he was also CFO.

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ime was when the chief executive of an insurance company would have worked his way up from the mailroom, studying with the institute and working through the various specialties until he (it was always a male) arrived in the boardroom after 25-30 years as a knowledgeable insurance professional. But the boards of the nation’s two largest insurers have moved away from the dominance of the insurance technician by installing their chief financial officers as chief executives. It’s not an unusual phenomenon in Australian business, if somewhat disillusioning for career insurance people. Put simply, the CFO works closely with capital markets, maintains contact with institutional shareholders and speaks the same language as the company’s directors. Thus in the past year we have seen Suncorp Managing Director Steve Johnston – formerly the CFO – farewell Chief Executive Insurance Gary Dransfield, who was replaced by Lisa Harrison as Insurance Product and Portfolio Chief Executive and 14 insuranceNEWS

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TECHNOLOGY: PICKING UP SPEED

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he pandemic crisis of 2020 will be remembered a long time from now for the Australian workforce’s rapid transition to a mode of work that, at the start of the year, was rarely considered as a serious possibility. Working from home became the norm during the year, with responsive technologies making office tasks and communications easy and convenient. Insurance staff learned a new way of working that was, for very many, a cultural shift. No longer bound to the office thanks to lockdowns, employees discovered they could operate effectively and enjoy time not spent commuting. Similarly, the pandemic accelerated the insurance industry’s focus on customer-centric strategies driven by technology. With massive amounts of data available, insurers are working with developers to devise products that meet the rising generations’ demands for flexibility and control over how their assets are covered. There are already such products in the market – some driven by disruptors but most by established insurers – and we can expect to see a range of new products with catchy names, easy access and simpler processes emerge on the consumer market over the next year. The Australian insurance industry already boasts a comparatively high level of technology-based internal services such as transaction platforms and broker systems, and the commercial insurance market will use technology over the next few years to focus on client support services. As technology advances, so do the opportunities. Investing in products and services that capitalise on the growing demand for flexible and friendly products is an industry-wide priority.

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LAWYERS, CLASS ACTIONS AND MONEY

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nsurance is basically a contract between two parties, so the influence on the industry of legal issues and law firms has always been strong, if not always friendly. The impact of class actions in particular, involving multi-million dollar settlements on professional and management liability premiums over the past seven years has been profound. While such lawsuits are not frivolous and class actions do meet a need for less advantaged Australians to obtain financial redress, shareholder actions have had a massive impact on management liability products. There should be some discomfort in the fact that Australia has become the most likely jurisdiction outside of the United States in which a corporation will face significant class action litigation, according to leading law firm Allens. But the courtroom action worrying insurers at present is one for which they are solely responsible. At the end of November lawyers were considering the New South Wales Court of Appeal’s unanimous finding against insurers in a test case to determine whether policy wordings referencing the repealed 1908 Quarantine Act – which was replaced in 2015 by the Biosecurity Act – were valid in excluding COVID-related business interruption claims. The five appeal court judges decided COVID-19 is not a disease “declared to be a quarantinable disease under the Quarantine Act 1908 and subsequent amendments”, and “accordingly was not excluded from the disease benefit clauses”. While the insurers were considering their next move as this edition of Insurance News went to press, lawyers are already planning a class action on behalf of affected businesses. This is a high-stakes game with a substantial amount of insurers’ money on the table, and we can expect this one to run well into 2021.

UNCERTAINTY FOR THE SPECIALISTS

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nderwriting agencies which sell a limited number of specialised products are a mainstay for brokers and their clients. Many agencies are small companies run by professionals with specialised knowledge in niche products. Others are part of larger organisations like Steadfast and AUB. But for many independent operators, or agencies working under the umbrella of smaller broking companies, the biggest challenge right now is capacity. In previous hard markets brokers could fall back on the specialists to obtain cover for their clients. But that was before Lloyd’s clamped down on its member syndicates to control a series of big losses, limiting local underwriting agencies’ ability to meet demand. Some agencies that rely on local insurers for capacity are dealing with similar restrictions. However, the sector’s leaders say they will survive this hard market; they also expect it to weed out average performers. Adding value is what the agencies are focusing on, along with their ability to develop innovative and efficient niche products faster than the insurers can manage. As the hard market progresses we can expect larger broking groups acquiring high-performing agencies. An example is AUB’s acquisition in late November of Sydney-based 360 Underwriting. Greater diversification in capacity providers is also possible, with the caveat that brokers and agencies remain wary of unauthorised foreign insurers. The Australian market has been burned in past hard markets by dodgy foreign operators. But it should be remembered that many of the so-called UFIs being accessed by local agencies and brokers are substantial players in their own markets.


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11-20: THE INFLUENCERS 11. Insurance industry employees Stand by for big changes in the workplace, with insurers’ and brokers’ staff facing a future where working some days at the office and others from home is a permanent arrangement. That will (eventually) result in less office space being needed. Better educated than many of their forebears and far more tuned into technology, staff should enjoy more independence in future and help to drive sweeping changes to what they do and how they do it. 12. Robert Kelly, Chief Executive and Managing Director, Steadfast Group The co-founder and mastermind behind the listing and rapid growth of the Steadfast broking and underwriting agency empire remains at the top of his energetic game, reaping the rewards of scale and a hard market. 13. Andrew Hall, Executive Director and Chief Executive, Insurance Council of Australia An experienced political and public affairs operator, Hall hasn’t wasted time in dispensing with several key managers since taking over from Rob Whelan in September. The appointment of the high-profile corporate strategist and communicator indicates the council’s member companies want ICA to be more active and visible in pushing the industry’s many agendas with governments. 14. Mike Emmett, Managing Director, AUB Group AUB’s member companies are some of the best brokerages in the country, and Emmett, who joined AUB in May 2019 is focused on them and their core business as he turns away from the diversification program instituted by his predecessor. Now this change management expert is looking at ways to improve the effectiveness of AUB’s Sura-branded underwriting agencies. 15. Dallas Booth, Chief Executive, National Insurance Brokers Association Running an association whose member companies face many challenges, from regulatory reforms to commission levels, Booth has proved to be a solid and passionate defender of broking. Projecting the value of brokers and protecting their interests before numerous inquiries, he’s a reassuring presence in an insurance sector that is increasingly able to demonstrate its effectiveness. 16. The legal profession The insurance industry relies on lawyers to help them avoid legal traps and regulatory minefields, while lawyers on the “other side” represent aggrieved customers and push reform agendas. As the industry battles to avoid

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paying pandemic-linked business interruption claims and looming class actions, the only thing standing between them and substantial losses are the lawyers. 17. Nick Hawkins, Managing Director, IAG Hawkins has worked at IAG for more than 19 years. His only other employer was KPMG, where he worked in senior roles over 11 years. Appointed to the top job at IAG in November, he has already announced a restructure separating the dominant Australian Division into direct and commercial insurance operations. With change of all sorts and myriad challenges – including growth – dominating attention, Hawkins is a reliable and safe leader. 18. Steve Johnston, Chief Executive and Managing Director, Suncorp Suncorp has been through some internal problems in recent years, and Steve Johnston moved quickly to calm things down when he took over in September 2019. Since then he has announced a restructure that has seen two proven high performers take up management of the group’s insurance functions, which presumably will free him up to push internal change and move more quickly with the group’s technology-driven transformation. 19. Chris Mackinnon, Regional Head of Australia & New Zealand, Lloyd’s Despite its problems, London-based Lloyd’s remains an important part of the Australian insurance community. Mackinnon sits on the boards of both the Insurance Council and the Underwriting Agencies Council, which demonstrates how the market straddles both underwriting camps. An experienced manager and broker who has worked here and overseas, the personable Mackinnon has spent the six years since being appointed to the Lloyd’s role building new relationships and explaining the market’s sometimes bewildering problems and solutions to its Australian and New Zealand partners. 20. Mike Wilkins, Chairman, QBE Group Admired and respected for his intelligence and disciplined approach to the business, Wilkins had a brief return to fame in September when as Chairman of QBE he terminated highly regarded Group CEO Pat Regan for inappropriate behaviour. As CEO of IAG from 2008 to 2013, Wilkins transformed the group. In 2018, as a director of AMP, he was appointed acting CEO after the incumbent resigned in the wake of the Hayne royal commission findings. His sacking of Mr Regan after an investigation confirmed he’s still a leader with admirable values.

CHANGING CUSTOMER HABITS

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he coronavirus lockdowns across Australia have demonstrated the advantages of buying products online, and insurance is no exception. While technology is being introduced by the largest (and smallest) insurers to capitalise on what some call the “rising generations”, it’s underpinned by a strong intent to capture and – if it’s possible – retain customers across the spectrum. But the primary focus is the Generation X and Millennial customers who use technology as instinctively as Baby Boomers uses a wristwatch. Accelerating investment in innovative products will see many things in the industry change. Meanwhile, small disruptors are aiming for the niches. But understanding the needs and demands of Gen X and Millennial customers isn’t easy. If an insurer’s website is more like a marketing brochure than a clear and convenient way to access, compare and buy responsive products, tech-savvy Gen X (196580) and Millennial (1981-1996) consumers will pass it by. The transition is already under way from Baby Boomers who generally stick with insurers for long periods to new customers who use their smartphones to compare products, prices and even insurers’ reputations. The Millennials are aged from 23 to 39, and by 2025 they will represent 46% of the country’s salaries and wages. They want more responsiveness and interaction through a website that uses artificial intelligence. They also want products that can be tailored to their specific needs – a demand that insurers can go a long way to meeting through Big Data. Things are changing fast, and the 2020s will see personal lines, at least, transformed.


AFFORDABILITY: THE HARD MARKET IS HARD ON EVERYONE

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he traditional insurance cycle, under which insurers go “soft” on premiums and compete for new business when their investments earnings are high, before the market gets “hard” and premiums rise when investment earnings and profits begin to fall, still applies in 2020, but the rationale has been shelved for the moment. The coronavirus trashed global investment markets, and in Australia a payout of nearly $6 billion in claims from last summer’s catastrophic bushfires, floods and hailstorms added to the pain. Figures from global broker Marsh suggest Australian commercial insurance rates rose 33% in the September quarter compared with the corresponding period last year – compared with the 20% rise overall achieved globally. Swiss Re says premium growth in Australia in 2021 will be 3%, unless the benefits of a coronavirus vaccine kick in earlier. The hard market is getting literally harder, with premium affordability beginning to be an issue for business groups and consumer advocates. In late November the Actuaries Institute called for government intervention to help manage the affordability issue, with households in up to 12% of Australian postcode areas facing pressure in meeting premiums. Some underwriters and brokers have predicted that the high premium levels of 2020-21 will be a feature of the market for the next few years at least, as insurers recoup their losses and set aside reserves for the next series of natural disasters. COVID-19 may disappear next year, but climate change-induced mega-catastrophes remain an issue of cost to a beleaguered industry.

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That sinking feeling Insurer profitability just “fell off a cliff”, but actuarial firm Finity believes there’s no need to panic By John Deex

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ustralian insurers have traditionally targeted a return on equity (ROE) of about 15%. In 2018/19, the figure was a respectable 13%. But, as Finity’s latest state-of-the-industry Optima report shows, last financial year it dropped like a stone to 4%. Finity Principal and lead author of the report Andy Cohen told Insurance News “you’ve got to go back a long way” to find an ROE that bad. Two decades, in fact. “So we really have fallen off a cliff a little bit, perhaps not surprisingly given the bushfires [and other natural catastrophes] combined with COVID.” Mr Cohen says insurers “have a choice” about which ventures they can go into, or products they can launch, and “will be looking for a certain ROE to make it worth their while”. “The standard practice a few years ago might have been 15% after tax, but with risk free rates dropping then that target tends to drop. “If you are only getting 1% on your cash then you

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are perhaps happy to get something more like 10% on money you invest in an insurance company. “We tend to think of that target range as 10-15%. My personal view is at the moment it could or should be closer to that 10%. While 13% was a good result, there’s been a big slide down to 4%, well outside of that target range.” Although they undoubtedly contributed, it wasn’t bushfires or even COVID that caused that number to plunge to such lows. The real culprit was low investment returns that are getting even lower. “We calculate that eight points out of that nine-point drop are as a result of investment returns collapsing,” Mr Cohen says. “They were worth $3 billion to the industry in 2019, and they fell to $1 billion in 2020 – one-third the level of the return. “That $1 billion is equivalent to about a 2% return versus more than 5% the year before, so it’s quite a big drop.


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“It is a volatile industry where you get good years and bad years, rather than even years all the time. That is the nature of insurance.”

“And I don’t think there will be too many who think there’s lots of investment return to be had in the next 12 months. “So if insurers are to get improved profitability, it really has to come from the underwriting side, whether that be through lower claims, higher premiums, or better expense control. All those things are quite difficult in the current environment to achieve.” So then, expect a hard market to get even harder, bringing affordability issues into play. “There’s that undercurrent of affordability that has been bubbling away for a while,” Mr Cohen says. “If you are thinking about the business space and property classes, they have seen some quite strong claims inflation over a period of time. For insurers to just stand still and maintain their profit margin they need to put rates up. That is still happening. “And against that background you have got businesses, particularly SMEs, doing it tough and the economy is depressed. “It is an issue for insurers and brokers to be dealing with. While we have put some forecasts out there, they are predicated on the hard market continuing. “That’s because the hard market does need to continue for a number of classes to get back to target profitability. “But of course the purchaser of the insurance is doing it tougher now than they were a year ago, and are perhaps not as able to absorb an increased insurance premium, so there is quite a tangle there to unwind.” Finity foresees “a small bounce back” in FY21, but predicts ROE will “languish” at about 7%, still some distance behind target. In FY21 premium growth is likely to be flat, “based on a combination of declining exposures offset by rising prices”. Commercial lines will continue to lead the way on pricing, but the collapse of the travel insurance market

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is a “big blow” to industry premium volumes. Overall, Mr Cohen is not overly pessimistic. While affordability is a growing concern, businesses will continue to need insurance. And even a 4% ROE is manageable, for one year. “I don’t think you’d want that to be the long term average ROE for the industry, but it continues to be well capitalised, even after the year it’s had. “Capital adequacy has slipped back by about 12 points from last year, by the APRA measure, but it’s still sound. You wouldn’t want 4% per annum for evermore, but it is a volatile industry where you get good years and bad years, rather than even years all the time. That is the nature of insurance. “This year was a year when a lot of things happened that conspired to drive the number down. “Will that happen every year? No. So I don’t think this year is a problem per se. “That’s not to downplay the endless challenges the industry has to get back to target profitability, but it’s not a problem from a solvency point of view.” There is one complicating factor waiting in the wings – La Nina. Finity’s modestly positive predictions for the next financial year are based on there being no repetition of the Black Summer and its $6 billion claims. With a La Nina in play, we shouldn’t have severe bushfires again, but we may well have equally severe cyclones, storms and floods. “In our forecast we have made an assumption that the weather-related claims costs will revert to a broadly long-term average level,” Mr Cohen says. “But clearly that could be quite different. “[Last summer] was a bad year. If we had that again then obviously reinsurance comes into play, so it doesn’t all drop to the insurers’ bottom line. “But it would make a $500 million or $600 million 0 impact on industry profit if it happened again.”


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Hard times As businesses battle a COVID-induced economic slowdown, they’re also facing a hard insurance market with some way yet to run By John Deex

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new term was coined by a recent Australian Industry (Ai) Group poll – “insurance stress”. Increasing numbers of businesses are facing extraordinary difficulties accessing affordable insurance, bringing some sectors to the brink of failure. More than half of the Ai Group members polled – mostly medium-sized businesses – reported “unusual trouble” seeking insurance in the past 12 months. High premium growth was the most frequently reported problem. Meanwhile, submissions to an Australian Small Business and Family Enterprise Ombudsman insurance inquiry backed up the concerns, with the tourism industry emerging as one that has been particularly hard hit. The market was already hardening before COVID, and before the bushfires. Now it’s kicked up to another level, and there’s no end in sight. The list of badly-affected sectors grows ever longer. We knew about Queensland strata, buildings with combustible facades, financial lines such as directors’ and officers’, trampoline parks and recycling centres. We can now add regional pubs, caravan parks, snowfield resorts, marinas and adventure tourism. And the list keeps growing. Peter Clay, GM of Insights and Government Relations at the Caravan Industry Association of Australia, told Insurance News that on top of the issues with bushfire and catastrophe exposure are concerns around public liability. “As caravan parks have developed and become more of a premium product they have waterparks and jumping pillows and BMX tracks and all this really great stuff,” he said. “A lot of these activities are starting to trigger concerns with insurance providers. “It is no exaggeration to say that some operators have invested millions of dollars, yet they can’t get insurance for it so they have got all this big investment sitting there idle. It is stressful and it is concerning. “For businesses to have insurance and all of a sudden have that insurance policy cancelled…it is really hard to run a business in that environment.” The Ai Group poll didn’t focus on any particular

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sector, but found issues across its membership. It highlighted companies forced to use “overseas insurance companies” – officially known as direct offshore foreign insurers – with others flagging a tripling of premiums. “The hardening of the market is quite profound this time around and our member poll backed that up,” Policy Officer and report author Rachael Wilkinson told Insurance News. “I would say it is a genuine threat to certain businesses. It’s our view that insurance is a key pillar of industry and doing business.” So what can insurance brokers who stand between cautious insurers and desperate clients do? While rising premiums may be good news as far as commissions go, brokers’ primary focus is to have their clients adequately protected against loss. National Insurance Brokers Association Chief Executive Dallas Booth says it’s the scale and breadth of the problems that makes this hard market different from others that have come before. “In my experience there have been periods where a particular product area, or a particular line of insurance was difficult,” he tells Insurance News. “We had a public liability crisis in the early 2000s, storm and flood issues in the early 2010s and so on. “But at the present time there is quite considerable challenge in most areas. It’s an across the board thing. It’s challenging for policyholders and it’s challenging for brokers as well.” The affordability concerns are real, and getting worse, he says. “I’m getting a lot of concern coming to me at the moment about clients not really being able to afford a proper insurance program,” Mr Booth says. “Many brokers are having very hard conversations with clients about what they can afford to insure and what they might need to let go, and it becomes very distressing for brokers when they can see that a client might be left quite exposed. “At the end of the day brokers are absolutely aware of their obligation to get the best outcome for their client. But sometimes, the market being what it is, that comes at a cost that the client can’t afford.


“That puts it back on the broker to look at some sort of compromise to make sure there is at least some degree of protection.” Mr Booth says brokers are absolutely demonstrating their value at the moment in “thinking outside the box” to access cover and helping clients with managing and mitigating risks “so there is a good story” to put to underwriters. MGA Managing Director Paul George agrees. “I think most brokers take a fair amount of pride when walking out of a business knowing they have gone a fair way to protecting the financial exposures for that client,” he tells Insurance News. “It is a very concerning thing where the market, which four or five years ago was competing well, today can respond so differently.” Mr George believes setting expectations in clear terms and with plenty of notice is an important role for brokers in the current market. “It’s almost a ‘brace yourself’ conversation because the $12,000 you might have paid last year could be $50,000, and there may be no market for that particular risk. That’s the reality of it.” Mr George says uninsurable clients thankfully still appear rare but warns that things may get worse before they get better. “I’ve asked a few people who have been in the industry a lot longer than I have, if they’ve seen a market like this,” he says. “My father remembers similar circumstances 30-plus years ago, and he mentioned that in his experience, it can get worse beyond where you think it can go before things actually start to improve. It’s just a matter of, how far can we go?” In terms of solutions, the client, broker and underwriter can only do so much.

Ai Group stresses that government support is also needed – whether that’s in cutting carbon emissions to tackle the climate change threat, disaster mitigation projects or reducing state taxes on insurance. Insurers often say that reducing the risk reduces the premium, and Mr Booth believes the “active input” of all levels of government is critical. “That is something that NIBA and the Insurance Council have been saying for a long time,” he says. “The Australian climate is such that if you want property insurance to be affordable you have to take steps to make sure that the broader risks of flood, fire and storms are properly managed through land use planning, building standards, building controls and so on. “Australia has to learn to live with its climate, more so than it has done in the past.” 0

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Standing tall Deloitte has compiled a report for NIBA to ensure the role of brokers and their value to the economy is clearly understood By Wendy Pugh

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reative arts, gas supply and insurance broking aren’t typically spoken about in the same breath, but they have something in common. Direct contributions from each to the Australian economy are roughly equivalent, even if broking hasn’t received the same level of public attention as the other higher-profile sectors. Deloitte Access Economics says in a report aiming to give the sector its due recognition that broking provided nearly $2.6 billion in gross added value to the economy in fiscal 2019 and directly employed 15,000 full-time equivalent workers. “Insurance broking really is the principal way in which commercial general insurance is done in this country from small business up to large corporates,” Partner John O’Mahony said at a report launch event. “I don’t think that is a well-known fact.” The Economic Value of Insurance Broking report was commissioned by the National Insurance Brokers Association (NIBA) as it arms itself for another regulatory battle. The Hayne royal commission recommended a financial advice review should include whether the exemption of general insurance from a ban on conflicted remuneration remains justified. The review will be completed by the end of 2022, and action on the inquiry is set to ramp up next year. NIBA is making sure it is an informed debate and that brokers are not swept up in reforms aimed at problems affecting other areas of the financial services industry. Chief Executive Dallas Booth says those calling for the abolition of broker commissions haven’t necessarily thought about what happens next or the impact any change could have, and it is not clear what detriment they are trying to remedy. “This important report confirms the value of

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brokers to clients, but also demonstrates that broker value goes well beyond that,” he says. The Deloitte report will be delivered to politicians and regulators and will feed into a NIBA strategic review of the industry. The combined work will lay the groundwork for the association to produce a detailed submission and present its case to the scheduled inquiry. The Deloitte Access Economics team highlights the importance of broking to the insurance sector, the endto-end value it provides either side of the point of transaction and future considerations as risks evolve. “The prevalence of broker use throughout the economy and across all types and sizes of businesses speaks to the value that organisations place in them,” Deloitte says. The value brokers deliver is laid out in the report in the context of clients, insurers, the economy and government and broader society. The benefits are multi-pronged. Brokers save clients time and resources in navigating an otherwise complex decision, facilitate competition among insurers, increase choice, improve market efficiencies and ultimately help reduce burdens on governments. In the case of clients, the report outlines the extent of the relationship from end-to-end, pointing out brokers’ contribution from risk assessment through to claims negotiation. “Insurance broking is not as simple or transactional as walking into a store and buying a good,” Mr O’Mahony says. “It is a relationship-based business that involves up to 10 pre-sales and post-sales services and creates many sources of value.” The average NIBA broker offers products across 10 different insurers. Comparing three options would take 1-2 hours compared with 2-6 hours for the typical SME client. Time saved for clients across a standard annual


• • • •

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engage with policy makers about the impact of regulatory changes, they can support optimal outcomes for clients.

On average, brokers estimated that 45% of their new clients were existing business that were underinsured or not insured, prior to engaging a broker (Chart 2.7).34 2.3 Increasing competition in the insurance market • Brokers provide clients information in the form of comparisons Chart Previous insurance levels each broker’s clients of product premiums. This allows clients to make comparisons of Brokers2.7: support clients by reducing the of information asymmetry Previous insurance levels of each broker’s clients the prices of like-for-like products. they face in the insurance market. This information sharing

Average proportion of brokers’ new clients

increases40% the level of competition between insurers, in terms 36% 36% of more precise pricing to reflect the clients’ risk profile, and increased product competition, particularly in terms of the range and customisability of products some through the broker channel. 30% 2.3.1 Price competition There is a high level of information asymmetry in the insurance market. In the absence of brokers, clients do not have the tools 20% to accurately compare the product premiums across insurers and may not have sense of an appropriate benchmark for the appropriate premium for an insurance line. Given that insurers 10%on the information they have about the client, clients price based working with a single insurer may have a limited sense of how competitive a price offer is. 0% the level of information asymmetry which clients Brokers reduce Same level Underinsured and insurers face in the insurance market:

Source: Deloitte Access Economics, Broker Survey (2020) Note: n=421. Single response per broker per category.

• Brokers provide insurers with client information. Risk premiums are most competitive where the insurer believes it has good information about the client and is confident about efficiently pricing this risk. Brokers information sharing can increase insurers’ price competition, to the benefit of the client.44 Another way brokers can reduce the premium to the client is to tailor or customise products to clients’ specific needs. For example, 17% homeowners often purchase separate insurance for jewellery; however, if this is bundled into their home and contents coverage, 9% the premium for the consolidated product is often lower than for the two separate products.45 3% Surveyed brokers were asked to consider their most recently acquired client, who was not previously using a broker to purchase Not insurance. insured at When all Notabout insured all which these Overinsured asked theatprices clients were (new business) (existing business) paying for their insurance, prior to engaging a broker, responses were mixed.

Chart 2.9: Client’s level of insurance, prior to engaging their broker

Client’s level of insurance, prior to engaging their broker

26

Paying more on their insurance policy than they are today

33%

Paying less on their insurance policy than they are today

30%

Paying about the same for their insurance Policy

24%

Don’t know / not applicable

14% 0%

10%

20%

30%

40%

Proportion of brokers Source: Deloitte Access Economics, Broker Survey (2020) Note: n=421. Single response

insurance life cycle is estimated at an average of 11 hours, equating to more than $230 million in time-savings for business customers. And there are additional benefits in claims handling. “Consultees reiterated the value of an insurance broker in helping them to understand the often major implications of minor differences in policy wordings,” the report says. It’s estimated some 45% of new clients with existing businesses are underinsured or not insured before engaging a broker, while brokers have identified that 62% of clients have limited understanding of the risks they face. Some 54% of clients pay the same or less on their insurance after engaging a broker, and in some cases may have gained greater coverage. As a distribution channel, brokers represent a cost to insurers via commissions and where insurer sale margins may be reduced from further market competition. But brokers also bring value to insurers, particularly by assisting in distribution and tailoring of complex products and supporting insurers to more confidently assess clients’ risks, the report says. The expanded distribution reach includes accessing clients outside capital cities, with many brokerages located in regional areas and focusing on local services. Broker input helps insurers understand new risks, such as cyber threats, and the types of coverage sought by clients across industries as trends shift. They contribute support for refinements to wordings and innovations that deliver better outcomes. “Brokers facilitate better risk management and economic stability, through better product matching, faster claims receipts and broader risk advice,” Deloitte says. Modelling by the firm shows the contribution to the

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Australian economy from the sector rises to $3.5 billion if indirect benefits from purchases of goods and services are added to the equation. But Mr O’Mahony notes that “not everything is going to be measured by gross domestic product and employment figures” when looking at the broader benefits for the government and society. Brokers ensure timely payouts after natural disasters, advocate for clients and are able to help find cover, including through overseas markets, for those who may otherwise find it tough to get insurance. “Where brokers can work with clients and insurers to reduce instances of underinsurance or non-insurance for difficult-to-insure risks, this reduces the burden on government and society,” Deloitte says. “Where risks cannot be placed with insurers, government and society act as ‘insurers of last resort’ by providing financial support to communities for disaster relief recovery.” The report also recognises the work of the industry in local communities, with surveyed businesses donating more than $25,000 a year to charitable and other social causes and many staff hours spent as volunteers. NIBA President Eric Harris says the Hayne-triggered remuneration inquiry includes broking despite no evidence of problems in the sector emerging from the royal commission. Experience from the past highlights that education about the role of brokers will be key. “We think this report will help bring that to the table,” he says. “We are going to share it as broadly and widely as we can to help people understand the value that brokers bring to their clients and the community at 0 large and the economy.” • Brokers give back – page 53


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An explosive problem The Beirut port blast in August highlighted the risks associated with ammonium nitrate, which is most commonly considered a fertiliser By Bernice Han

30 30 insurance insuranceNEWS NEWS December December2020/January 2020/January2021 2021


T

he world was shaken by scenes of the massive destruction in Beirut following an explosion of 2750 tonnes of ammonium nitrate that was apparently abandoned in a warehouse. The blast in the Lebanese capital’s port flattened a large section of the city, killing at least 200 people and injuring thousands. For Keith Craig, a chemical engineer who lives in the New South Wales city of Newcastle, it was a grim reminder of the devastation this widely used chemical can wreak. Because while its primary purpose is as a fertiliser, ammonium nitrate is also commonly used for blasting in the mining industry. Just add some diesel and a detonator and it becomes an explosive. For Mr Craig and the Newcastle community at large, the Beirut disaster has reignited long-running fears of a potentially similar fate in the event of an accident at a nearby ammonium nitrate plant that holds up to four times the amount that hit Beirut. Located on Kooragang Island, the Newcastle facility is less than a kilometre away from the nearest homes and about three kilometres from the city’s central business district. Orica, one of the world’s largest providers of commercial explosives, owns the plant. The site houses between 6000 and 12,000 tonnes of ammonium nitrate at any one time, depending on demand from the Hunter

Valley coal mining industry. Orica says all ammonium nitrate storage areas at the facility are fire-resistant and built exclusively from non-flammable materials as part of the company’s rigorous safety approach and risk management plan. An additional layer of security comes in the form of designated exclusion zones around these areas. The plant must also comply with safety standards set by the NSW Government, and is regularly inspected by authorities. Orica also undertakes regular site-wide emergency response exercises, including an annual one with local emergency services. But the assurances are not good enough for Mr Craig, who as a member of Stockton Community Group has been campaigning for at least 10 years for the plant to be relocated away from populated areas. The group has intensified its efforts since the Beirut incident, launching a public petition to pressure lawmakers into action. “You can argue [that] in Beirut it wasn’t stored well and here they store it a lot better, but what we are saying is while it’s stored a lot better there is still a chance of an explosion,” Mr Craig told Insurance News. “There’s a thing called a black swan event, it might be a very rare event but if it happens, boy it’s going to be catastrophic. Beirut is a classic example of that. “The outcome would be catastrophic. It’s a real concern for the Newcastle community.”

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Deadly aftermath: Beirut was the scene of the latest ammonium nitrate explosion

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“The hazards of ammonium nitrate are well known by the people that manufacture it, but less so by the multiple organisations that transport and store it around the world.”

Newcastle residents aren’t the only ones who are concerned. Just as worried about the widespread manufacture of ammonium nitrate is the global insurance industry. Five years after the Tianjin port explosion in 2015, insurers are looking again at another hefty bill sparked by the same chemical. Insured property losses from Tianjin reached about $US2.5-3.5 billion, according to Swiss Re. Various estimates have suggested the Beirut incident could well end up as one of the biggest man-made loss events since the Tianjin disaster, when ammonium nitrate stored illegally inside one of the warehouses at its port caught fire and detonated. Fitch Ratings says Beirut losses could reach $US3 billion, with a large part of the bill to fall on European reinsurers. Munich Re has said the Beirut incident triggered the biggest man-made losses for the business during the September quarter. Swiss Re’s property and casualty arm lost $US201 million in the nine months to September, as earnings took a hit from the event. An early analysis from Guy Carpenter predicts multiple lines will incur losses from the Beirut disaster. The reinsurance broker says similar industrial exposures could impact some of the international insurance market. Its initial estimates put the combined hull, cargo and port facility losses at about $US250 million. Beyond the immediate hit to earnings and upward pressure on renewal rates, which typically follows after a significant loss event, the port disaster is a reminder of the risks associated with insuring facilities that are used for storing ammonium nitrate and other equally hazardous chemicals. Ammonium nitrate by itself is not combustible. But concerns over the chemical have increased sharply because of a number of serious accidental explosions around the world including in Australia. (See panel on page 34). In its natural state, the chemical is a white crystalline solid that looks like salt. It is a stable compound, but when it comes into contact with heat, it can set off an explosion. The material is one of the world’s most widely used fertilisers and also the main component in

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explosives used within the mining industry. Poor storage and handling processes are what makes the material potentially dangerous. Before the Beirut and Tianjin industrial accidents, most of the major ammonium nitrate explosions going back to 1921 have been linked in one way or another to human negligence related to storage and lapses in control procedures. “The recurrence of such explosions indicates that lessons from the past are either not being learnt, or are being forgotten, and a greater industry focus is required to prevent similar tragedies in future,” Marsh JLT Specialty says in a paper issued after the Beirut blast. The paper outlines key areas in need of good practices to prevent future similar incidents. For a start, the storage area for ammonium nitrate is of paramount importance. Its construction should be designed to minimise the risk of contamination, exposure shock, confinement and heat sources. The paper also calls for strong regulation, good housekeeping, enhanced security around storage sites, fire safety measures and ensuring employees are trained in the hazards of ammonium nitrate. Australian risk modeller Risk Frontiers says the Beirut incident underscores how frequent and deadly these events are. Since 1900, ammonium nitrate accidents have occurred at a uniform rate of 0.75 per year, with an increase of about one per year since 2000. In Australia there have been a number of such accidental explosions, although these are confined to the transport of the chemical. In September 2014 a truck carrying 56 tonnes of ammonium nitrate rolled over a bridge in southwest Queensland and exploded, injuring eight people including the driver and six firefighters. Two months later a trailer carrying the material caught fire on the Stuart Highway in the Northern Territory and exploded shortly after. While storage of ammonium nitrate is heavily regulated in Australia, the Beirut explosion illustrates the obvious dangers of the material, Risk Frontiers says. “A key learning from this event is the complexity



A timeline of accidents

“In the case of most ammonium nitrate manufacturing companies, certainly in Australia they operate very safely. But even so, there is a small possibility that something can go wrong.”

of risk,” Andrew Gissing, the risk modelling firm’s General Manager, told Insurance News. “Though much of our risk profile from natural and technological disasters can be anticipated and modelled, there are still events that we have perhaps not imagined. “The Beirut explosion has illustrated the dramatic impacts of a low probability, high consequence disaster event.” Swiss Re Corporate Solutions, the commercial insurance arm of Swiss Re Group, says the main threats for ammonium nitrate storage are contamination, confinement and construction. The best risk mitigation is elimination, but because ammonium nitrate is a very valuable material with a myriad of uses, the insurer told Insurance News that “managing it scientifically in a targeted manner is of highest priority in risk management and control”. “The hazards of ammonium nitrate are well known by the people that manufacture it, but less so by the multiple organisations that transport and store it around the world,” Swiss Re Corporate Solutions says. “Because of its widespread use, it can be found in ports, warehouses and other logistical facilities in all corners of the world.” In a statement of the obvious, the latest loss prevention advisory from Swiss Re Corporate Solutions advises sites designed for making and handling the material are not constructed using combustible materials, and that efforts should also be made to ensure the material is stored away from flammable materials or other sensitisers. Unlike natural disasters such as earthquakes and cyclones, modelling man-made risks where there are elements of human decision-making involved is not an easy task. Rade Musulin, a Principal with actuarial firm Finity, says “modelling of this stuff is necessarily a combination of looking at limited historical experience and constructing scenarios”.

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“It’s a mixture of history, engineering scenarios, understanding changing technology, etc,” Mr Musulin told Insurance News. “This is not like modelling earthquakes or cyclones where you’ve got a large number of natural disasters which have not changed much over time. “You have a human element here which is challenging to model in a traditional sense. There’s art and science involved in modelling anything like this, particularly because human decisions are involved. When you have things like terrorism or ones where human errors cause risk, it makes the modelling much trickier.” Mr Craig, the Newcastle resident who is campaigning for the relocation of the Orica plant, is adamant the risk is simply far too high even if modellers get their calculations right. “If Orica has an explosion (at the Kooragang plant), the amount of insurance that would have to be paid out would basically destroy that company,” Mr Craig says. He has the support of University of Adelaide’s chemistry Professor Stephen Lincoln, who told Insurance News “it is best not to have ammonium nitrate plants close to human habitation”. South Australia’s main supplier of ammonium nitrate, Incitec Pivot, moved into a new area with state-of-the-art safety systems after the SA Government purchased its facility in Port Adelaide. Local groups, SafeWork SA and SA Health had expressed concerns the facility posed an unacceptable risk to residents of the Dock One residential development. “In the case of most ammonium nitrate manufacturing companies, certainly in Australia they operate very safely,” Professor Lincoln says. “But even so, there is a small possibility that something can go wrong and maybe it’s one or two per cent. But if they do happen, the consequences are really 0 huge.”

Accidental explosions of ammonium nitrate have caused some of the biggest man-made disasters in recent years. Here is a list of key events, including in Australia: Location: Beirut, Lebanon Date: August 4, 2020 A major fire broke out at one of the capital city’s port warehouses, where some 2750 tonnes of ammonium nitrate had been sitting for six years. The blast killed more than 200 people, left more than 6,500 injured, and 300,000 people homeless, Location: Tianjin, China Date: August 12, 2015 Illegal storage of ammonium nitrate at one of the port city’s warehouses caught fire and caused a series of blasts. It killed 172 people. Location: Ti Tree, NT, Australia Date: November 18, 2014 A road train carrying ammonium nitrate fertiliser exploded. Witnesses saw a fire igniting on the left hand side of the rear axle of the rear trailer. Location: Wyandra, QLD, Australia Date: September 5, 2014 A truck carrying 56 tonnes of ammonium nitrate rolled over a bridge and exploded. Eight people including the truck driver, a police officer and six firefighters were injured. Location: Monclova, Mexico Date: September 9, 2007 A pickup truck lost control and crashed into a trailer loaded with 22 tonnes of ammonium nitrate and fuel oil. A fire soon started in the trailer’s cabin and an explosion occurred shortly after. Location: Ryongchon, North Korea Date: April 22, 2004 A massive explosion occurred in the town of Ryongchon bordering China, killing at least 160 people and destroying nearly 2000 structures. China’s state news agency Xinhua reported the blast had been blamed on ammonium nitrate leaking from a train. North Korea blamed the explosion on “electrical contact caused by carelessness during the shunting of wagons loaded with ammonium nitrate fertiliser”. Location: Toulouse, France Date: September 21, 2001 A warehouse containing 300 tonnes of production rejects of ammonium nitrate granulates exploded at the Azote de France chemical factory. A 2006 report by judicial investigators blamed the blast on negligence that allowed the material to come into contact with other chemicals in the plant.



Insurance Ad Oscars 2020 By Kim McNeil, Partner at The Lead Agency

W

hich insurance ads hit the mark this year, and could they have been even better? It’s that time of year again where HR reminds us what is acceptable behaviour at the work Christmas function, we try to think of different excuses to get out of the number of end-of-year-event invitations, and Insurance News publishes its annual Insurance Ad Oscars. In keeping with the tradition of the Ad Oscars, we defer to the considerable expertise of insurance marketing consultants, The Lead Agency. Its team has looked at the insurance TV commercials that have run throughout the year, and awarded the insurers, brokers and underwriters that did it well with a critically acclaimed ‘Insurance Ads Oscar’. From Kanye West as presidential candidate, to the rise of Tiger King Joe Exotic and Carole Baskin, 2020 has been a year like no other. It began with state of emergency declarations in several states hit by severe bush fires, not to mention the destruction of millions of acres of land, homes and businesses. Still recovering, the country was then thrown into chaos as a result of the global pandemic COVID-19. Working and playing from home became the new normal, and thousands of businesses had to close, or significantly alter the way they operate to survive.

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We all had to pull together and find a way to stay alive and relevant in the face of so much uncertainty. Those in the insurance industry were no different. The shift in behaviour has impacted how insurers, brokers and underwriters operate and communicate with their clients and potential clients. This year insurance advertising had to look beyond the typical marketing tactics and find ways to resonate, and genuinely help the businesses that they work with – many of which were forced to close for a substantial part of the year. So, this year’s Ad Oscars are looking at the companies that have altered their marketing strategy to address the world around them.

The “Well That Was FireTrucked” Award Criteria: Awarded to the ad that tapped into consumer emotion to drive meaningful action to improve behaviour Winner: NRMA Insurance youtube.com/watch?v=RkrYxSuBZhM Emotion in advertising is something that NRMA Insurance often uses in their campaigns, winning last year’s award for “best use of emotion in advertising”. This year, NRMA Insurance focused on raising awareness around bushfire protection – an issue that rose in prominence for Australians.


The First Saturday campaign encouraged Australians to perform a task on the first Saturday of every month to make their homes more bushfire-ready. The campaign used re-enacted footage of RFS volunteer firefighters inside a fire truck to remind Australians of the devastation bushfires have caused in the last decades. Controversially, NRMA Insurance’s ‘First Saturday’ campaign was pulled from TV after the advertising industry body Ad Standards received complaints from viewers that the footage was distressing. An RFS volunteer said that the campaign was “very disturbing and in poor taste,” while a parent of an RFS volunteer stated “I find this extremely disturbing and upsetting, as this could be my son in a few months’ time”. Another complaint questioned the relevance of the ad to NRMA Insurance. “The campaign seems to be designed to reduce NRMA insurance liabilities not help first responders.” Ad Standards ruled that the ad had breached the Code of Ethics, based on the portrayal of violence. However, NRMA Insurance responded to complaints, stating that the ad was created in consultation with the RFS, the Australian Red Cross and the SES, to make the re-enactment as realistic and safe as possible, and to ensure the ad was appropriate for television. Advertising offending its viewers is nothing new; in fact, Insurance News has covered similar stories in the past. As reported in February 2015, Ad Standards received complaints about a Budget Direct advert. The advert showed a character called Captain Risky diving into shallow water and driving a car off a tall ramp. Viewers were concerned it may

encourage children to perform dangerous stunts. Others complained about a Bingle ad (in 2015), which featured a computer-generated chimpanzee skydiving while blindfolded and then driving, stating that it promotes animal cruelty. In both of these instances, media regulators dismissed consumer complaints about the adverts, and the insurers did not take their campaigns off the air. What’s the difference here? The message is about mitigating risk, the opposite of the complaints against Budget Direct. Unlike Bingle, there was in-depth consultation with relevant stakeholders (although we concede there could have been a chimpanzee focus group). As the verdict was based on the “portrayal of violence”, perhaps NRMA Insurance’s topic was too sensitive and too soon. But that emotional balancing act is something advertisers often deal with to influence and persuade us. The Transport Accident Commission (TAC) in Victoria has famously/infamously pushed a shocking and emotional strategy. It is open about how their road safety campaigns and commercials depict real-life situations to demonstrate the reality of what happens when you are undertaking dangerous driving practices. TAC declared it their mission in 1987 to “upset, outrage and appal” Victorians to reduce the number of road deaths in the state. TAC has stated that it shows “highly emotional style commercials because they’re very good at reaching hard to talk to and tough audiences”. They also spark debate and get people talking, which makes it more likely that the message will stick in

their memory. And it works. When the campaign started in 1989, the road death toll in Victoria was 776 in a year. Last year, the total was down to 229. We would argue that this could have been the same for NRMA Insurance. Had its message got out to the masses, more people would be aware and ready for this year’s fire season.

WHAT WE LOVE • People rely on emotions, rather than information, to make brand decisions, and emotional responses to ads are more influential than the content of an ad. Using footage that evokes an emotional response is one of the most effective ways to generate a positive reaction. • One of the complaints received was that “the campaign seems to be designed to reduce NRMA insurance liabilities not help first responders”. Considerable public perception of insurance is as a fall-back option. This campaign is just another example of the insurance industry showing that minimising risk is always better than coping with the fallout. • Advertising influences people’s understanding of the world around them. NRMA Insurance is using its advertising budget, not on self-promotional material, but instead to create positive behavioural change.

WHAT COULD BE IMPROVED • Sometimes, being too controversial, going beyond the obvious, or making provocative statements can alienate the audience.

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The “When-didthey-stop-calling-itcoronavirus?” Award Criteria: Awarded to the business that used their advertising to communicate how they can support their clients during challenging times Winner: AAMI youtube.com/watch?v=1jib25Y1-9o AAMI’s advertising campaigns have long focused on helping Australians get “back on the road”. During the COVID-19 pandemic, the company recognised how important it was for those on the front line to get to where they need to be. For their 2020 campaign, AAMI offered Free Roadside Assist to all doctors, nurses, hospital staff and first responders Australia-wide, whether they were AAMI customers or not. This campaign was part of parent organisation Suncorp Group’s “Peace of Mind” relief package, which offered financial assistance for customers struggling during tough economic times.

WHAT WE LOVE • The most successful businesses are not focused solely on profit. They are also focused on their people and their customers and providing more comprehensive benefit to society. With this campaign, AAMI showed that it cares about people more than profit. • The ad also has a cameo from AAMI’s (in) famous drag queens, which were introduced in 2018 to embrace acceptance in Australia.

WHAT COULD BE IMPROVED • The ad could have been tailored more to the audience and their current situation, showing healthcare workers and how the roadside assist offering could be of benefit to them. Runner Up: QBE youtube.com/watch?v=1GIQJVpZ4rg After the first lockdown, QBE ran a TV ad talking about how restrictions were lifting and that we all had to adapt to the “New Normal”.

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The ad used real clips from news bulletins to show how tough things had been and iterating that they were supporting their customers as they gradually and safely returned to offices. The ad detailed practical elements that businesses should be aware of, such as hygiene, handwashing, sanitising and physical distancing practices. Ending with a feel-good factor, QBE reminded everyone that we would stick together and never stop connecting. #DoTheRightThing

WHAT WE LOVE • Human beings crave a sense of belonging and being understood. While providing practical tips, this ad also had a great community feel that would generate an emotional response and make an impact on viewers.

WHAT COULD BE IMPROVED • Like NRMA Insurance, QBE risks a backlash from viewers who question the relevance of the ad. There was a proliferation of information about the pandemic, from government resources to news stories – and most people couldn’t avoid it even if they tried. They may prefer if the insurer gave a different perspective on this information that was more relevant to their services.


WE’VE BEEN SUA SINCE 1992.

HOW MANY OTHERS CAN SAY THAT?


Immersive Advertising Award Criteria: Awarded to the ad that best incorporated the 2020 environment into their advertising campaign Winner: Youi youtube.com/watch?v=zWUE84tBQwY Since entering the Australian market in 2009, Youi’s advertising has focused on communicating how they get to know their individual customers to tailor insurance to their needs, rather than treating them as a demographic within a postcode. Their 2020 campaign ‘Insurance for individuals like…’ (youtube.com/ watch?v=4cUg6_q4AqE) featured stories about real people and their individual characteristics and how this altered their insurance premium. As the pandemic took hold, the campaign pivoted to ‘Life Changes’ where the insurer claims that they will provide insurance options for where their client’s life is at, no matter how much it has changed.

WHAT WE LOVE • Youi’s advertising features real people. This tactic works in advertising as people relate to other people who are like them, a strategy more useful in 2020 when people were more empathetic and felt more bonded together than ever.

WHAT COULD BE IMPROVED • Youi claims that “the less risky you are, the cheaper your premium is”, which in theory, sounds great. However, we wonder how this would pan out in practice. It’s excellent that Youi is trying to get to know their customers, but how many fields can their forms realistically have? If they asked for too much information, this would likely have the opposite effect and put people off. Runner Up: iSelect youtube.com/watch?v=t5B2Q19tgxk Although not a business that would come to mind when we think of insurance, iSelect is close enough to the insurance

industry to get a mention – particularly when their ad was so entertaining. iSelect’s “Compare. Select. Save.” campaign incorporates several short TV ads with colourful, graphic characters. During the COVID-19 pandemic, one of the ads showed a woman working from home, and signing in to an online meeting – as we’ve all done so often during 2020. We all know the challenges this has brought, from young children to needy pets, interesting housemates and partners all stumbling into the calls uninvited. For this particular ad, iSelect used one example that made the news, where a woman’s partner unknowingly walked in front of the camera naked. They claimed that they couldn’t help with this issue, but they could help compare products.

WHAT WE LOVE • The advert was a humorous way to incorporate the current situation into the campaign, in a way that people could relate to. Unlike APIA, who’s ad seemed to run as was planned pre-pandemic, with an adapted voiceover to images showing people out enjoying themselves iterating ‘not everything is possible at the moment’. https://www.youtube.com/ watch?v=HAQCmmqmdxA

WHAT COULD BE IMPROVED • Using humour in advertising is undoubtedly effective, but it can be tricky to get right because everyone has a different sense of humour. NRMA Insurance, Budget Direct and Bingle would all attest to the fact that you never know what’s going to offend people, and nudity is one thing that opens up the possibility of backlash. 0

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Problem solved

It’s a challenge to run a successful broking business, whether you have been at it for 5 years or 50. Add to that, we are facing a hardening market, more regulatory demands and increasingly complex client relationships. At United Insurance Group, we see these as the problems we are there to solve for you, leaving you to focus on meeting your client’s needs. In addition, UIG continues to offer Authorised Reps: •

A true partnership with a team who fully understand your business and partner with you to ensure success.

Support from our experienced in house Placement Team who will help you win or maintain your client programs.

Access to the wide range of underwriting and support services through the Steadfast Group.

An easy transition with data transfer, on-site training and constant management support.

All with a very competitive fee structure that has no extra charges for PI or systems access and rewards growth in your business.

Problem Solved.

Call Trevor Howard on 03 8676 0344 or email: trevor@uig.net.au www.uig.net.au


Lessons learned from a $6 billion season Insurers stepped up to manage more than 300,000 claims after a massive run of natural disasters By Miranda Maxwell

A

social media meme doing the rounds this year sees one weary citizen yearn that they “just want 2021 to be precedented”. Australia’s claims managers must relate wholeheartedly to that sentiment after a record-breaking 2019/20 natural catastrophe season which produced insured losses just shy of $6 billion. A year on from last summer’s terrifying mega firefronts which tore through 8 million hectares and alone produced $2.32 billion in insured losses, we can reflect on the experience of insurers swamped by more than 300,000 claims stemming from the November-April 2020 period. Australia and New Zealand have both confronted a decade of devastating catastrophes – from the Townsville floods, cyclones Debbie and Yasi, prolonged droughts and destructive earthquakes in New Zealand. Yet insurers say last summer still shocked

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experienced claims managers. “There is no doubt the Black Summer was extraordinary,” Suncorp’s Head of Disaster Response and Event Claims Cath Stewart told Insurance News. “We saw 12 major insurance events spanning floods, hail and bushfires across the summer which really sets it apart from previous seasons. “The 2019/20 summer reinforced the increasing severity and unpredictability of the disaster season.” Suncorp’s disaster response team prepares for these events by running complex simulations to refine its processes. The insurer successfully managed more than 80,000 insurance claims after last summer’s widespread catastrophes, mostly related to hail, storm and flood. Suncorp says 2019/20 is a reminder that climate change is increasing the severity and frequency of natural disasters in Australia and the country must invest in

natural hazard resilience. “This is not something Australia can just kick down the road without addressing the root cause,” Ms Stewart says. “The nation’s natural disaster damage bill is having a large effect on the price of everyone’s insurance.” The industry has helped thousands of Australian families cope with such a severe run of fire, flood and hail – while managing the complications of a coronavirus pandemic on top. The recent final report of the Royal Commission into National Natural Disaster Arrangements includes a chapter dedicated to the insurance industry, noting that “general insurance plays several important roles in managing natural disaster risk”. “It allows people to manage a risk financially, including the risks posed by natural hazards, under agreed circumstances,” the report says. “It can communicate risk via the cost of premiums and thereby influence


Building back: Suncorp staff assess a devastating scene after a bushfire

behaviour, such as where people decide to live or how to build or renovate, and it can help households and businesses recover after a disaster.” Never was the vital service performed by the insurance industry put to the test more thoroughly than in 2020. Before the 2019/20 summer, the two most damaging and deadly bushfire seasons had been the Ash Wednesday fires in south-eastern Australia in 1983 and the Black Saturday fires in Victoria in February 2009. Since 2017, large parts of Australia have experienced prolonged drought combined with record high temperatures, leading to the most extreme weather conditions recorded for any bushfire season. At IAG, more than 12,700 claims were lodged across its brands throughout Australia by people impacted by bushfire, close to a third of the industry-wide’s 38,609 claims.

Total loss claims are all closed and overall IAG has finalised 94% of all its bushfire claims. Severe hailstorms that hit Canberra, Melbourne and Sydney early this year resulted in more than 40,000 claims at IAG, with more than 26,000 of those motor. IAG has finalised 87% of those claims overall. “Since the early start to the Australian bushfire season in September last year, we have been supporting our customers through an extraordinary period of unprecedented challenges and uncertainty,” IAG’s Executive General Manager of Short Tail Claims Luke Gallagher told Insurance News. Over just the final two months of 2019, there were seven separate bushfires across Queensland, New South Wales, Victoria and South Australia, each large enough to be declared catastrophe events by the Insurance Council of Australia. “That’s an unprecedented number of

bushfire-related catastrophes in such a short time span,” Mr Gallagher says. “While Australia is no stranger to catastrophic bushfire events, the sheer scale and longevity of the Black Summer fires and the devastation they caused was truly unprecedented.” Quantifying and comparing the scale and cost of natural hazard seasons can be complicated. Muddying the waters is the fact the 2019 fire season began months earlier than usual. While no single hazard has matched the mega-events of Cyclone Tracy hitting Darwin in 1974 or Sydney’s 1999 hailstorm in terms of insured losses – they are the only Australian catastrophes to surpass $5 billion in normalised dollar values – the 2019/20 season collectively can be considered the worst period on record in dollar terms. There were 315,638 claims valued at $5.94 billion, ICA says, and insurers have closed an average of 85% of household

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and motor natural disaster claims, despite COVID-19 interruptions. “Closure rates are ahead of the normal curve,” ICA spokesman Campbell Fuller told Insurance News. And the Australian Financial Complaints Authority (AFCA) received just 82 complaints about insurance relating to bushfire claims in the year to June 30. Chief Executive and Chief Ombudsman David Locke praised insurers for being proactive in addressing any issues and offering resolutions for consumers and small businesses after the bushfires. “This resulted in fewer complaints being lodged with AFCA than expected, and a faster dispute resolution timeframe,” Mr Locke said. IAG set up a dedicated Major Event team to respond and be where customers needed them when disaster struck. As soon as it was safe to so, IAG had assessors on the ground and teams deployed to recovery centres

across all affected states, working alongside local IAG teams. In the NSW South Coast region, IAG staff were on location supporting customers for seven consecutive weeks, and in the hard-hit town of Cobargo, the insurer also deployed its Major Emergency Rapid Response Vehicle (MERRV) to provide emergency assistance and help people lodge claims. An IAG spokesman told Insurance News many of its employees were brought to tears hearing the experiences customers shared with them. “I was just continually amazed at the resilience and empathy our teams on the frontline show towards our customers,” says Mr Gallagher, who visited some of the bushfire-affected communities in the aftermath. “Hearing the stories of what our customers had been through was humbling, devastating and often overwhelming, but I was also reassured by the knowledge that we had incredibly dedicated people working

hard to ensure our customers in communities all over Australia could get back on their feet.” Insurers have welcomed the royal commission report’s focus on risk mitigation and its promotion of better hazard resilience in its 80 recommendations on how Australia could better prepare for future hazard seasons. The Federal Government has since agreed to set up a National Resilience, Relief and Recovery Agency. Prime Minister Scott Morrison says the agency will be established by July next year to align and co-ordinate preparation efforts. The Government says it supports “in principle” a recommendation for insurers to communicate clear guidance on individual level mitigation actions that will be recognised in setting premiums. It also welcomed the opportunity to work with states and territories on a proposal that the Australian Building Codes Board

Royal commission points to a stronger future

The report provides “clear and urgent direction” on measures to make sure Australians can withstand the changing risks caused by climate change, Mr Hall says. Suncorp’s Steve Johnston says a number of the recommendations align with Suncorp’s own submission to the inquiry, including funding reforms, a review of the National Construction Code and better arrangements for the removal of debris. “I welcome the strong themes of resilience, mitigation and disaster planning that run throughout the report,” he says. New IAG Chief Executive Nick Hawkins also welcomed the report, saying the insurer has advocated for greater investment in mitigation for many years, and IAG “would welcome the opportunity to continue to work with the Government.” Swiss Re says the recommended mitigation, resilience and planning would “help facilitate the role that insurance plays in helping

communities recover after disaster”. Insurers made special mention of these recommendations: • A clear role for governments to educate communities and provide accessible information to help them make informed decisions and take appropriate actions to manage disaster risk • Greater federal support for state disaster management • Improvements in the availability and quality of data to help governments and other stakeholders understand and manage natural disaster risk • Mandatory consideration of natural disaster risk in land-use planning decisions • Guidance for insurer-recognised retrofitting and mitigation under which insurers would give consumers clear guidance on individual-level natural hazard risk mitigation actions which will be recognised when setting policy premiums.

The final report of the Royal Commission into National Natural Disaster Arrangements was tabled in parliament at the end of October after receiving more than 1700 submissions, and received a warm reception from the insurance industry. The report makes 80 recommendations, with insurers applauding its focus on disaster mitigation and improved resilience. It includes a full chapter acknowledging the role insurance plays in Australia’s management of natural hazards. Insurance Council of Australia Chief Executive Andrew Hall urged federal politicians to make government funding available for priority mitigation and resilience programs, and a systematic approach to disaster risk reduction with improved building standards and land-use planning.

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Largest losses look at making buildings more resilient to natural disasters. Insurers say investing in resilience infrastructure will result in safer communities, stronger economies and a more sustainable insurance industry. Suncorp is passionate about such mitigation measures, with Chief Executive Steve Johnston travelling to meet with Bundaberg City Council this year to discuss a flood levee project which has been awarded $42.5 million by the Queensland Government. “Disaster mitigation is one of the smartest investments a government can make,” Mr Johnston says, noting Suncorp lowered premiums in the town of Roma by an average 45% after a flood levee was built. “The equation is simple – when you lower the risk, insurers can lower the premiums.” The COVID-19 crisis fast-tracked digital innovation and forced the industry to adapt quickly so customers could interact via simple self-service digital interfaces. Suncorp’s virtual assessment tool enabled assessors to connect with customers and approved builders via their smartphones to assess damage, allowing multiple parties to participate. It also increased Webchat capabilities and extended online claims functionality. “We were able to quickly meet a dramatic shift in customer needs and a new working experience for our people,” Ms Stewart says. “Technology investment gave us the ability to scale up in event response, regardless of the location of our teams and travel restrictions.” At IAG, a dedicated team was empowered with a high degree of discretion to help customers who were experiencing financial stress, and extra resources were allocated to ensure the crisis did not delay the processing of claims for bushfire-affected customers. IAG’s Mr Gallagher says builders continued to repair the homes of bushfire-affected customers throughout the pandemic.

“We completed most assessments for claims related to the summer bushfires before the pandemic struck, and also increased the use of virtual assessing processes, such as via live video. Looking forward, insurers are advocating more than ever that that preparation is key and explaining that even small-scale storms can have a big impact on Australians’ lives. For example last month’s “Halloween hailstorm” in south-east Queensland racked up more than 22,500 claims, with losses estimated at $260 million. Suncorp has made use of data from across its stable of brands to give customers insights on storm spots, and is educating customers on how to prepare for the fire season, drawing on partnerships with the State Emergency Service and the Queensland Government’s Get Ready campaign. The “Suncorp Storm Score” community challenge is available via smartphone to all Queenslanders, providing guidance on how to prepare for the disasters most likely to occur in their region. Ms Stewart says insurers broadly have impressively demonstrated their mettle in responding to the huge 2019-20 hazard challenge, pointing to the establishment during the Victorian bushfires of a Customer Reception Centre at Melbourne’s Convention and Exhibition Centre to support evacuees from bushfire-struck Mallacoota. Claims lodgement and emergency payment support was provided. The Royal Australian Air Force transported key assessors into Mallacoota to complete assessments – a poignant example of the industry working with government on ways to support communities and to progress claims. “There are great examples of families getting on with the business of recovery, rebuilding their lives and building back better,” Ms Stewart says. “This past season brought out the best not just in Suncorp but 0 our whole industry.”

Here’s the Insurance Council’s list of Australia’s largest disasters (dollars normalised to 2017): 1. 1999 Sydney hail ($5.574 billion) 2. 1974 Cyclone Tracy (5.041 billion) 3. 1989 Newcastle earthquake ($4.244 billion) 4. 1974 Brisbane flood ($3.160 billion) 5. 2011 Queensland floods ($2.307 billion) 6. 1985 Brisbane hail ($2.274 billion) 7. 2019 Bushfires ($2.2 billion) 8. 2007 East Coast Low ($2.197 billion) 9. 1967 Black Tuesday fires ($2.157 billion) 10. 2017 Cyclone Debbie ($1.781 billion) 11. 1983 Ash Wednesday ($1.761 billion) 12. 2009 Black Saturday bushfires ($1.757 billion) 13. 1990 Sydney hail ($1.681 billion) 14. 2010 Melbourne hail ($1.625 billion) 15. 1967 SE Queensland hail ($1.595 billion) Insurance losses from the 2019-20 natural disaster season total $5.94 billion from 315,638 claims, the latest available figures from the Insurance Council of Australia (ICA) reveal. Insurers have closed an average of 85% of household and motor natural disaster claims, despite COVID-19 interruptions. ICA gave the following breakdown of the almost $6 billion of losses: • $2.325 billion from bushfires in NSW, Queensland, Queensland, SA and Victoria beginning on November 8 last year, leading to 38,609 claims. NSW accounted for 81% of claims, SA and Victoria each made up 8% and Queensland 3%. • $1.64 billion from January’s hailstorms in the ACT, Victoria and NSW, leading to 130,345 claims: 57% from the ACT, 30% Victoria and 13% NSW. • $964 million and 101,201 claims from the February east coast storms and flooding • $504 million and 30,679 claims from November 2019 hailstorms in south-east Queensland • $503 million from Rockhampton hailstorms in April

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In the heart of the storm RACQ Insurance chief Tracy Green is ready for an active summer as pressures rise in northern regions By Wendy Pugh

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ith affordability stresses and natural disaster impacts rising in Australia’s north, RACQ Insurance is in the eye of the storm and a leading voice in the industry’s calls for improved resilience and measures that deliver lasting community benefits. As a major player in Queensland’s personal lines sector, the insurer has experienced some of Australia’s worst catastrophes in the past decade, including Cyclone Yasi and the 2011 Brisbane floods. And risks are high this year for another active summer. The Insurance Council of Australia (ICA) declared its first catastrophe for this season after giant hailstones struck southeast Queensland at the end of October, and the Bureau of Meteorology has warned a rain-inducing La Nina system is set to persist for the next few months. RACQ Group Executive Insurance Tracy Green, who took up the role formally mid-year, says planning has been done for the coming season, while the company is also focusing on longer-term resilience issues as it continues to offer cover across the state. “We don’t red-line anywhere, so we offer insurance at the appropriate price and we spend quite a lot of time talking with our members to ensure we understand the risk,” she told Insurance News. Ms Green lives in Cairns in Far North Queensland, travelling to her Brisbane head office and regional areas as required. So she is more aware than most of the natural catastrophe risks the region carries, and the related insurance issues of premium affordability and the need for mitigation strategies. “We obviously support mitigation and private mitigation coming through, so we have discounts built into the premiums where people have upgraded the property,” she says. “North Queensland is obviously near and

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dear to my heart, given I live here.” RACQ’s submission to the Royal Commission into National Natural Disaster Arrangements backed the industry case for government spending on mitigation, improved building codes, retrofitting measures and better land-use planning. The submission highlighted the Townsville suburb of Idalia, adjoining the Ross River, as an example of recent development in a high-risk location that was then hit by flooding. Ms Green says there’s a need to stop building properties in floodplains and to address shortcomings at existing properties. “When we have a look at Townsville and see what has transpired there, we can take a lot of lessons into the future,” she says. “Certainly there are opportunities to build up greater resilience for those properties over time. The Townsville mayor, for example, is very focused on what that might look like into the future.” RACQ’s annual review last year described the February 2019 Townsville flooding, triggered by days of torrential rain, as the second-biggest insurance event in the group’s history, with an estimated cost of $115 million. The catastrophe and rising premiums reignited pressure from some groups for a government-backed pool to improve affordability in the tropical north. Federal Assistant Treasurer Michael Sukkar decided to take another look and called on insurers to assist with inquiries. Ms Green says RACQ Insurance is happy to have a seat at the table as the issues are considered and practicalities explored, but warns that (re)insurance pools are not ideal and mitigation needs to remain the focus alongside any other affordability action. “We will always have a view that building the


Mutual respect: Tracy Green says Queenslanders trust RACQ on insurance

community resilience and the property resilience sitting in communities is the best solution, and is the longer-term solution that will work,� she told Insurance News. Advocacy is central to the history of the 115-yearold Royal Automobile Club of Queensland, a mutual company with about 1.8 million members, operating across roadside assistance, insurance, banking and travel services. The insurance division offers policies including motor, compulsory third party, home and contents and pet, while its travel policies are underwritten by Tokio Marine & Nichido. Last financial year it achieved a milestone of $1 billion in gross written premium, while gross insurance claims paid totalled $878 million. Ms Green joined RACQ in February 2018 as general manager insurance product and pricing and became Acting Chief Executive Insurance in July last year. In June she took up the permanent CEO role and last month was also appointed to the ICA board. Prior to RACQ, Ms Green spent eight years at IAG, the last two as EGM customer & underwriting, and also held senior roles during a five-year stint at Suncorp and another at TIO in Darwin. She entered insurance through the NRMA, after moving from New Zealand to Australia in 1989. That group later demutualised and separated into road services and insurance operations, with the latter becoming part of IAG. RACQ, which has kept both motoring assistance and insurance under the same roof, provides services to more than 70% of Queensland households and has a high level of trust and strong connection with its membership, Ms Green says. A KPMG customer experience survey of 114 local

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“We’re seeing more and more claims being prompted by disaster chasers that are not linked to damage caused by a significant weather event.”

and global insurance brands across 11 sectors last year ranked RACQ Insurance second-highest. The insurance brands of NRMA and RACV also performed well in the survey, which involved more than 2500 Australian consumers. The motoring brands may benefit from goodwill engendered by breakdown assistance, delivered in some states by distinctive small yellow trucks. RACQ’s website estimates the group has rescued more than 30 million motorists from the roadside over its history, but Ms Green notes the insurance business has built its own reputation. “There is no doubt I would say that there is the ‘halo’ association that comes into play, but the delivery of insurance services is very well regarded as well and we see that through all our interactions. Net promoter scores are very strong.” RACQ also offers a different model and culture compared to corporates, where customers and shareholders are distinct stakeholder groups and where shorter-term market reporting obligations may apply. “The corporates have done an amazing job in lifting up that customer connectedness and how that drives through, but being in a mutual you don’t need to balance that divergence,” Ms Green says. “The other thing that strikes me is the reporting cycle to the market. Being able to take a longer-term view over where it is you are wanting to get to, without that cycle coming through, is a different way of operating.” But RACQ Insurance is just as affected by industry-wide implications from the Hayne royal commission into the financial services sector, with many resulting reforms set to take effect over the next 12 months following delays due to the coronavirus outbreak. The deluge of legislative and regulatory change includes the introduction of unfair contract terms, product design and distribution obligations, new rules for add-on insurance sales and claims becoming a financial service. Ms Green says a trend toward more expensive events and cost pressures reflects not just catastrophe factors but also the reform environment and community pressures, including the rise of “disaster chasers”. “There are other drivers coming through around community expectations, and regulatory changes,”

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she says. “If you think about the unfair contract terms that is likely going to drive additional cost into the policies as that moves through.” Concerns over “disaster chasers”, who enter regions after a catastrophe seeking to sign-up business, resurfaced after the extensive damage from the recent hailstorm. The event caused insurance industry losses to quickly surpass $300 million, according to ICA estimates, and RACQ Insurance received more than 5400 claims in a little over a week. Insurers say disaster chasers encourage people to make property repairs that were never going to be covered by their policies, while reports of tow truck drivers trying to scam victims also circulated after the hailstorm. RACQ Insurance last year reinstated a home policy exclusion regarding cosmetic damage to external coatings and roofs, making it clearer that damage needs to be caused by a specific event. “We’re seeing more and more claims being prompted by disaster chasers that are not linked to damage caused by a significant weather event, or that the ‘damage’ is what we’d consider normal wear and tear,” Ms Green says. “The alternative to continuing to provide cover as it stood prior to this change is significant increases in premiums adding further to affordability stress on our members.” The issue has also been raised by consumer groups, which have called for greater oversight of the “claims advisers” under the new laws that will make claims handling a financial service. Ms Green says RACQ has a strong consumer voice, as well as industry expertise, and is well-placed to work with governments on such issues as affordability pressures and community protection, and to highlight the important role insurance plays in in the continuing vibrancy of the state’s regions. “The fact that something is insurable enables the finance to be brought in, enables businesses to be set up, enables homeowners to get into their own homes and live happy and productive lives,” she says. “This is about sustainable communities, so how you enable development to occur in a sustainable way that is going to enable that community to continue to 0 be robust into the future.”


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Local actuarial expertise crucial in today’s marketplace The exodus of international carriers from Australia over the past 18 months came as a shock to many coverholders and MGAs. Then, barely had they adjusted to this market dislocation when COVID-19 hit, wreaking havoc on the economy. All of this has created much uncertainty for coverholders about when business will pick up and where the market will be in terms of pricing when it does. The flight of capacity from the region is a tale of lessons learned the hard way about what is required to successfully establish and sustain operations far from a parent company’s headquarters. Whether in Australia or elsewhere, it is crucial that the group entity sponsoring the venture is totally committed. That includes investing in and empowering local actuarial teams to help underwrite and manage the business locally with full accountability; not attempting to control management and underwriting decisions from afar.

Exposing the (local) devil in the details Many carriers that departed were not truly committed in these respects, and they also lacked the granular and reliable data necessary to have a firm grasp of the risks being underwritten, leading to large and unsustainable losses. Simply, there was a dearth of local actuarial talent to help truly understand local risk. Having proven actuarial capabilities on the ground can be incredibly effective in avoiding such failures and locally-knowledgeable actuaries and underwriters based in the region is equally vital to success. Not all international insurers invest in actuarial capabilities, yet this provides knowledge and intelligence essential to expose the devil in the detail and aid understanding of how risk and pricing dynamics evolve across a portfolio over time. Many base their pricing on historical loss data, without proper consideration of the underlying exposure, and ignore recent events that may indicate developing trends within that class.

Understandably, coverholders often do not have their own actuarial capability nor the resources to conduct data analysis, yet insurers with actuarial expertise are in a position to offer this to them, providing the depth of understanding necessary to improve and maximise profitability. Actuarial analysis can highlight potential accumulation risks, where a coverholder’s pricing may be under or overweight, where terms and conditions should be tightened and, if an insurer also has natural catastrophe (‘nat cat’) risk modelling capabilities, help the coverholder achieve better pricing for nat cat exposed risks. For example, an Australian coverholder recently approached Canopius with a poor performing portfolio that we would not have seriously considered. However, our local actuarial team were able to do a detailed pricing analysis helped us to identify changes needed to their underlying rates, which restored the portfolio’s performance. This made a significant difference to their business, which has since become a profitable and valued Canopius coverholder.

Actionable intelligence leads to better business Coverholder portfolios with very low chances of having a particular type of loss can go for many years without one. However, not pricing for that possibility is betting on the portfolio’s luck continuing. And good insurance businesses shouldn’t rely on riding out luck. To fully grasp what those outlying possibilities might be requires a dynamic, inquisitive, analytical and scientific approach. Actuaries look beyond the exposures latent in an individual portfolio, drawing on a wide range of sources, from academic studies, reports by government and government bodies and other authoritative expertise to help ensure portfolio resilience. Their ability to discover relevant specialist information, and then distil and translate that into actionable intelligence for underwriters to factor into pricing is a further important aspect of their skill set.

As such, locally skilled actuaries bring a great breadth of understanding as well as depth. Given the considerable challenges facing insurers and coverholders, we believe making actuarial services available is key to our mutual success. Applying different forms of analysis can provide insights from a nat cat exposure perspective, detect and highlight local trends, identify areas of opportunity or where remedial action is required and ultimately illuminate the overall strengths and weaknesses across a portfolio. Closer working relationships based on a much fuller view of the totality of a portfolio can help sustain coverholder profitability and to ensure continued insurer support, bringing benefits for both parties, their customers and stakeholders. When markets begin to revive and business picks up post-COVID, actuarial analysis could assess the take-up of products quoted at a certain price to provide an indicative view of the market rate for that risk, enabling prices to be adjusted accordingly.

Actuarial insight is the glue between true risk partnerships Amid the uncertainties there is great opportunity and value to be gained from combining coverholders’ deep understanding of their markets with insurers’ local actuarial insight. This elevates carriers from merely being capacity providers and creates the basis for a true risk partnership. We do not believe there should be any surprises for coverholders. We also strongly believe that a true risk partnership – grounded in scientific data and close collaboration with actuaries – is the ideal model to build stability, resilience and profitability for both parties for the long-term. Mark Heydon +61 (02) 8537 3506 mark.heydon@canopius.com Canopius Australia & Pacific L9/1 O’Connell Street, Sydney NSW 2000


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Expanding fast: Blue Zebra rolls out more products

Looking to the future: Blue Zebra founder Colin Fagen

Blue Zebra has expanded its product offerings in the last two months, as the fast-growing underwriting agency seeks to capitalise on the momentum it has achieved since launching in 2018. Its most recent rollout is the SME product, which came just after the agency converted its Commercial Motor pilot to full-scale distribution. Both products are available on the Zebra lounge platform and underwritten by Youi. Colin Fagen, Managing Director of the

agency, says the moves “put us on a strong foundation for next year, expanding our commercial books”. “We see next year as being a very good year,” he told Insurance News. Mr Fagen says the SME product received more than 100 quotes on the first day of its launch and the feedback from brokers has been very positive. The Commercial Motor offering gives brokers the option to instantly quote and bind fleets of up to 10 vehicles with cover

options for Comprehensive, Third Party Fire and Theft, or Third Party only. Feedback for the product has also been very positive. Mr Fagen says the commercial motor launch builds on momentum generated by the launch in October of Lloyd’s-backed Blue Point Insurance, a new personal accident and sickness insurance brand. Blue Point Insurance is a partnership with Point Insurance and aims to become a major player in the personal accident insurance market within the next five years. Mr Fagen told insuranceNEWs.com.au the personal accident and sickness insurance market is “an area that is probably under-penetrated” and believes “there is more opportunity for brokers” to sell this to clients such as SME owners and tradesmen. “As a result of our increasing product range, our user numbers have continued to climb and the demand from brokers is very strong,” he said. The new commercial motor product incorporates the data and technology benefits of Blue Zebra’s Private Motor product, along with other specifically tailored features. The product has been in development for the past couple of months, with a number of brokers selected to help refine pricing, product and technology. Claims are managed by Insurx/Hello Claims and Blue Zebra is offering brokers a variable commission of up to 15%, with a 0 default of 12.5% for launch.

Progressive perks: Zurich dumps ‘parental leave’ in favour of family flexibility Zurich’s Australian staff are being rewarded with industry-leading care entitlements designed to be as inclusive and flexible as possible. The new package more appropriately reflects today’s varied family structures than outdated parental leave plans, the insurer says. Acknowledging that every family is different, the Family Care Policy supports each employee regardless of gender, gender identity or sexual orientation, enabling everyone to take paid leave as they welcome

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new family members. It allows primary parents 16 weeks of paid leave, with the ability to request up to two years, and is inclusive of birth, adoption, surrogacy and IVF, as well as miscarriage and stillbirth. The new policy was developed with the Women’s Innovation Network and PrideZ and Sue Maher, Head of Human Resources, says it recognises all family circumstances and supports a fair and equal workplace. “Our new Family Care Policy reflects the many different voices of our diverse

workforce, ensuring inclusivity and better supporting the range of family circumstances we see across Australia today,” Ms Maher said. Co-parents receive six weeks paid leave plus additional unpaid leave, while all tenure requirements, including probation, are removed. Superannuation and personal and long service leave will continue to accrue during unpaid leave for primary parents, supporting Zurich’s commitment to reducing the retirement savings ‘super gap,’ which is most 0 often experienced by women.


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Helping hands: from left, Steadfast Underwriting Agencies Chief Operations Officer Katrin Stoecker, Heavy Motor Insurance Australia CEO Michael Zaknic, UAA CEO Micheal Murphy, and Steadfast CEO and MD Robert Kelly

Brokers give back A new report shows how brokers value their communities and go above and beyond when it comes to philanthropy By Bernice Han

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rokers do more than just attend to the insurance needs of clients. They are extremely active in community work, raising not just funds for charities but also volunteering their time to help out the less fortunate in society. A study commissioned by the National Insurance Brokers Association (NIBA) finds the average brokerage gives away more than $25,000 annually to charitable and other social causes. The Deloitte Access Economics report on broker value says each brokerage also spends an average of $20,000 sponsoring events or fundraisers in the local communities where they are present. Monetary donations aside, many also help out at community or charity events. Brokerages clocked in an average of more than 400 staff hours supporting the work of charities and more than 150 additional hours for other causes, according to the report, which is based on responses from NIBA’s membership base.

And brokers have not wavered in their desire to give back to society despite months of business upheavals caused by the pandemic. Even as they worked longer than usual hours to guide clients out of the coronavirus recession, they have not forgotten about the many not-for-profits out there that are struggling just as much financially in the current economic climate. “In my life, things are really simple,” Kim Gilbert, the founder of Zenith Insurance Services, a brokerage based in Perth, told Insurance News. “There is the right thing to do and the wrong thing to do and I believe, like a lot in the broking profession, that it is our responsibility to give back to the community that has been good to us over many years.” In recent months he has been up before 5am, training intensively four or five times a week to build up his fitness for next year’s Red Sky Ride, an annual cycling event he co-founded in 2008 to raise funds for Solaris Cancer Care.

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Doing the right thing: Zenith founder Kim Gilbert

Mr Gilbert had lost his niece to cancer the previous year and by chance, became aware of the charity and its work providing support to cancer patients in Western Australia. And over the years, he has helped to raise more than $3.5 million for the organisation. The pre-dawn workout sessions do not come easy for Mr Gilbert, whose knees had total replacement surgeries in 2013. The March 3-6 donation drive, which will kick off in Perth and cover 600km, will be his first since the 2018 event, when he decided to retire his bicycle. Mr Gilbert, the NIBA broker of the year in 2018, says he is taking on the challenge again in support of his office manager, Lynda Bowles, who was diagnosed with breast cancer earlier this year. “While I have titanium knees and riding long distances can be a discomfort, I’m prepared to put up with it because there are lots of people in the community who are worse off than me and benefit from the services provided by Solaris Cancer Care,” Mr Gilbert said. “So long as I’m looking down at the grass, not up at the grass, so long as I have the ability to help, I will continue to do it.” Of course, Mr Gilbert is not the only broker leading by example when it comes to supporting philanthropic causes. Steadfast Chief Executive and Managing Director Robert Kelly has not shied away from some unusual charity acts. In October he took part in the CEO Dare to Cure event at the Royal Botanic Garden in Sydney, dipping

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in an ice bath to raise medical research funds for the Children’s Cancer Institute. Mr Kelly drew in more than $117,000 for his effort, exceeding his target of $90,000 as his supporters donated generously. He also raised the most out of all the participants from the event. Many of those who chipped in are his business contacts from the insurance industry. One of his supporters, who kept his identity anonymous, gave $75,000 to the cancer institute. The Steadfast chief says supporting the work of charities is personally important to him. “As a father and grandfather nothing gives me greater pleasure than seeing my loved ones live life to the fullest every day, but I know there are many families in Australia and around the world for whom this is not the case. “The work of the Children’s Cancer Institute has the potential to change the lives of so many families.” Many brokerages have long embraced philanthropy, seeing the act of giving back as a key part of their corporate identity. McLardy McShane, a national brokerage with its head office in Melbourne, has raised more than $1.2 million for the Reach Foundation youth charity since 2008 through its annual Reach Christmas Lunch. It has also helped set up a similar youth-focused support group in Ireland called Soar. “If we could make a difference somewhere, we will do it,” Group Chief Executive Don McLardy told Insurance News.


“It’s a fundamental part of our culture. We want to give back to the communities. We’re thankful we’re in a good business and we have the ability to do it.” Over the years the brokerage has also supported a number of other charities such as FightMND, raising funds for motor neurone disease research. Fellow Melbourne-based brokerage Insurance House has taken a different approach in giving back to society. Instead of making financial contributions directly to its preferred charities, it has instead set up a program called I(H) CARE to support the charity work of its employees. The program is made up of three initiatives. One involves encouraging employees to take annual leave to help out at their chosen charities, and the other sees Insurance House matching dollar for dollar what employees have raised for charities. “We come at this from a staff perspective,” Insurance House Managing Director Jay Fereday told Insurance News. “For us it is about embracing our staff passion and supporting them to do some pretty amazing things. “We find that some staff are really passionate about it and it tends to drive more 0 activities.”

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Networking returns: UAC Brisbane expo enjoys strong support About 180 brokers and two dozen exhibitors turned up in person at this year’s Underwriting Agencies Council (UAC) Brisbane Expo in October. The event at the Pullman Hotel was held in accordance with social distancing guidelines set by the venue, with well laid out space set between exhibitor tables and separate entry and exit points. Brokers selected a specific time frame to attend the expo as part of COVID-safe measures to avoid large crowds congregating at the same time. Kurt Nilsen, Chairman of UAC and Managing Director of Lion Under-

writing, says the expo provided great networking opportunities for exhibitors and brokers. “There was a great vibe in the room and the feedback from exhibitors and brokers was overwhelmingly positive,” Mr Nilsen told Insurance News. “They said it was fantastic to be back networking and ‘in the market’. “The expo gave everyone great opportunities to interact, which hasn’t been achievable since April.” Exhibitors included Lion Underwriting, CHU Underwriting Agencies, Mecon Insurance, ATC Insurance Solutions, Pen Underwriting, NTU and Sura.

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2020 was tough on ever�one, and the team at Insurance News is proud that we continued to produce our news ser�ices ever� working day. To all those insurance people who shared the challenges of working from home, our cong�at�lations on a job well done and our ver� best wishes for a relaxing and happy festive season. Like you we’re looking for�ard to a new year that will still have challenges that we now know we can adapt to. Stay safe, be happy. Terry McMullan Publisher

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December 2020/January 2021

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Merry Christmas from the Blue Zebra team What a year it has been! We are happy to share some great news with you about our exciting new product range, now LIVE on our Zebra Lounge: · New Commercial Motor is up and running · New SME Business Pack is now part of the herd · New Cyber - protecting against hidden predators · New Personal Accident helps cover the income for lost meals and shelter · Household, Landlord and Motor continue to thrive.

THANK YOU FOR YOUR ONGOING SUPPORT If you are not on board already, get in touch: concierge@bzi.com.au BLUE ZEBRA INSURANCE PTY LTD ABN 12 622 465 838 | AFSL 504130 info@bzi.com.au | www.bzi.com.au


THANKS FOR VOTING US

1ST IN 23 CATEGORIES 2020 NIBA Broker Market Survey

OVERALL

BEST BROKER EXPERIENCE

Is a trusted partner* Underwriting overall satisfaction Is a brand that delivers on promises

Overall satisfaction*

Overall opinion versus other insurers*

Responsiveness

Work with me to find a solution for my client

Understand underwriting for my client’s needs

Have expert knowledge in specific product areas

Are comfortable having complex or challenging conversations

Communicate when underwriting appetite has changed

Takes ownership for resolving my business issues and follows through on commitment

Willingness to negotiate for the benefit of my client

Takes the time to learn about my business and client needs

Strong product knowledge and technical expertise

ACCOUNT MANAGEMENT

Account management overall satisfaction

Responsiveness to my needs and the needs of my clients

PRODUCT EXPERIENCE

Underwriting flexibility

Ability to tailor a policy to suit my client’s needs

Product coverage and wording that suits the needs of my client

Policy conditions and cover

CLAIMS EXPERIENCE

BRAND EXPERIENCE

Staff are knowledgeable about what the product covers in the event of a claim

Develops and maintains strong relationships

* Liberty Specialty Markets shares the first place ranking with other insurers in these categories. The independent NIBA Broker Market Survey was conducted from July to August 2020 and compared 18 general insurers in Australia.

Liberty Specialty Markets is a trading name of Liberty Mutual Insurance Company, Australia Branch (ABN 61 086 083 605) incorporated in Massachusetts, USA (the liability of members is limited).