June/July 2021 - Insurance News (magazine)

REINSURING THE NORTH

Will the Federal Government’s intervention work?

MUTUAL ADMIRATION

An alternative answer to the ultra-hard market

TO PAY OR NOT TO PAY?

Experts discuss responses as ransomware erupts

BUYING BROKERAGES Paul Lynam reveals his plans to build a new broker network for UK powerhouse Ardonagh

June/July 2021

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Contents 4 Newsmakers 8 Making a splash in north Queensland

After a decade of reinsurance pool suggestions and little focus on mitigation, the Federal Government has leaped into action on both fronts

12 Spinning south

The warming climate could bring more catastrophic hurricanes to ill-prepared areas of Australia’s coast

16 One house to rule them all

Suncorp has unveiled a prototype for a home built to cope with bushfires, floods and cyclones

18 Taking the lead

Swiss Re’s new regional chief Sharon Ooi sees knowledge and innovation as the best way to tackle changing risk challenges

24 Mutual admiration

Businesses and groups battling insurance market problems may drive a renaissance in an alternative risk-sharing solution

30 Ardonagh arrives

Fresh from acquiring Resilium, the British group’s Ethos Broking is seeking out top performers for its new Australian broker network

36 Down – and out

Some insurers won’t cover people who are bankrupt, and consumer groups don’t think that’s fair

38 Too big to handle

Mega-sized container ships like the Ever Given offer economies of scale for cargo companies, but for insurers they’re a mega-sized problem

46 Connecting and collaborating

Munich Re believes Australia can lead the way through insurtech-inspired change and disruption

50 Between a rock and the Dark Web

Do ransom payments only add fuel to cyber crime and should they be banned? We polled experts in the field

companyNEWS 57 Earning its stripes

Blue Zebra positions for future growth

57 Build to Rent

CHU moves to plug market gap

peopleNEWS 58 Bobby rocks 100 pools 60 CEOs take to the skies 62 Resilium hosts cocktail soirées in five cities 64 ANZIIF lunch raises funds for Camp Quality 67 QBE’s annual AFL event raises $20,000 68 Perfect day for Autumn Luncheon 70 Golfers compete at inaugural 360 classic 73 Zurich holds broker events at North Sydney office 74 maglog

42 Investing in insurtech

It’s an exciting time for insurance innovation, but challenges remain

REINSURING THE NORTH

Will the Federal Government’s intervention work?

MUTUAL ADMIRATION

An alternative answer to the ultra-hard market

TO PAY OR NOT TO PAY?

Experts discuss responses as ransomware erupts

BUYING BROKERAGES Paul Lynam reveals his plans to build a new broker network for UK powerhouse Ardonagh

Pictured: Paul Lynam Credit: Kym Thomson

June/July 2021

insuranceNEWS

June/July 2021

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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 April/May we published 503 articles online.

These were made up as follows:

HOLLARD’S ENTHOVEN SWITCHES TO BROADER ROLE The Hollard Insurance Company says personal lines chief Paul Fahey will take over from CEO Richard Enthoven, pictured, who is stepping down to focus on his role as MD of Hollard Holdings Australia, the group’s holding company.

Mr Fahey will report to Mr Enthoven and the Hollard board, with the transition process expected to be complete by July 1.

The executive changes will allow Mr Enthoven to concentrate on the strategic vision for the holding company.

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Corporate

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Regulatory & Government

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Life Insurance

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“Hollard has grown exponentially over the last few years, from a challenger brand to a leading Australian insurer,” Mr Enthoven said.

“I believe I can best contribute to our future success by focusing on our holding company strategy, our major strategic imperatives and key partners.

“The timing is right for a new leader to guide Hollard through the coming years of profitable growth, investments in customer experience and ongoing commitment to good risk and governance outcomes.”

He says Mr Fahey, who joined the business in 2016, is “perfectly placed” to lead Hollard, having excelled as Personal Lines CEO in the last few years.

“As CEO of our Personal Lines business, [he] has consistently demonstrated his talent for leading others with humility, disciplined execution, and focus on good outcomes for customers and partners,” Mr Enthoven said.

“After working together closely for the past five years, [he] is perfectly placed to succeed me as 0 Hollard CEO.”

will be required to offer renewing “Insurers customers a price that is no higher than they would pay as a new customer… ” The UK’s Financial Conduct Authority introduces its ban on so-called loyalty taxes.

The Professional

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Insurtech

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AFFORDABILITY REVIEW OUTLINES OPTIONS issues with public liability, professional indemnity, directors’ and officers’, business interruption cover and some property risks.

“While some small businesses are facing challenges in accessing the insurance they need to operate, in many of these categories, insurers

are under pressure to provide a profitable product so solutions are often difficult to determine,” ICA CEO Andrew Hall said.

“The Trowbridge review shows that insurers are serious about engaging with these issues for the benefit of individual commercial policyholders

Daily

A consultation paper, produced by former insurance executive and regulator John Trowbridge in collaboration with economist Michael Blythe, has outlined 16 options for consideration.

The paper focuses on commercial lines, particularly SMEs, identifying

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DIVE IN DATES ANNOUNCED

International

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Analysis

132 Breaking News More than 33,044 news articles – including 371 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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The organisers of Dive In, the insurance industry’s long-running festival for diversity and inclusion, are planning a hybrid format combining both virtual and physical events this year, to be held September 21-23 across the world.

Last year, the online festival attracted its highest

ever turnout with more than 30,000 attendees from 35 countries – almost three times that of previous years – taking part in 144 online events.

Global Festival Director and Head of Culture at Lloyd’s Pauline Miller says the virtual nature of last year’s festival allowed for a

truly global perspective on diversity and inclusion, covering issues such as mental health, social mobility, neurodiversity, privilege and cultural diversity within the workplace.

“This year we aim to … focus on making real change,” Ms Miller said. “The global success of last year’s

and the economy as a whole.”

Submissions on the discussion paper, which sets out a number of questions, are due by Friday June 18. A report with proposals and recommendations for the industry, governments and other parties will then be 0 finalised.

festival has provided us with a strong basis to turn good intentions into equitable outcomes.”

The 2021 festival, which marks Dive In’s seventh consecutive year, will concentrate on the theme “active allyship,” calling on attendees to consciously help 0 others be successful.

LAW REVIEW TARGETS SIMPLICITY Financial laws have ballooned in complexity over the past two decades with the Corporations Act becoming a “Russian doll” of definitions within definitions, a review seminar has heard.

The Australian Law Reform Commission (ALRC) says the Corporations Act, which covers insurance and other financial services, is now more than 800,000 words long after a series of amendments, compared with around 500,000 when introduced in 2001.

“The commission has concerns regarding increasing complexity of the legislative framework that may be weakening protections of consumers, unnecessarily increasing the compliance burden for industry and significantly complicating the important role of regulators and administrators,”

ALRC part-time commissioner and Federal Court judge John Middleton said.

Chapter Seven of the Corporations Act, which regulates financial services, would by itself be the eleventh or twelfth largest Commonwealth Act, if it stood on its own, the seminar heard.

ALRC Legal Officer Nicholas Simoes da Silva says in many areas, including on whether a product disclosure regime applies, there can be “multiple cascading thresholds” created by conditional wordings, before getting to exceptions.

The Corporations Act is also surrounded by regulations and legislative instruments that empower the Australian Securities and Investments Commission and Australian Prudential Regulation Authority and which add to the complexity.

The Federal Government last year asked the ALRC to conduct a review aimed at simplification. Three interim reports on separate issues will be released during the process, with a final consolidated report to be delivered by November 30 2023.

Issues partly reflect a general principle for the Act to cover

a broad range of conduct, products, services and organisations through standardised regimes, with clarity often obscured by voluminous rules, the webinar heard.

Mr Simoes da Silva says the ALRC will look at the balancing of principles and prescription as it 0 considers reform options.

MARSH POINTS TO PRICING ‘TURNING POINT’ Commercial rates in the Australialed Pacific region and globally grew at a slower pace in the three months to March, according to Marsh, raising expectations that the market may have peaked after several quarters of record-breaking increases.

The broker says its latest Global Insurance Market Index shows Pacific insurance pricing rose 29%

on average in the first quarter of the year, down from 35% in the prior three-month period.

“While rates are still increasing, we are hopeful that this marks a turning point in the longstanding upward trend we have seen over the last several years,” Marsh Head of Global Placement Asia Pacific John Donnelly said.

Globally rates went up 18%, weaker than the 22% surge seen in the December quarter, with all six geographic regions covered by the index seeing lower price increases.

The UK recorded the steepest increase of 35% during the first quarter, compared with 44% in the previous December quarter, followed by the Pacific region where Australia is the

largest market.

“Although we will continue to see price increases in some lines and the market overall will remain challenging for our clients, we expect price increases to continue to moderate throughout the rest of the year,” Marsh Specialty and Global Placement President Lucy 0 Clarke said.

ICA UNVEILS NEW BRANDING The Insurance Council of Australia (ICA) has unveiled a fresh look with new branding and a thorough overhaul of its website, showcasing the “bold colours” found in Australia’s landscape.

ICA says the revamp and new logo strengthens the council’s identity as “the voice of a resilient Australia”.

“The fresh creative brings ICA’s purpose to life, using strong foundational shapes and the bold

colours found in Australia’s landscape to underscore our role,” ICA CEO Andrew Hall told insuranceNEWS.com.au.

“Our strong and identifiable new brand and website has the flex required for the breadth of the general insurance sector and our broad stakeholder base.”

An ‘Issues in Focus’ section features information under the banners Economy, Climate Change, Community and Transparency. There are also tabs

for Consumers, Code of Practice, and Industry & Members, as well as a News Hub and a Data Hub. The new audiencefocused website features device optimisation, strong in-site search and a user-friendly design, ICA says. The image and logo changes build on a Code of Practice brand launched to stakeholders early last year.

The logo and website were designed by boutique design stu0 dio Theo+Theo.

insuranceNEWS

June/July 2021

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From the

PUBLISHER

MEET AVA, AAMI’S ‘DIGITAL EMPLOYEE’ Suncorp brand AAMI has launched what it describes as a “digital employee”, as part of a strategy to deploy advanced technologies to improve customer experience.

The insurer says Ava, pictured, an artificial intelligence-powered bot, is currently being employed in a pilot trial with some motor insurance customers.

Customers will interact directly with Ava via their microphones and cameras while scoping for motor insurance on the AAMI site.

Ava has a face, and appears online to customers dressed in the AAMI white uniform top and her name tag attached.

Her name was chosen after a shortlist was put through customer testing. Suncorp says Ava - AAMI Virtual Assistant – tested really well.

Suncorp says Ava has also been built to have a digital brain packed with a wealth of insurance knowledge to help customers with their various questions.

She has a personality and

emotional intelligence as well to help her learn to read the face and tone of customers and she will adjust accordingly to suit the customers.

“Ava is simply another way for customers to engage with us,” EGM Digital Distribution Katherine Carmody told insuranceNEWS.com.au.

“We know some people want to interact in the digital channel via chatbot or webchat in their research phase, and some would rather pick up the phone and speak with a person.

“Ava is an example of how we are innovating customer service and user experience to ensure we are giving customers what they want.”

She says the insurer has not set an end date for the pilot yet.

The business will take an iterative approach and continually optimise Ava as it learns how customers interact with her and vice versa.

“As we get the data, we’ll understand more about the best application for Ava,” Ms Carmody told insuranceNEWS. 0 com.au.

When governments have a lightbulb moment and adopt a solution to a localised problem, there’s always a risk that the solution will expand to solve unrelated issues.

The Federal Government’s Budget declaration that it will act as the backstop for a cyclone reinsurance pool for buildings above the Tropic of Capricorn and get serious about mitigation after a decade of official deafness could be considered such a lightbulb moment.

We could point out that residents in the south of the country – who make up most of Australia’s population – will continue to bear the impacts of bushfires, floods, storms, tidal erosion, hail and hefty premiums without any government surety because they live south of the Tropic of Capricorn.

Prime Minister Scott Morrison apparently decided the northern Australia cyclone damage problem needed to be solved after nine years or more of official inquiries, telling an audience before the Budget was announced that “as a nation we spend some 97% on the clean-up and 3% on mitigation”.

That shouldn’t have been a surprise. This fact has been mentioned to politicians many times before without any reaction at all, and would have been again had the issue not assumed political importance as a federal election looms in which the north Queensland electorates are vital to the re-election of the Morrison government.

The effectiveness of a reinsurance pool is a complex issue, especially when it’s intended to solve one issue in one region. Expert assessments of its likely success depend very much on which experts you talk to, and whether their comments are on or off the record.

In this issue Insurance News Deputy Editor Wendy Pugh talks – on the record – to some of the many parties who want to be involved in nutting out the details of a reinsurance pool. The old saying that a camel is a horse designed by a committee springs to mind.

Putting aside the question of whether a reinsurance pool will have any real impact on premiums in the north, we should point out that climate change is affecting the frequency and ferocity of cyclones. The experts say cyclones will likely be fewer but more destructive in the future.

It remains to be seen if the Government’s lightbulb decision to just be there as a last-resort insurance backstop will really do much to lower the cost of insurance. While we all applaud the decision to get serious about mitigation, there’s every possibility that a reinsurance pool could prove to be an expensive camel.

Terry McMullan

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TERRY McMULLAN Email: editor@insurancenews.com.au

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CONTRIBUTIONS: We welcome all material that is relevant to the Australasian and regional risk insurance industry, including all aspects of risk management. Please contact the Editor, +61 3 9499 5538.

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

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All too common: cyclones and floods have led to rising premiums in the north

F

ederal Treasury will need a very large table to seat all those who want to hammer out the details for a cyclone reinsurance pool backed by a $10 billion government guarantee that is intended to take effect in July next year.

After a decade of successive federal governments circling the idea and insurers resisting the proposal, a reinsurance pool was announced on May 4 by Prime Minister Scott Morrison in a sweep through north Queensland ahead of the Federal Budget.

The focus now turns to its design and operation, and parties well-versed in the debate – particularly insurers – are anxious to be part of the process.

Long-time campaigner and co-chair of the new Northern Australian Insurance Lobby Margaret Shaw also says the voice of consumers mustn’t be ignored as the arrangements are put in place.

“We want to know what the details are and help to inform them if we possibly can,” she told Insurance News. “I think we have one opportunity to get this right – and we want to get it right, right from the start.”

National consumer groups, insurers,

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brokers, reinsurers, strata representatives and business organisations are among those set to put forward their perspectives during a relatively rapid consultation period mounted by a Treasury-led taskforce.

Insurance Council of Australia (ICA) Chief Executive Andrew Hall says the insurers are looking forward to working with the Government and other stakeholders on the design and implementation of the pool, while Allianz, a long-term supporter of the pool concept, has welcomed the initiative.

“At a high level it is obviously very much consistent with the mechanism we have been advocating for, but you can see from the announcement that there is an enormous amount of work to be done in designing exactly how it will work,” Allianz Australia Chief Corporate Affairs Officer Nicholas Scofield says.

The pool, aimed at cyclone and related flood damage affecting residential, strata and small business properties, will be funded via reinsurance premiums paid by insurers, and is intended to be cost-neutral to the Government over time.

It also aims to foster greater competition

in a market that has seen a marked withdrawal of capacity.

The announcement flags the potential to reduce premiums by more than $1.5 billion over 10 years, and says more than 500,000 insurance policies in northern Australia are expected to be eligible for cover.

Finity Principal Rade Musulin says the final form of the pool will be critical in achieving the ambitions, but the Government has the benefit of expertise within the Australian Reinsurance Pool Corporation, which will administer the scheme. Overseas versions – both good and bad – can also be considered.

“It’s certainly possible to design pools that break even,” he says. “There are examples of this all over the world, but there are other examples where pools have lost money.”

A Treasury consultation paper outlines the broad starting position and poses 23 questions on issues to be resolved before the pool can commence next year.

It will be designed to provide a reduced reinsurance premium based on properties’ risk profiles, with higher-risk properties receiving higher discounts.

Making a splash in north Queensland After a decade of reinsurance pool suggestions and little focus on mitigation, the Federal Government has leaped into action on both fronts

By Wendy Pugh

Savings to insurers are expected to result from lower reinsurance rates compared with the private market, as the pool will forgo a commercial profit margin. The government guarantee means premium levels won’t need to be high enough to ensure enough cash is on hand for rare events such as 1-in-100 year cyclones.

Basic details to be determined through the consultation include how to define cyclone and cyclone-related flooding for the purposes of the reinsurance coverage.

Suggestions include nominating flood damage that happens within a fixed proximity and time of a cyclone, or a measurement of the amount of rainfall brought by a cyclone that has not dissipated when flood damage occurs.

A definition for small business also needs to be agreed – given there’s more than one currently – while separately insuring SME property creates its own issues when policies are sold as packages covering a range of commercial risks.

The Treasury paper asks whether insurer participation should be mandatory and how much risk should be ceded to the

pool. Feedback is sought on possible price monitoring, to make sure savings are passed through to policyholders, and it suggests an agency such as the Australian Competition and Consumer Commission (ACCC) could be considered for the task.

Ensuring a smooth transition to the pool is highlighted as an important consideration for the efficient functioning of the insurance market.

Options put forward include allowing insurers to keep current reinsurance arrangements until they expire, or for the Government to set a date by which insurers must exit existing contracts.

Whether the pool should have an exit date, which is the case with the UK’s Flood Re, is part of the discussion, along with questions on how the arrangements could encourage mitigation and avoid unintended repercussions.

“By reducing reinsurance costs for highrisk properties, there is a risk that the reinsurance pool may encourage new construction in high-risk areas or to a standard that is vulnerable to cyclones and related flood damage,” the Treasury paper says. “The

taskforce will consider options to address this, such as limiting eligibility.”

The consultation paper also flags potential links to the issue of state and territory insurance taxes, noting the Royal Commission into National Natural Disaster Arrangements highlighted that multiple inquiries have recommended the abolition or reduction of such taxes to lower premiums.

Settings that could be included in the design of the pool, or policy options introduced alongside to encourage further action by states and territories on insurance affordability, will be considered.

Insurers – putting aside their previous opposition to a pool to accentuate the positives – note the reinsurance pool announcement should be seen in the context of a broader Budget boost in resilience spending, which they have long prioritised as the best long-term solution to northern Australia’s insurance affordability and availability problems.

The Budget allocated $600 million for a disaster preparation and mitigation program to be managed by a new National Recovery and Resilience Agency. Projects

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“It is all going to be down to the design of the pool, in terms of how much effect it might have on premiums and whether it does in fact make it attractive for others to enter the market.”

will include bushfire and cyclone-proofing of homes, levee building and shoring-up of telecommunications.

A pilot program to fund strata property cyclone risk mitigation in north Queensland, to be implemented with the state government, will receive $40.3 million over three years.

ICA says the resilience initiatives are an “historic first step” toward redressing an imbalance that has seen 97% of disaster funding spent after an event, while just 3% is spent on mitigation measures.

But there are critics of the pool scheme’s focus on north Queensland, where the governing Federal Coalition holds a number of crucial electoral seats.

They point out that natural disasters affect much of Australia, and while the resilience measures are broadly aimed, the pool has a narrow remit.

The Australian Small Business and Family Enterprise Ombudsman last year called for a pool that would cover natural disaster risks across the country. Consumer groups have also highlighted the Black Summer bushfire impacts and have suggested targeted direct subsidies may be a more effective form of government action.

The potential for a reinsurance pool has been studied by the 2011 Natural Disaster Insurance Review, the 2015 Northern Australia Insurance Premiums Taskforce, and the recent three-year ACCC Northern Australia Insurance Inquiry.

Affordability issues in north Queensland

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gathered steam after Cyclone Yasi and catastrophic flooding in 2011, then gained momentum following Cyclone Debbie in 2017. They were further fuelled by the 2019 Townsville floods, which led to yet another examination of the reinsurance pool concept.

The ACCC inquiry found the average combined home and contents insurance premium in 2018-19 was about $2500 in northern Australia, compared to about $1400 for the rest of the country.

Griffith University political commentator Paul Williams says Mr Morrison’s reinsurance pool announcements are in a context where Queensland, especially outside the southeast, remains a key battleground in the run-up to the next election.

Queensland swung to the Coalition at four times the national average in 2019, and with a one-seat majority in Parliament it must do equally well in regional areas at the next election, which is due by late May next year.

“Natural disasters hit regional Queensland disproportionately hard, and this sort of intervention by Morrison – seemingly the new way of a coalition abandoning neo-liberalism – may tip the balance,” Dr Williams tells Insurance News.

The seat of Herbert, which includes Townsville, flipped to the Coalition from Labor at the last election with an 8% swing on a two-party preferred basis.

Coalition MP for Herbert Phillip Thompson says one of the biggest issues raised with him is the sky-high cost of

insurance. He claims there has been a market failure in the provision of something that’s an essential service.

“If you want to own a house, a business or a strata, you must have insurance,” he told Parliament. “It’s as essential as water and electricity. This reinsurance pool will take a lot of the risk from the insurer, which will mean cheaper premiums for the people of Townsville.”

Strata Community Association (SCA) President Andrew Chambers says his members are among those seeking an active role in the process to ensure benefits are delivered.

“Hopefully, SCA can get a seat at the table because we have been working on the northern insurance issues for a long time over the years,” he says. “We have got a lot of information and a lot of experience that we could contribute.”

Treasury says once feedback on its paper is received and further consultation methods completed, the taskforce, drawing on assistance from relevant government agencies, will develop advice for Government consideration. The coming months shape as a critical time in determining the results that will be achieved.

“It is all going to be down to the design of the pool, in terms of how much effect it might have on premiums and whether it does in fact make it attractive for others to enter the market,” former ICA executive Karl Sullivan says. “The devil will be in the detail and the architecture.”

0

Spinning south The warming climate could bring more catastrophic hurricanes to ill-prepared areas of Australia’s coast

W

hen Cyclone Seroja slammed into the West Australian holiday town of Kalbarri in April it carved a trail of destruction that is sadly familiar to many coastal communities in the nation’s north.

Roofs were peeled away from houses, windows smashed and debris scattered far and wide, leaving devastated residents to count the cost to properties and livelihoods.

But this storm was different from some that preceded it in a couple of ways: its formation under the rarely seen Fujiwhara Effect, in which it absorbed the weaker Cyclone Odette before shifting its trajectory south-eastwards; and its final destination.

Category 3 cyclones are rare visitors to Western Australia’s Mid West coast.

“It appears to be one of the more intense tropical cyclones to make landfall that far south on the Western Australian coast,” James Cook University Professor of Physical Geography Jonathan Nott told Insurance News in the days after the catastrophe.

Risk modeller AIR Worldwide noted it is “extremely rare for tropical cyclones to travel this far south”, with Geraldton, 155km south of Kalbarri, taking a hit after avoiding such storms since 1956.

Professor Nott, who specialises in reconstructing long-term natural records of extreme events, called it a

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possible wake-up call for Australia, and a sign of things to come.

That’s because in a warming climate, cyclones could track further south more often.

In September last year the National Centre for Atmospheric Research and insurer IAG released a research paper examining climate change impacts on “weather extremes that produce significant property, personal and economic damage and hardship” in Australia.

Among its key findings was that the frequency of tropical cyclones has declined slightly in recent decades “and this slow trend is projected to continue globally and for the Australian region”.

However, the good news ends there.

“Over the past 30 years, the proportion of the most intense tropical cyclones has increased at the expense of weaker systems, and this change is expected to continue,” the report says.

“Over the past two decades, the number of intense tropical cyclones making landfall on the Queensland east coast has increased substantially. The frequency of tropical cyclones making landfall throughout the western South Pacific region has also increased.

“There is global evidence of a poleward shift in the latitudes where tropical cyclones reach their peak

intensities. New research confirmed this shift is also evident for tropical cyclones in the Australian region.”

The report warns that warming seas to the east will enable cyclones to retain higher intensities further south and to penetrate further inland, with risk predicted to increase most rapidly in south-east Queensland and north-east New South Wales. “There is also a potential for increased risks in the coastal districts south of Shark Bay in Western Australia,” the report adds.

South of Shark Bay just happens to be where Seroja made landfall.

Valentina Koschatzky, Principal Risk Scientist at catastrophe modeller Risk Frontiers, tells Insurance News it is difficult to attribute the effects of climate change to a single event.

“The southerly track of Tropical Cyclone Seroja, although unusual, is not without precedent,” she says.

“Risk Frontiers’ tropical cyclone loss model includes a domain that extends south of Perth, recognising the existence of tropical cyclone hazard, albeit infrequent, for these areas under present-day conditions.

“Typically, tropical cyclones crossing the west coast of Australia so far in the south are infrequent and less intense. Winds speeds over 170kmh [as recorded in Kalbarri] have never been recorded south of Carnarvon, but the historical records are fairly recent

and do not necessarily capture the occurrence of such extremes.”

Citing research by Professor Nott, she says there is palaeoclimatological evidence of tropical cyclones even more intense than Seroja in the same region in the past.

Dr Koschatzky says current scientific literature “suggests that similar events may become more frequent at some point in the future”. However, she notes there is room for doubt.

“To date, there is no evidence in the observational record to suggest a trend exists and there is low confidence in the climate model projections for a southerly shift in tropical cyclones in the Australian region.

“The climate models have a limited ability to accurately simulate the interaction of some of the tropical cyclone processes, such as the one between climate change and regional aspects of tropical expansion, that influence tropical cyclone formation, transport, decay and dissipation.”

Dr Koschatzky says Risk Frontiers recently “climate-enabled” all its models to “look at changes in financial losses on a portfolio of real assets under future climate scenarios”.

One concerning aspect of the damage in Kalbarri is that, under current building codes, the town’s buildings are constructed according to lower wind standards

Flattened: damaged properties in Kalbarri.

Credit: DFES Incident Photographer Lewis van Bommel

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Future threat: cyclones could inflict such damage in communities further south. Credit: DFES Incident Photographer Morten Boe

than those further north where the risk of cyclone impacts is deemed more extreme.

“Of the four windspeed zones into which Australia’s building standard divides the country, the central west coast is in wind region B – considered not prone to these events and with the second-lowest wind design speed values,” an AIR Worldwide blogpost says.

“As a result, the damage done by Seroja was severe.”

Professor Nott says it may be time to reconsider Australia’s “wind areas”.

This might involve moving more communities’ categories up from intermediate to cyclonic or severe cyclonic, and strengthening buildings accordingly.

Dr Koschatzky says that even under present conditions, the intermediate-rated areas of south-east Queensland and northern New South Wales have very high cyclone risk, in terms of loss.

“While the probability of tropical cyclone landfall in this region is low and events are weaker, the number of exposed properties is high and the building standards are lower than further north, driving the high risk and loss potential.

“As with most natural perils, this just highlights the important role of exposure and vulnerability in natural catastrophe risk. Catastrophe loss models can be used to assess how such a potential shift, combined with other possible changes in tropical cyclone activity, impacts the risk profile around the coast of Australia. This information can be used to inform future design levels.”

The National Centre for Atmospheric Research report from last year notes that a host of other climate-related factors are combining to change and

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enhance the threat from tropical cyclones.

Along with the possible poleward shift in the locations where tropical cyclones reach their maximum intensity, storm rainfall is already increasing and further rises are expected.

“For example, cyclone sensitivity studies have shown a near-doubling in the area experiencing greater than 600mm during a cyclone passage over south-eastern Queensland and north-eastern New South Wales has occurred in the past decade.”

And tropical cyclones’ speeds appear to be slowing at higher latitudes, which “combined with increasing intensity and rainfall, leads to a potential for substantial increases in cyclone impacts from wind, rain and water ingress into buildings”.

Sea level rise and increasing river run-off, when combined with more intense cyclones, point to “substantial increases in storm surge impacts and coastal erosion”.

Dr Koschatzky says Risk Frontiers’ models have it covered.

“For the tropical cyclone wind hazard, we modelled the change in frequency of occurrence for events of different intensities and locations under a range of climate scenarios and time horizons,” she says.

“This allows us to estimate the change in average annual losses on a market portfolio, say by 2050, under different [climate change pathways] at a postcode or other level.

“We are also able to model the effect of a southerly shift in tropical cyclone activity, and also consider the impact of this if the exposure and building standards 0 were also to change in the future.”

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One house to rule them all Suncorp has unveiled a prototype for a home built to cope with bushfires, floods and cyclones

By Bernice Han

T

he quest for a disaster-proof house has taken on greater urgency after the horror bushfire catastrophe last year and one-in-100-year flood in Townsville the year before.

It’s a mission that has resulted in Suncorp’s One House, a design achieved after months of collaboration with some of the country’s top minds in the fields of natural disaster home resilience, combined with environmental and architectural best practice.

One House was unveiled by Suncorp in April. It’s a prototype for what could easily be the most resilient home in the country.

It is capable of surviving the intense flames of bushfires, the brute force of powerful cyclones or rising water levels during a flood.

The prototype addresses five key areas: floor materials, door design, ceiling storage, construction materials, and electricity and appliances.

With floor materials, burnished concrete, tiles or pavers are used. These materials are waterproof, easy to clean and far less likely to be damaged than carpet and timber during an extreme weather event. They also should not need replacing following an inundation event.

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For door design, all glazed doors are fitted using a top-hung rack system and flush threshold. This allows water to escape through the building openings and limits the possibility of doors becoming jammed by debris following a flood.

Hinges and solid-core fire doors also feature a similar installation approach, allowing water to escape from the interior and exterior.

Instead of using timber framing and plasterboard wall linings, steel stud framing is used to build One House, while water-resistant fibre cement sheet with vertical battens covering the joints are used internally.

Since the fibre cement sheets are removable, they can be unscrewed after a severe weather event for damage inspection or debris removal.

Electrical wiring is installed in the One House roof, as opposed to being typically arranged in wall cavities and the floor. The power points and switches are installed at least one metre above floor level to reduce the risk of electrical issues during flooding.

Suncorp says the project is part of its long-running push for actions to improve community resilience against natural disasters.

“There is much more that can be done to strengthen Australia’s resilience to natural disasters. We need to be smarter about where and how we build our homes. While the industry has been talking about resilience for a long time, our One House campaign aims to raise awareness and start a wider conversation on this important topic,” Chief Executive of Insurance Product & Portfolio Lisa Harrison tells Insurance News.

“One House is just another way Suncorp is proving how resilience not only saves Australians money, but also saves Australian communities from the physical and emotional impacts of natural disasters.”

She says the prototype demonstrates that stronger, more resilient homes are achievable.

The prototype is based in part on existing research on home resilience and scientific expertise from national science agency CSIRO, James Cook University and Room11 Architects, the three partners working with Suncorp on the project.

Complementing the research that resulted in the prototype home is a shortlist of vital components that the team believes is necessary to make a home safe, liveable, easy to maintain and more resilient to damage

Let it rain: One House was subjected to a series of tests

caused by natural disasters.

The team then proceeded to test the prototype in dedicated facilities at the Cyclone Testing Station at the Townsville campus of James Cook University and the CSIROoperated Bushfire Burnover Facility in southern New South Wales.

The tests helped the team understand what aspects of the prototype house would fail or resist particular fire, cyclone and flood impacts.

In one of the tests to work out the building’s bushfire resilience, the team measured the fire impacts at different burnover levels using specialised simulated bushfire flame fronts.

“The results of this collaboration, research and testing enabled us to qualify specific design principles and demonstrate how clever use of design and material selection can dramatically increase the resilience of a home,” Suncorp says.

“This has led to a more robust and resilient house design that we can all learn from and one that can help to protect us against extreme weather.”

While not everyone can replicate One House, Suncorp says the prototype offers lots of ideas for Australians who are either

looking to build a new house, planning a renovation or are interested in improving the resilience of their existing homes.

For new houses, they can consider the following: • Installing electrical wiring in the roof to prevent loss of power during a flood event • Installing power points and switches at least one metre above floor level to reduce the risk of electrical issues during flooding • Using roof material that has a lower thermal conductivity than traditional roofing materials and will reduce the head load during a fire. Also consider an uncoated finish, as paint can blister and burn in a fire • Utilising ceiling space to store services such as air conditioning, batteries and hot water • Constructing external finishes from strong, non-combustible materials including corefilled block and aerated autoclaved concrete cladding • Using waterproof internal wall linings.

For homeowners keen to strengthen the resilience of their existing homes, the following should be considered: • Installing fixed and operable high-performance mesh screens to slow down flame spread during a bushfire

• Installing a dual tank system using galvanised water tanks. One tank is for firefighting, so that if the home is ever disconnected from its main water source occupants still could extinguish flames on site. The second tank is a dedicated back-up water supply, ensuring occupants always have drinkable water.

• Use PVC plastic gutter fixings. In the event of a fire, these fixings melt and the gutters become ‘sacrificial’ and safely fall away from the house. This helps protect the home from embers and also reduces the likelihood of embers entering the back-up water supply • Consider cyclone-rated roof fixings, which are less likely to fail during extreme events with strong winds. The One House roof frame also utilises a tie-down system to the concrete slab that eliminates the risk of a ‘flying roof’ during a severe wind event.

Darrell Sard, whose home was severely damaged in the 2019 Townsville flood, says he would have taken up some of the ideas from One House had it been available at that time.

“Hindsight is always an easy teacher,” he tells Insurance News. “If there was anything I could have done prior, knowing what I know now, absolutely I would have done that.” 0

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Keen to close the protection gap: Sharon Ooi

Taking the lead Swiss Re’s new regional chief Sharon Ooi sees knowledge and innovation as the best way to tackle changing risk challenges

By Wendy Pugh

W

ith natural disaster risks a rising national concern, premiums increasing and a pandemic underway, Sharon Ooi is heading Swiss Re’s Australian and New Zealand business at a critical juncture.

Australia is still recovering from last year’s bushfires and hailstorms while dealing with more recent floods and catastrophes. The Federal Budget has powered up mitigation funding and the Government has backed a controversial reinsurance pool for cyclone risks in the north.

Ms Ooi, who took over Swiss Re’s top local role last year, says the mitigation commitments are a particularly welcome development in the current environment, with better understanding of how to reduce exposures and risks critically important at all levels.

“The affordability discussion that continues to take place in the property insurance space is really being driven because the exposures continue to increase,” she tells Insurance News. “If anything can be done – and it is great that Government has stepped in to mitigate – then that is very positive.”

Ms Ooi says governments and the insurance industry both have roles to play in reducing risks and addressing immediate impacts from natural disasters, while also looking at the long-term implications of

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changing climate perils.

“The industry works on the basis of sudden and accidental losses. We are here to provide that cover such that if something untoward occurs we are able to pay out and build in financial resilience,” she says.

“But with the increasing frequency of a lot of these things, there is also a part that governments can play to bring down the exposure.”

Australia’s recent experience has highlighted the extent of potential damage from the type of natural disaster risks often described within the industry as secondary perils.

These risks, such as hail, flood, storm and bushfire, have tended to be more localised than primary catastrophes such as earthquakes and cyclones, and have been less well modelled. But they are becoming an increasing driver of losses as climate and loss patterns are changing.

“It is really for us to work with our clients and ensure that there is an ongoing understanding around these secondary perils and then to be innovative, creating new products and new ways to better understand these perils so that we are across some of the loss drivers.

“This also then means partnering with the Government on mitigation.”

Natural catastrophes have fuelled surging insurance premiums in Australian

regional areas, particularly for high-risk properties or insurance classes, intensifying concerns around how affordable and accessible insurance will be, as well as how long the hard market may last.

Ms Ooi says higher pricing reflects a change in risk fundamentals, with the increases of recent years more in line with impacts, rather than just representing a retraction of capacity or the ability to charge more, as has occurred in past hard markets.

“Because insurance and reinsurance is such a global industry, I think there is capacity, but what is driving some of the rate increases is more around the exposure increases, as well as in the underlying risk,” she says.

So is there any sign of relief ahead for insurance buyers? Ms Ooi says advances in technology and expertise will offer improvements in assessing and managing risks that will benefit insurers and policyholders.

While there’s no “one-size fits all silver bullet”, opportunities are there to improve affordability and increase insurance penetration rates.

She says smart analytics and data science will support greater understanding of underlying exposures. More will be learned about climate impacts and multi-faceted approaches will facilitate innovative solutions.

“Government will play a part in enabling mitigation, [and] the insurance industry

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“If government feels that pandemic exposure needs to be covered in a more sustainable way on a go- forward basis, then we would be happy to discuss a pool situation or proposal.”

Diverse background: Ms Ooi trained as a scientist

must play its part in investing in research and technology and data. And individuals absolutely can play a part as well.

“If you explain to policyholders what they can do to mitigate their risk, how they can reduce exposure to flood events or to bushfires and the like, they will step up to do it.

“But that educational process needs to be there, and the research needs to be there.”

Ms Ooi says it’s too early to assess the likely impacts of the Government’s $10 billion guarantee for a reinsurance pool in northern Australia. A Treasury-led taskforce is looking at the design and operation of the pool, which is due to come into effect in July next year.

“Definitely more information is needed, but we are very happy to be part of the conversation,” she says. “It is important if anything is rolled out it is rolled out in a sustainable manner and meets the needs of all the policyholders.”

Consumer criticism of the reinsurance pool has partly centred on its relatively narrow focus on cyclone damage and related flooding north of the Tropic of Capricorn, when other parts of the country also suffer from natural disasters.

Ms Ooi says natural catastrophes don’t acknowledge borders, but considerations

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that must come into play when looking at the formation of a pool include the level of private industry support available and an understanding of the specific problems that need to be solved.

Swiss Re is well-placed to share its experiences on what works and what doesn’t, having worked with government-backed reinsurance pools around the world, including Flood Re in the UK and the National Flood Insurance Program in the US. Ms Ooi says that as a general principle, the giant reinsurer is supportive of measures that close the protection gap.

“The role that reinsurance plays is always to provide additional capacity to insurance companies and also to governments, because governments want to protect their own balance sheets,” she says.

“For us, we see an opportunity with a number of these announcements to work with the parties involved, the insurance industry or with government, to see how we can play a role there.”

Swiss Re, which is based in Zurich, has clout as one of the world’s largest reinsurers, with a network of around 80 offices, covering both property and casualty and life and health risks. Globally, the property and casualty business reported net premium earned of $US20.8 billion last year.

In a challenging year, property and

casualty reinsurance suffered a $US247 million loss including COVID-19 impacts, while elevated natural disaster impacts were largely driven by the Atlantic hurricane season and global secondary perils.

First-quarter catastrophe losses reflected the company’s strong presence in Australia, where hailstorms and flooding followed the bushfires.

Ms Ooi says Australia is a very important contributor to the overall group. If the country doesn’t have a good year the impact will be seen at the wider-company level, while the reverse is also the case.

COVID-19 impacts remain a key issue for the company globally as insurers, governments and businesses consider protection amid the ongoing pandemic and recovery implications.

The Insurance Council of Australia (ICA) has launched test cases on business interruption wordings and exclusions. The issues involve a number of insurers including Swiss Re, while a similar process has concluded in the UK. “We agree with the ICA findings that the insurance industry was very clear that pandemics were not a risk that were included in the covers, and to be fair it is also not a risk that can be diversified,” Ms Ooi says.

Swiss Re is closely following the progress of the test cases, and working with

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clients to see if more can be done around some of the other aspects of cover. Globally, the reinsurer believes pools with government involvement offer solutions for problems that exceed private industry capacity, although it’s not clear if Australia would consider such a path.

“If government feels that pandemic exposure needs to be covered in a more sustainable way on a go- forward basis, then we would be happy to discuss a pool situation or proposal,” she says. “But we haven’t as yet had those discussions.”

Since arriving in Australia Ms Ooi has focused on meeting clients, gaining a greater understanding of their needs and learning

more about the local market, while looking at the potential for innovation, technology and partnerships to deliver solutions.

Such initiatives include advanced driver assistance system scoring, which taps technology to help improve safety while also helping insurers to benefit from compulsory third party profit incentives aimed at reducing personal injury.

The company has also worked with major broker group Steadfast on a tracker that identifies flood risks at specific addresses.

The tracker uses Swiss Re’s CatNet tool, accessing satellite imagery, flood mapping, climate change data, catastrophic event impacts and population density details.

On the life insurance side, the company is looking at the industry-wide challenges around the sustainability of disability income products. It sees opportunities to partner with clients around products that are more affordable and fit for purpose in meeting policyholder needs.

Ms Ooi says reinsurers have much to offer in taking a lead on innovation and building understanding around the many critical problems that need to be addressed.

“There are a lot of big issues that are at play currently,” Ms Ooi says. “We need to bring more to the table, so getting that 0 understanding is important.”

Science proves the pathway When a Singapore bank decided to employee people from diverse academic backgrounds it unexpectedly created a pathway to insurance for Sharon Ooi, who holds a degree in cell and molecular biology.

Ms Ooi had planned to pursue scientific research after graduating with Honours from the National University of Singapore, but her parents challenged her to gain work experience and to test the employment market.

“I didn’t want to, to be fair, and I thought I was being very smart by applying to a lot of financial positions in the market space, understanding that no one would hire someone with a hard science degree,” she says.

As it turned out, Singapore’s OCBC bank was undergoing a transformation building a workforce for the future, and a focus on diversity included bringing in graduates without traditional finance or economics backgrounds.

“They were very happy when they got my resume and I got hired into their graduate program quite quickly, and it really framed a lot of my views around diversity and inclusion.” Ms Ooi says.

“Just having a very big bank in Singapore take a chance on someone who doesn’t fit the normal profile of a finance person was very interesting, but it also then opened up a whole new industry to me.”

Ms Ooi was involved in risk management at

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the bank before being headhunted by reinsurance company General Cologne Re – rebranded as Gen Re in 2009 – which had also taken a positive view on the benefits of a hard science background.

“They felt the thought process of a number of these individuals, along with a lot of actuaries, was very aligned with risk assessment and understanding risk – not only the current exposures but the future impact of risk exposures as well.”

She says science requires considerable research and experimentation. “You have to challenge a lot of the premises that you have.”

Ms Ooi joined Swiss Re in 2006 as head of the Property and Engineering Treaty business for Southeast Asia and India after it acquired GE Insurance Solutions, where she worked for five years as part of the regional leadership team.

In 2017 she became Swiss Re’s head of property and casualty for the Asia Pacific region and last September took up the role of Head of Australia and New Zealand, effectively swapping roles with predecessor Mark Senkevics.

Ms Ooi arrived in Sydney in November after family arrangements were finalised and has settled into Australian life with her partner and son, while her daughter is completing studies in Singapore.

The household’s pets also made the

journey, enjoying a relatively easy transit amid COVID-19 impacts, given Singapore’s low-risk status for animal imports.

“We have three cats and two dogs that came with us,” Ms Oooi says. “They quarantined for 10 days and we had to quarantine for 14.”

More women have recently taken up senior roles at insurance sector companies and at the top of industry representative groups in Australia, although Ms Ooi sounds a note a caution amid the encouraging signs of progress.

“I am optimistic [but] coming from a hard science background, I think we need to have more data before we call it a trend.”

Swiss Re research shows that in Australia, Japan and India less than 10% of CEO positions at reinsurers and insurers are held by women, although Australia is an outperformer in some respects with women chairing almost a quarter of industry boards, versus a global average of just 8%.

Ms Ooi says more companies are appreciating that change won’t happen until it is actually measured, “because what gets measured gets done”. While corporate boards are increasingly looking at inclusion and diversity, she says there’s more to be achieved.

“I think we can always do better,” she says, vowing to take “any opportunity” to champion diversity and inclusion in the industry.

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Mutual admiration Businesses and groups battling insurance market problems may drive a renaissance in an alternative risk-sharing solution

By Wendy Pugh

A

lpine lodges, Queensland churches, professional groups and amusement parks have all suffered insurance pain in the current market and all have discussed mutuals as a possible way out of their cover dilemmas.

After falling in and out of favour over decades in tandem with pricing cycles and capacity changes, mutuals are undergoing something of a renaissance as affordability and availability issues defy easy solutions.

“Mutuality has been on the back-burner in Australia for a while, but it has certainly been coming back to the forefront,” Regis Mutual Management Director Gerald Ewing tells Insurance News. “There are significant challenges out there and that is driving a big increase in interest.”

UK-based Regis Mutual helps create and manage mutuals. In Australia it is associated with Unimutual, formed in 1989 to assist universities and related higher-education and research organisations that had been struggling to gain cover. It also helped set up Perth motor trades insurance specialist Capricorn Mutual.

In the current tough conditions, described by Willis Towers Watson as the hardest market cycle since the mid 1980s, groups struggling with professional indemnity and liability cover are looking at mutuals, along with property holders in regions deemed exposed to cyclones and bushfires.

That includes lodges in alpine regions that have seen premiums skyrocket and capacity reduced since the Black Summer bushfires.

Mount Buller Ratepayers Association Director Chris

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Hollier says premiums for the Benalla Ski Club lodge have soared from $13,000 to $35,000 in two years. That’s despite sprinkler systems, resilient building features and no history of bushfire losses on the mountain, as insurers take a sweeping approach to the risk.

“A more permanent solution, and to me a better one for the mountain, is a to have a permanent mutual in place, professionally run for the benefit of all participants and retaining the profits within it,” he tells Insurance News. “Certainly, everybody who would be in it would have a mutual desire for it to succeed.”

Preliminary explorations last year on a mutual-type arrangement didn’t gain traction, but broader alpine options are being explored with insurtech Picnic Labs, which has an interest in mutuals in a variety of contexts.

However, there is a possible obstacle. Victorian alpine lease arrangements are held through resort management boards, which act as the Crown’s representative. The boards require that buildings are insured, and mutual arrangements may not meet the criteria.

Operators of amusement rides, water parks and other leisure venues are facing similar stresses in public liability, with moves afoot to examine options.

The Australian Amusement Leisure and Recreation Association has entered into a partnership with Aon to look at the feasibility of an industry-owned discretionary mutual fund. It has already approached the Federal Government over a grant to get started.

The Australian Small Business and Family Enterprise Ombudsman is also looking at the proposal with the assistance of external expert advice.

Supporters of mutuals say they have lower costs, effectively assist groups with similar risks, retain profits and are better at driving mitigation. The concept harks back hundreds of years to the risk-sharing origins of insurance before shareholder-owned corporations became more dominant.

“One of the key differences in a mutual is that the customer and the owners are the same people,” Mr Ewing says. “That removes one of the essential tensions you see in an insurance company – they do a good job of managing that tension, but it is always going to be there.

“Ultimately that is driving what we are seeing at the moment. In that need to return profits, they are having to push prices up and withdraw from certain areas because they are just not profitable enough.”

Proponents of mutuals say their success in facilitating mitigation lies in the common nature of issues faced and a sharper sense of shared benefit from activities taken to reduce risk.

“A mutual is uniquely placed to address resilience and mitigation with its members,” Mr Ewing says. “It is owned by its members, so they have a vested interest in its outcomes. But more than that it is because of the way a mutual communicates with its members.”

Mutuals are structured in various ways and may include insurance mutuals regulated by the Australian Prudential Regulation Authority (APRA) and discretionary mutuals offering “insurance-like” protection products.

Motoring organisations that introduced insurance

arms have a long history as mutuals, including RACQ in Queensland and RAC in Western Australia. In New South Wales, NRMA controversially demutualised its insurance business in 2000.

Discretionary mutuals aren’t subject to the Insurance Contracts Act and have greater flexibility around accepting or rejecting claims. They don’t have to meet APRA capital standards but are covered by Chapter Seven of the Corporations Act, which is regulated by the Australian Securities and Investments Commission.

Challenges starting a mutual include gaining sufficient initial capital and gathering commitments from sufficient potential members with similar risk profiles and values to justify the set-up processes.

Picnic Labs Chief Executive Charles Pollack says a 2019 legislative change allowing funds to be raised through mutual capital instruments (MCIs) has opened the way for a new generation of mutuals.

Australian Unity, operating in health and aged-care, became the first mutual to issue MCIs, raising $100 million in November.

Picnic launched the Our Ark mutual last year using MCIs, with the Anglican Diocese of North Queensland as a foundation member. The mutual is aimed at religious organisations, education, aged care, community groups and not-for profits.

“We have been pleasantly surprised about the level of interest for members to join Our Ark,” Mr Pollack tells Insurance News. “We had projections as you always do with a business plan, but I think it would be fair to

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Deep trouble: finding insurance for ski lodges in areas like Victoria’s Mount Buller is increasingly difficult

say the level of interest has exceeded the level we have allowed for in the projections.”

In a submission to a Federal parliamentary committee inquiry, Picnic suggests change to regulations to allow MCIs to meet top-ranking Tier 1 capital requirements, facilitating mutual insurance product solutions in a wider range of areas.

Picnic Labs has also been looking at a consumer insurance mutual offering home, strata and other cover, especially to residents of northern Australia, but that type of arrangement would need to meet APRA capital requirements.

Picnic told the inquiry, which is examining mining and energy sector problems as banks and insurers withdraw support due to climate change issues, that regulatory changes could facilitate mutual solutions in the resources arena.

Mr Pollack was asked at an Actuaries Institute seminar whether MCIs, which can be redeemed or reduced as the mutual becomes self-sufficient, could lead to the types of issues faced by shareholder companies.

“That is an interesting philosophical discussion, when you establish the mutual,” he said. “What are your plans for the MCIs; are the MCIs really there to be an initial float and ultimately as far as possible be removed from the capital base; or do you see them being in the long term a part of the capital base?”

Past demutualisations and stock market listings have been triggered by the lure of growth, a desire to raise more funds and members cashing in when changed market conditions mean mutuals are no longer seen as essential.

The current hard market is expected to prevail for some time yet, but there is a view that fundamental shifts may mean the attractiveness of long-term mutual

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arrangements goes beyond pricing issues.

“Our observation is that there are actually more systemic things at play,” Mr Pollack says. “Irrespective of pricing cycles, there is a lot of relevance for mutuals in situations where there has just been a shift in attitude to the risk and the capacity has just disappeared or become very expensive.”

The Australian Small Business and Family Enterprise Ombudsman has described current insurance affordability and accessibility issues as a national crisis, while the Federal Government has committed to a reinsurance pool with $10 billion in Government backing for cyclone and related flooding risks across northern Australia.

The Insurance Council of Australia has commissioned an independent review led by actuary and former APRA Member John Trowbridge to consider how the industry might respond. A consultation paper released last month includes mutuals as one of 16 options for feedback.

Sydney-based underwriting agency Asia Mideast Insurance and Reinsurance (AMIR), the Australian Financial Services Licence-holder for Our Ark and Aussie Farmers Mutual, earlier this year called for feedback on a professional indemnity pool, noting many businesses are being unfairly affected by a market over-reaction.

“If there are losses in professional indemnity, it is not for all professions,” AMIR CEO Adel Dawood said.

“You can’t just treat everybody with the same brush.”

Unimutual Acting Chief Executive and industry veteran Terry Ibbotson says setting up a mutual requires extensive historical data and analysis to understand the level of risk that should be accepted and how the mutual will operate. Establishment costs are significant.

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“A mutual requires a longer-term commitment, and over the longer term it will definitely provide a more sustainable solution.”

The long-running universities mutual follows APRA guidelines, even though as a discretionary mutual it doesn’t come under the regime, and uses actuarial analysis to examine potential future losses and requirements.

“We retain the first $7.5 million of each and every loss on the property side and then we reinsure the excess of that amount in the traditional direct and reinsurance marketplaces both in Australia and around the world,” Mr Ibbotson says.

Members will regularly test the market through their own brokers as part of procurement policies, while insurance companies may at times decide higher education is appealing and target the mutual’s turf.

“It is not a protected animal,” Mr Ibbotson says.

“We have to fight every year and we have people in the field to make sure we have the most competitive product we can possibly have, with the broadest scope of cover, and we provide additional services for the members.”

Mutuals that Regis has been involved with typically have retention rates of more than 90%, Mr Ewing says. Those that decide to become members tend to stay on board.

“If you are going to shop around all the time, then a mutual is not for you,” he says. “A mutual requires a longer-term commitment, and over the longer term it will definitely provide a more sustainable solution and should produce cheaper pricing.”

Concerns over value provided have been raised in the local government sector, where mutual arrangements have operated for decades, gaining traction in the early 1990s after insurance became almost impossible to buy.

Some councils in NSW and Victoria have argued better deals have been available at times elsewhere in the market, leading to class actions against JLT as manager and adviser and disputes over scheme deeds and the arrangement of protection.

JLT, now part of Marsh and McLennan, rejects the

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criticisms and says it services more than 500 councils across Australia through mutual schemes that provide stability and confidence to local government regardless of volatility in traditional insurance markets.

Internationally, mutuals have established a stronger general insurance presence in regions including the US and Europe.

One of the largest mutuals globally, Oil Insurance Ltd, began in the 1970s due to problems faced in the energy sector, while Mr Pollack noted at the Actuaries Institute conference that four of the top 10 insurers in the US are mutuals or reciprocal exchanges.

Mr Ewing says regulatory changes could be made that would reduce costs and improve the opportunities to form mutuals in Australia.

“Because discretionary mutual protection is regulated as a financial product, there is still a lot of red tape and compliance and governance required, and that is a barrier to entry,” he says. “What we would like to see is a slightly lighter regime, particularly for the smaller groups, because at the moment it is smaller groups that are typically facing problems.”

Proponents say that, in a sign of the times, more brokers are looking at the possibilities of mutuals as their clients struggle to gain cover, and that risk-sharing pools don’t have to put intermediaries on the sidelines.

Mr Pollack says policyholders tend to lose out relative to shareholders when insurance companies over-react to perceived risks, imposing higher pricing and reduced capacity. “At the end of the day the customer is far from number one.”

Currently, the greatest potential for expansion of the concept is through the discretionary model targeted at business needs, Mr Pollack says, although demand clearly exists also for solutions aimed at the more regulated consumer end of the market.

“Where there is capacity to be able to accept a product that is insurance-like rather than specifically being an insurance contract, there is huge opportunity.”

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Ardonagh arrives Fresh from acquiring Resilium, the British group’s Ethos Broking is seeking out top performers for its new Australian broker network

By Terry McMullan

T

he number and calibre of the organisations seeking Australian insurance brokerages to add to their networks seems daunting to some, but not to British company Ardonagh, which has entered the local market with brisk confidence and a full head of steam.

London-based Ardonagh – the name is a combination of the Celtic words “on high” and “warrior” – is the UK’s largest independent insurance group and has already picked up major local authorised representative company Resilium. Then on June 1 it introduced its Ethos Broking operation into the Australian mix to build an entirely new broking business.

The arrival of Ethos has seen Resilium managing director Adrian Kitchin becoming Chief Executive of Ethos Broking, while Ben Hastie, formerly Resilium’s sales and distribution director, has become Managing Director of that company.

Ardonagh Australia Chairman Paul Lynam says Ethos already has a number of acquisitions in the pipeline.

The M&A drive is based on a simple “hub and spoke” strategy, allowing it to focus not just on larger established brokerages but also smaller up-and-comers and medium-sized operations working in the SME and mid-market sectors who are seeking ways to grow faster.

While the Ethos acquisition model isn’t all that different from other acquirers in the market – Mr Lynam says Ethos will take between 65% and 85% of a brokerage, usually with a five-year buyout – the wide embrace of the strategy gives him and Mr Kitchin considerable flexibility in the sort of brokers they target, the way they put their Australian network jigsaw together, and the way they develop it.

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And he insists Ethos isn’t a “classic retail consolidator. We prefer to strike partnerships with strong broking businesses, maintaining their financial alignment and providing the resources and capital they need to accelerate their business plans and ambitions.”

Of course, building a significant new broker group in a highly competitive mergers and acquisitions market requires deep pockets, because the competition for high-performing brokerages is intense.

UK operators like Ardonagh are seeking opportunities in far-flung places like Australia because the environment to do so is right. Our regulatory and operations cultures are robust, which provides certainty. Add to that low interest rates, rising premiums and the fact that strategic outposts adds to their financial strength and flexibility.

And it’s happening in reverse, too. Australian brokers – most notably Steadfast and PSC – are building overseas networks for much the same reasons as the UK brokers like Ardonagh and Howden. Most recent was the April move by Steadfast to raise its stake in German-based broker group unisonSteadfast to 60%.

Its control of what is believed to be the largest global network of independent insurance brokers now gives it a reach that extends through key Asian centres, the UK, Europe and the US. Locally, the competition for brokerages includes such players as AUB, PSC and Steadfast, let alone the internationals Gallagher, Aon and Marsh – the latter two of which have recently also gobbled up major global competitors in JLT and Willis.

Add to this mix the medium-sized Australian brokers also seeking out compatible businesses, and the task of putting together an entire network of high-quality

Building together: Paul Lynam, left, and Adrian Kitchin

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Setting his sights: Mr Lynam says Ethos has targets in mind

brokers is challenging.

But Mr Lynam isn’t deterred by the competition, pointing out that Ardonagh has a great deal of M&A experience, deep pockets and a plan that can make it a significant player, despite starting on the build much later than others.

He says there are still many potential targets in the local broker market, and Ethos “provides a point of difference for those brokers that haven’t already made a decision to sell to another brand. Our plan is not to replicate what the incumbents in the market are doing. Our offering is quite unique.”

Focusing on brokerages in the SME and mid-market sectors, he says he’s not aiming merely to bring together a string of small and medium-sized brokerages – although he doesn’t shy away from the mention of some big broking names.

“We’re not scared of big acquisitions,” he tells Insurance News. “We’ve got the firepower for big acquisitions, and the ability to do small acquisitions and everything in between.

“If they are a cultural fit, we’ll support them.”

While he and Mr Kitchin aren’t tasked with targeting the corporate market, Mr Lynam says Ethos is wellequipped through Ardonagh’s existing brokerages and its recent global acquisitions to give anyone a run for their money.

“But 99% of the customer base and [gross written premium] throughput of Ethos in Australia as well as the UK will be made up of an SME local community-focused customer base, which will be placed with local insurers,” he says.

“For middle market and corporate broking opportunities we’ll collaborate with our Ardonagh-owned sister companies in London who can access specialist insurance carriers.”

While he and Mr Kitchin are “looking for those good

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solid commercial businesses that have good community support”, Mr Lynam says the “hub and spoke” model allows Ethos Broking to accommodate brokerages large and small.

“We’re looking for brokers we can invest in, rather than focusing solely on companies with large portfolios.

“We don’t want to buy a ‘hub’ business where there’s no ambition, no drive, no inclination to grow. If it’s a big business where the owner says he or she doesn’t want to go forward in the business, then it’s a spoke.

“But you could have a broker of, say, 40, with a million dollars of revenue who has great ambition and drive, then fantastic; because we have the financial and technical support resources to build him out.

That’s what drives the difference between a spoke and a hub.”

But who exactly is Ardonagh? Despite already being a significant player in the UK broker sector with a workforce of more than 7000 and recording a £251 million profit on income of £713.8 million last year, the Ardonagh brand isn’t familiar to local brokers. But it is moving very quickly to change that.

The Resilium acquisition in February was the group’s first significant foreign foray, but in April London-based Chief Executive David Ross announced the formation of a new division, Ardonagh Global Partners, and the acquisition of major American healthcare and benefits specialist AccuRisk Solutions, along with European and UK specialist broker Hemsley Wynne Furlonge.

Then on May 27 he revealed a $US500 million deal to buy BGC Partners, a global broker and financial technology group based in New York and London.

This includes London (re)insurance broker Ed and Lloyd’s broker Besso Insurance, aviation specialist Piiq Risk Partners, German marine broker Junge, UK-based agency Globe Underwriting, European agency Cooper Gay, and Sydney-based Epsilon Underwriting.

“We’ve got the firepower for big acquisitions, and the ability to do small acquisitions and everything in between.”

Its short history certainly reflects the speed and ferocity of global insurance M&A deals.

Ardonagh’s immediate ancestor is British specialist insurer Towergate, which was formed in 1997 and grew rapidly through acquisitions before hitting a brick wall of falling earnings and mounting debt last decade.

In 2015 Towergate was taken over by global investment company Highbridge, which sorted out the financial tangles and brought in Mr Ross – who was at the time chief executive of Gallagher’s international operations – to be the chief executive.

After selling off parts of the diverse Towergate business, Irish-born Mr Ross formed a new broking group in 2017 and rebranded it as Ardonagh.

The arrival of Ardonagh and Ethos Broking in Australia also reveals the value and importance of personal relationships in the insurance industry.

While at Gallagher, Mr Ross – who incidentally spent his university gap year in Australia – was also a key player in Gallagher’s 2012 acquisition of SRS, which was at the time Australia’s largest Lloyd’s underwriting agency. SRS had been founded and built by Mr Lynam, and he and Mr Ross negotiated the acquisition deal.

After leaving Gallagher, Mr Lynam was until recently chairman of Sydney-based Lloyd’s underwriting agency Epsilon, which is now part of the Ardonagh empire. Epsilon’s Chief Underwriting Officer Paul O’Leary was a longtime colleague of Mr Lynam’s at SRS. When Mr Ross announced the BGC acquisition, he also noted “unprecedented levels of consolidation” in broking that have “created a vacuum in the market”, He says he wants Ardonagh to be “a pre-eminent force, restoring balance and cultivating a preferred destination for top-performing talent”.

It’s those “top-performing” brokers that Mr Lynam

says Ethos Broking is also seeking in the Australian broking market. “It’s not all about how big a business is,” he tells Insurance News. “It’s their energy and their drive that we’re interested in.”

And while Ardonagh may seem to have arrived late to the local M&A party, he says there are still “plenty of brokers every day who are considering selling. They’re getting older, or their circumstances might have changed, they might want to extinguish debt. There are so many reasons for thinking about the best future course.

“Post-COVID, they may well have reassessed where they are in life. The business isn’t getting any easier, and some will be feeling they don’t want to risk the immediate future. Do they take some cash off the table now, or do they push forward and build up?

“If they’re thinking about ways they can grow, we can expand and accelerate the opportunities. They don’t have to wait or take risks on their own – they can do it now.

“We’ve spoken to some [brokers] who are at an age where they have to make a decision now which could make the difference between a good retirement and a great retirement.

“They could well be thinking, okay, I’m going to focus for the next five years on building up this business before I retire to ensure I get the best possible price.

“I’ll get two cheques: one when I sell a majority stake – somewhere between 65% and 85% of my business – and I’m going to work hard for five years building my business in partnership with Ethos and its support structures. And at the end of that time I’ll get a second cheque.

“Growth and personal satisfaction comes from being able to achieve your dreams, not just thinking and hoping about them,” Mr Lynam tells Insurance News.

0 “That’s in a nutshell what Ethos is offering.”

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Experienced operator: Mr Kitchin knows the Australian broking landscape

The key person to build Ethos Broking Ardonagh Australia is the third owner of Resilium in just 10 years. In December 2015 AMP sold its general insurance distribution arm to Suncorp, completing its withdrawal from the sector.

Armed with 700 experienced former agents, Suncorp dropped the AMP title and rebranded it Resilium.

Adrian Kitchin joined Resilium as managing director in August 2015 after nine years at rival AR group Insurance Advisernet – the last three as managing director.

In March 2019 he successfully executed a management buyout from Suncorp. The deal became legally messy – see the Insurance News archives for details – but had been resolved when Ardonagh came calling earlier this year.

Ardonagh Australia Chairman Paul Lynam says Mr Kitchin’s knowledge of the broking sector and its opportunities are key for Ethos Broking’s acquisition strategy.

“It’s going to be a very exciting time for me and Paul and [new Resilium Chief Executive] Ben Hastie and others in the management team,” Mr Kitchin tells Insurance News.

“I think Ethos is going to provide a real viable option for people in the market to make a choice about selling their business.

“The relationships we have with many brokers are proving to be very valuable in showing us where we really can make a difference under the Ethos and Resilium Partners brands.”

Ethos Broking has arrived in a period that Mr Kitchin describes as very challenging, with plenty of change looming for brokers.

“The change has been coming for some time,” he tells Insurance News. “A lot of people remain focused on the recent Hayne royal commission, but the reality is the change has been coming for professional brokers for some time before that.

“Brokers need to not just add value to their customers, but to demonstrate that they’re acting in their customers’ best interests.”

He gives the example of many brokers’ preference to provide only general advice. “In the medium to long term anyone sticking their heads in the sand and hiding behind general advice warnings are going to find themselves on the outer.

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“Those brokers which have been focusing on giving personal advice, understanding their clients and providing relevant advice are showing the way things are going.

“We’ve adopted the personal advice model at Resilium.

Our brokers are now very much across it, and we’ve noticed our competitors are playing a lot of catch-up to get to that place.”

The COVID-related lockdowns have also demonstrated the need to stay close to clients and provide reliable and ongoing advice.

“I think there have always been some in the market that have not had the level of contact with their clients that we in our business would deem is necessary. At Resilium we assisted all our brokers with all sorts of resources to help them talk to their clients about the difficulties they might face.

“We saw it as an ideal opportunity for our people to shine. While we’re hopefully through the worst of the lockdowns, I think staying close to your clients is now more important than ever.”

While he believes the focus on so-called conflicted remuneration is overblown and many of the arguments simply wrong – “commissions are so similar in level they create no conflict in the recommendations [brokers] make” – he looks forward to a moderation of the present hard market.

“I don’t see pricing going down anytime soon, but I think we will see a moderation in terms of increases,” he says. “For me the hardness in the market is in the area of insurer risk acceptance; that’s an area where brokers are going to have to work hard. We’re seeing risks that even two years ago wouldn’t have been considered terribly unusual becoming much harder to place.

“As for harder to place risks, there are certainly difficulties here and also overseas in getting some of those risks away.

“While pricing may moderate, the willingness of insurers to take on less than vanilla risks is going to remain an issue for some time.

“But as we all know, as underwriting profits start to return we will see capital return to the insurance space. It’s at that point that we may start to see some changes in pricing, but certainly not in the next 12 months.”

Down – and out Some insurers won’t cover people who are bankrupt, and consumer groups don’t think that’s fair

By John Deex

A

recent ruling by the Australian Financial Complaints Authority (AFCA) has brought the issue of how insurers treat bankruptcy into the open.

The ruling went against a person with a Hollard motor policy, whose claim was denied for non-disclosure of a part 9 debt agreement under the Bankruptcy Act. Had she declared the agreement, Hollard’s underwriting criteria would have deemed her an unacceptable risk – and on that basis AFCA ruled that the claim could be denied and the policy cancelled.

The motorist was asked directly during her online application for cover whether she was currently bankrupt or subject to an agreement under part 9 or part 10 of the Bankruptcy Act, and answered no. She was also made aware of her duty of disclosure.

The claimant argued that it was an innocent mistake. She said she was a victim of domestic violence and had entered the agreement during a “traumatic and highly stressful” period of her life. For this reason she was unable to fully understand the consequences.

She says she was aware that it came under the Bankruptcy Act, but not that it was “part 9”, so she believed she was answering Hollard’s questions correctly.

While the claim appeal failed, it highlights a case being argued by the Financial Rights Legal Centre that aside from the issues around disclosure, it makes no sense to close the door on insurance to those affected by bankruptcy. Policy and Communications Officer Julia Davis tells Insurance News that such blanket policies are discriminatory.

“The car insurance stuff is particularly infuriating, because the irony is [that] not having car insurance can lead to bankruptcy,” she says.

“You drive around without car insurance and you

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run into a Mercedes and before you know it you owe $50,000 that you cannot pay and you’re bankrupt.

“This is someone trying to make a responsible decision for themselves as well as for the rest of us. We don’t want to get run into by someone who doesn’t have insurance.”

Ms Davis says she would even question such blanket underwriting criteria for business insurance.

“I could see how you can make an argument that it’s a bit more relevant, but we deal with people who end up bankrupt for all kinds of reasons that have nothing to do with their inability to manage their finances or lack of business acumen or moral failing.

“People end up bankrupt for lots of reasons that they have zero control over.”

Ms Davis flags the COVID-19 pandemic as an example of circumstances that could leave people in financial ruin through no fault of their own.

“We just saw a lot of people in industries like travel who just went through a whole year with no international tourists. And, of course, they are going to go down; they are going to have debts they cannot pay, both in business and in their personal capacity.

“So the idea that there is just some blanket rule that if you’re are a bankrupt you can’t get coverage – I find that so discriminatory.

“Where’s the data backing up that risk decision? If you’ve dug even a tiny bit deeper and the reason they’ve gone bankrupt is because of medical bills, or something like that, how is that relevant to their ability to run a business?

“It entrenches people in hardship. People are just trying to be responsible, to get insurance in place. That is a responsible financial management decision. Why

are we making it so hard for them to move on with their lives after a period of hardship?”

Ms Davis says one insurance company told her it has made an ethical decision to drop creditworthiness from underwriting guidelines.

“Obviously some insurers have done some ethical analysis and thought, ‘is this relevant to our business or does it just hurt people?’ If some insurers have decided it’s not relevant, it’s not equitable, why can’t they all do it?

“We would argue insurance is supposed to support positive social ends and a policy that discriminates against people who have been bankrupt or have a debt agreement just embeds that financial hardship in society.

“It’s devastating when tragedy strikes and someone doesn’t have insurance.”

WEstjustice, which provides free legal help to people in the western suburbs of Melbourne, agrees.

“We believe that there needs to be more insurance products made available which are affordable and do not exclude customers who are bankrupt or under a debt agreement, in order to provide greater accessibility to insurance cover for customers in financial hardship,” Acting Legal Director Matthew Martin said.

While the issue is handled differently by insurers, it’s unlikely the industry will address a uniform approach anytime soon. The Insurance Council of Australia says how bankruptcy is treated in underwriting is a matter for individual insurers.

A spokesman for IAG told Insurance News the group has no specific underwriting guideline relating to bankruptcy for personal lines customers.

“Generally, for our business or commercial

customers, it is a consideration on a case-by-case basis,” the spokesman said.

“In certain products, additional terms or conditions may be put in place, which may impact cover for customers while they are subject to insolvency or bankruptcy processes, including whether cover may be excluded.”

IAG says it recognises the extraordinary circumstances some customers have experienced during the COVID-19 pandemic “and the deep impact it has had on people, businesses and communities – financially, socially and emotionally”.

“We believe insurers play a critical role in supporting people when they face financial hardship.”

Allianz says it removed bankruptcy exclusions around five years ago for motor and home policies and “as such, we don’t ask any questions or impose any conditions on bankrupt customers”.

Suncorp also has no such exclusions for personal lines policies, apart from the Shannons motor insurance brand. QBE would only say that it “considers all the circumstances before we make a decision to decline or accept the risk”.

Hollard declined to comment on its underwriting guidelines in relation to bankruptcy.

“Hollard adheres to the General Insurance Code of Practice when dealing with policyholders who are experiencing financial hardship at claims time,” a spokesman said.

“Our support options include fast-tracking advanced payments and assessing claimants for urgent financial need of benefits.

“Any AFCA determinations are reviewed to under0 stand the implications for future underwriting.”

No uniform industry approach: a bankrupt who applies for insurance isn’t necessarily inept or irresponsible

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W

eeks after the container ship Ever Given was freed from the sandy banks of the Suez Canal, the financial fallout from its blockage of the crucial shipping route is still being counted.

Until it is, the ship, its crew and its cargo remain in limbo. Egyptian authorities seized the Ultra Large Container Vessel (ULCV) after it was refloated, initially demanding $US916 million from its Japanese owner, Shoei Kisen and its insurer, protection and indemnity (third party) liabilities insurer UK P&I Club, as a condition for its release.

The Suez Canal Authority says the compensation it is seeking is to cover it for “loss of reputation”, the rescue operation, transit fees lost during the holdup and other costs. It has since reportedly reduced its demand to $US550 million.

But the financial dispute does not appear likely to be headed for a swift settlement. The most recent update from UK P&I as this issue went to print says “the owners of the Ever Given and their insurers have been committed to an amicable and fair resolution of this matter and remain so.” The matter is before the Ismailia Economic Court of First Instance, which adjourned proceedings until June 20 to “allow further settlement discussions to take place between the parties,” the UK P&I update says.

Shoei Kisen has declared General Average. Under international maritime law, when the loss mitigation convention is triggered, all cargo owners with goods on a ship will contribute to the costs of any loss even if they have not suffered any damage. For insured cargo on the Ever Given part of these costs may be absorbed by the

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insurance industry, depending on how the policies are arranged.

The Ever Given saga may therefore drag on in courts for years.

It has reignited the insurance industry’s nightmares about incidents involving ULCVs like the Ever Given.

(Container ships are classified by the number of 20foot container units (TEUs) they can carry. It’s worth noting that at 20,000 TEUs the Ever Given is not even in the “top 10” of ULCVs. The largest such ship at present, the Algericas, carries 24,000 TEUs.) Loaded with a vast assortment of everyday goods, the Ever Given and its 18,000 containers were en route from Asia to the port of Rotterdam when calamity struck.

The ship was moving through the Suez Canal on March 23 when it became jammed at an angle across a narrow section of the man-made waterway, its bow driving into the sandbank and its stern lodging against the other side.

Initial reports suggested the grounding happened amid poor visibility and high winds from a sandstorm, although human error has not been ruled out. An investigation into the incident is ongoing.

It took six days and seven hours for engineers and salvage crews, aided by a flotilla of tugboats and dredging equipment, to dislodge the vessel from the banks of the canal.

The Ever Given accident reveals yet again the complexity of marine insurance when ships carrying cargoes insured by myriad insurers from many countries

Big problem: the Ever Given blocked the Suez Canel for almost a week. Credit: Planet Labs Inc, AP

Too big to handle Mega-sized container ships like the Ever Given offer economies of scale for cargo companies, but for insurers they’re a mega-sized problem

By Bernice Han

suffer a mishap. It is not unusual for claims including third-party insurers to take a very long time to finalise.

The Ever Given grounding is the first major incident involving a ULCV in the Suez Canal, a confined and strategically vital trading route through which passes roughly 12% of global commerce and 7% of the world’s oil. It is also a chokepoint for world trade, which increasingly operates to tight supply schedules.

The grounding could not have happened at a worse time, with logistics chains already stretched to the limit after more than a year of pandemic disruptions.

The Ever Given blockage severely disrupted the supply arteries that keep the global economy humming, holding up about $US10 billion in trade for each day that Suez Canal traffic was stalled.

Built in 2018, the 400-metre-long Ever Given can carry the equivalent of 20,000 20-foot containers. It is 20 metres longer than the Empire State Building in New York is high.

The insurance industry foresaw the deployment of increasingly long container ships and resultant complexity.

In 2013 Lloyd’s warned in a report that increasing ship sizes and growing cargo volumes were driving up wreck removal costs. At that time the largest container ship in service had a carrying capacity of 16,000 TEUs. A mere decade earlier, in the 1990s, container ships carrying 5000 TEUs were considered large.

“A large vessel is generally harder to salve and a large wreck will typically carry more cargo, which will take longer to deal with and therefore be more

expensive to remove,” the report said. “Furthermore, large-scale equipment will be required which may not be readily available.”

Allianz Global Corporate & Specialty (AGCS) says container-carrying capacity on ships has increased by 1500% over the past 50 years and has doubled over the past decade. With plans to build more 24,000-TEU vessels underway, clearly something needs to change.

“Such ships generate economies of scale for ship owners but also a disproportionately greater cost when things go wrong,” the corporate arm of Allianz says.

“Dealing with incidents involving large ships, such as fires, groundings and collisions, are becoming more complex and expensive.

“It is clear that in some shipping segments, loss prevention measures have not kept pace with the upscaling of vessels. This is something that needs to be addressed from the design stage onwards.”

AGCS says fires aboard large container ships are now a regular occurrence, with such incidents resulting in large claims in the hundreds of millions of dollars.

Insurers and reinsurers shoulder most of the financial burden.

London-based Peter Townsend, who now runs his own marine advisory firm, Ensign Consultancy, helped prepare the Lloyd’s report when he was with Swiss Re. He tells Insurance News he was not at all surprised by the Ever Given incident and the resulting ordeal it has created for insurers and the global economy.

He says a similar incident in the Suez Canal in 2016 also involved a container ship, the Fabiola, which went

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“As a result of their sheer size and the immense quantity of cargo carried, when in distress mega-ships are clearly more vulnerable than their smaller cousins.”

aground after experiencing engine problems. It blocked traffic for several days.

He says the insurers involved in the Ever Given grounding have “dodged a bullet” because the grounding did not affect the stability of the 18,000 containers stacked on the vessel.

“Let’s face it we’ve had a near miss here,” Mr Townsend tells Insurance News. “That could have been an incredibly expensive operation if the containers needed to be discharged from the vessel where it grounded.”

Will the lessons learned lead to changes? “I am sceptical,” he says.

A pressing concern for the insurance industry right now is the lack of available tools for handling salvage and recovery operations of ultra large container vessels.

“You’re not going to stop accidents happening, but we need to be able to respond expediently to any accidents,” Mr Townsend said. “The problem that we have at the moment is that there are very few cranes and equipment to manage the size of these ships.

“I think the industry will just continue to sleepwalk into the next big container incident.”

The International Union of Marine Insurance (IUMI) has long been working on safety-related issues concerning ships of the size of the Ever Given. Incorrect declaration of dangerous cargo and insufficient fire-fighting capabilities are currently two of the main challenges that must be resolved.

Another worrying trend is the “seemingly increasing number of container spills” coming from super-sized ships. IUMI Secretary General Lars Lange says figures from the World Shipping Council put the average number of containers lost overboard each year in the period from 2008 to 2019 at 1382.

Mr Lange says there has been a “massive increase” in the number of such losses in recent months. The

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causes of such losses are complex, but he believes “the fact that our weather patterns are becoming more severe is most probably a significant factor”.

“There appears to be a heightened issue with the integrity and stability of onboard container stacks, particularly in heavy weather,” Mr Lange tells Insurance News. “The very fact that these vessels are growing larger in size and are therefore able to carry more [containers] exacerbates the risk in terms of sheer numbers of boxes lost overboard.

“Physical forces endured by the ship going through rough weather, such as rolling, are passed through the container stacks, creating enormous momentum and often resulting in collapse or loss.”

As long as they are commercially viable, the mega-ships are here to stay. The onus is on underwriters to fully understand the risk and develop products to mitigate that risk, Mr Lange says.

RedSky Insurance, a marine-focused underwriting agency in Sydney, says it is important for the industry to stay abreast of significant claims impacting the marine spectrum globally and understand how costs may spike from incidents involving gigantic container carriers.

A company spokesman says the Ever Given incident has demonstrated that even if no cargo was lost at sea, there is still a knock-on effect within the global supply chain.

“As a result of their sheer size and the immense quantity of cargo carried, when in distress mega-ships are clearly more vulnerable than their smaller cousins,” the spokesman tells Insurance News.

“This in turn increases the overall risk of shipping cargo via containerised ocean freight and is something underwriters must be conscious of when applying cover terms that are both reasonable and 0 appropriate.”

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Investing in insurtech It’s an exciting time for insurance innovation, but challenges remain

By John Deex

T

he COVID pandemic has pressed the fast-forward button on digital transformation, but it can still be difficult for insurtechs to get off the ground in an insurance market that’s dominated by a few major players.

Trying to counter this are organisations whose prime focus is helping insurtechs succeed.

Insurtech Gateway Australia, an insurtech incubator launched in 2019, is currently working with three companies, and Chief Executive Simon O’Dell says a fourth will soon be added.

Mr O’Dell says there’s huge opportunity for insurtechs right now, but limited access to risk capital can still hold the sector back.

The three companies already announced as Gateway partners are: • Koba, which uses a UK technology platform to create flexible, pay-per-kilometre car insurance; • AuditCover, which offers a fully digital insurance solution, underwritten by Lloyd’s, to enable accountants to quickly and easily manage tax audit insurance for clients; and • Geolocarta, which has created a marketplace connecting an Australia-wide network of geospatial data professionals to corporate consumers.

Mr O’Dell says Geolocarta is a good example of how Insurtech Gateway Australia can help new entrants.

The property characteristic data offered through the Geolocarta platform is produced by qualified geospatial measurement and analysis professionals. It can plug directly into insurers’ existing workflows.

“For the user experience, there is no longer a need

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for the consumer to provide, check or even see the data that informs their quote,” he tells Insurance News.

“Rather, after entering their address, the consumer only needs to see the coverage offered and the premium.

“This technology breakthrough will be particularly valuable to meet the changing duty of disclosure laws.”

Mr O’Dell says Geolocarta will also give insurers the ability to discover new predictive data, and new relationships between attributes and risk.

“With constant pressure on the commoditisation of insurance products, this breakthrough should offer some relief to insurers seeking to differentiate through proprietary underwriting and pricing.”

Mr O’Dell says the business already had a dedicated user base and well thought-out technical framework, but much was unknown.

“We have helped Geolocarta develop a venture building framework, a route to market, a co-design partnership with Swiss Re, and an engaged sales funnel,” Mr O’Dell says.

“For other portfolio companies operating as a regulated entity, we offer regulatory permissions and a comprehensive compliance program that aligns with regulatory reform.”

Mr O’Dell says that the development of data means that it’s a “super exciting time” for insurance and technology specialists.

“Indicators suggest that we’re in the midst of an era that is seeing a rapid closing of the gap between reality and the reality reference layer.

“This is not just being realised in property characteristics for property insurance. New proprietary data

Enabling growth: Greg Mullins, left, and Simon O’Dell

is producing a marked improvement in the understanding of profiles across financial risk, safety risk, compliance risk, reputational risk, professional risk and more.

“Technology start-ups from other verticals unearthing such data are shifting laterally to insurtech to unlock the value in their data.”

He says business models being deployed “to realise value exchange” include software as a service, and managing agents.

“Launching from the Gateway platform, managing agents are able to nimbly deploy pilots, monitoring growth and risk metrics, to test their market entry thesis.

“We’re finding this accurate data produces improvements across both risk metrics, frequency and severity, and offers enough value for the consumer across terms and pricing, to collectively produce a compelling insurance business. Zero-low cost distribution is also key.”

The major challenge remains risk capital.

Mr O’Dell says Insurtech Gateway “has all that an insurtech needs, less risk capital. We offer regulatory permissions, compliance programs, investment capital, venture building services, technology platforms, mentors and advisers, and even reinsurer quota-share partners”.

“But not risk capital. For this, we rely on our insurer partners.”

He says the heavy burden of regulatory reform is holding many insurers back.

“Unfortunately, it seems most insurers aren’t willing to explore innovation while attending to regulatory reform.

“Insurtech Gateway offers a de-risked vehicle for insurers to maintain their innovation goals.

“The insurers who identify this period as an opportunity are benefiting greatly from our collaborations through underwriting opportunities, innovation insights and priority access to our growing global portfolios.”

Insurtech Gateway Australia is supported by insurance industry-focused investor Envest, which also invests directly in insurtech businesses including underwriting agency Blue Zebra, claims managers Claim Central and Hello Claims, and drones pay-as-you-fly specialist Precision Autonomy.

Envest Managing Director Greg Mullins says the financial return profile of insurtech investments can be “very compelling”.

“With the shift of Envest to a distribution business, our top priority is to deploy strategic value-add services to our portfolio partners to provide a competitive edge,” he says.

“Insurtech offers our portfolio partners meaningful advantages in the marketplace, which ultimately gives a better outcome for all stakeholders and most importantly our clients.”

Mr Mullins says the full impact of the coronavirus pandemic on digital transformation has yet to play out.

“A great example of the impact of COVID was, almost overnight we saw an explosion in demand for virtual assessing tools developed by Claim Central,” he says.

“What COVID has done has made people think about how we can do things remotely as effectively as pre-COVID. Where this becomes more cost effective is

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Figure 1 : Annual InsurTech funding trends including transaction volume and dollar amount, 2012 – 2021 Number of deals

400

200

4167

176

150

132

2721

348

276

3,000 2,000

1742

66

46

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2274

94

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4,000 146

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5,000

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all-time high raising lly, total funding grew er a precipitous drop 19 pandemic reached nding grew by 22% as

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hes an all-time rongest on

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Tech-enabled distribution and delivery

Investment amount

where it gets2012 really interesting and I don’t we’ve 2013 2014 2015think 2016 seen the full effects of this yet.”

Year But there is still a long way to go.

“When you look at Australia compared to the UK, reach becomes increasingly weInsurTech’s don’t have the same momentum in terms of good international quality insurtechs coming through.

“Two main are that it ishub, a much smaller The U.S. has beenreasons a long-standing InsurTech but we continue market is dominated handful ofInmajor to see which the growth of InsurTech inby newageographies.

2020, playfrompressure 38 differenton countries investment – in 2016, ers.InsurTech This puts your raised ability to be successful this number was 29. and scale, which is a challenge for investors.

0 that demonstrated 2017 “Insurtechs 2018 2019have 2020 Q1 2021 the ability to

scale in places like the UK and the US will continue to attract funding and investment interest.

“Home-grown insurtechs that deliver tangible value This quarter, U.S. InsurTech deal share grew to 48%, up threeto both the customer, the business and the insurer will percentage-points compared to Q4 2020, but U.S. activity hasn't also have a much better chance of success. rebounded to pre-pandemic levels. In Q1 2020, U.S.-based “There is an encouraging growth of foundcompanies represented over 57% of global InsurTech deals – ers and business who know how to combine a near nine-percentage-point deficit year-on-year. the two and Gateway is assisting investors like us the process ofofidentifying Thein international cohort InsurTechs hasthese.” been driving a growing 0 share of activity. Q1 2021 marked the most geographically diverse set of early-stage start-ups in a single quarter, representing 24 countries including Bangladesh, Estonia, Brazil, Nigeria, and U.A.E.

Annual funding 2012 – Q1 2021 Figure 2InsurTech : Annual InsurTech fundingtotals, totals, 2012 – Q1 2021 8,000

of mega-rounds. Eight n in funding, or 44% activity was driven e in early-stage deals ge point increase from als went to early-stage

7,108

7,000 Amount of funding (US$ million)

er of deals also grew evious quarter. P&Cmajority of investment th L&H representing m Q4 2020.

6,348

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1,742

2,000 1,000 0

2,552

2,274

868 348

276

2012

2013

2014

2015

2016

2017

2018

2019

2020

Q1 2021

The amount of InsurTech funding in Q1 2021 was larger than the full years of 2016 and 2017. It would also have been larger than 2015 were it not for the two significant Zenefits and Zhong An rounds recorded that year. Q1 2021 is over 50% of the entirety of 2018 as a whole and just over 40% of the size of all of 2019.

In summary, Q1 2021 is a seismic investment quarter.

Source: WTW Quarterly Insurtech Briefing

Quarterly InsurTech Briefing Q1 2021

7

Record deals Global insurtech funding reached an all-time high of $US2.55 billion across 146 deals in the first quarter, up 180% from a year ago and 22% from the fourth quarter of 2020.

That was more investment activity than achieved annually in either 2016 or 2017, the latest Willis Towers Watson (WTW) Insurtech Briefing says.

Property & casualty-focused insurtechs represented more than two thirds of deals, with Life & Health making up the balance.

“Over the past few years, we have seen a ramping up of investment into insurtech across the globe,” WTW says.

“The past 12 months have provided a fantastic opportunity to make the most of a turning tide: the era of acceptance

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and openness.”

The first quarter saw a record number of “mega-rounds” of more than $US100 million, which was an all-time record, with eight companies driving roughly 44% of this quarter’s funding.

“While historically mega-rounds are typical of late-stage companies, this quarter, the majority of companies were raising Series C growth rounds, potentially an indication of expanding funding requirements earlier on in the cycle, of froth in the markets, or both.”

WTW says investment is likely to continue to grow, partly because the term insurtech is becoming more widely applied.

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Looking forward: Munich Re’s Simone Dossetor

Connecting and collaborating Munich Re believes Australia can lead the way through insurtech-inspired change and disruption

By John Deex

R

einsurance giant Munich Re has long been an industry leader in innovation. Its Digital Partners division offers expertise and capacity to insurtechs, to create “comprehensive, go-tomarket partnerships”.

Here in Australia, Sydney-based Chief Operating Officer Simone Dossetor tells Insurance News she sees the reinsurer’s role “very much as connectors”.

“There are several ways we contribute to supporting the advancement of insurtech, including through community involvement and partnerships,” she says.

“Munich Re is a founding member of Insurtech Australia and continually looks out for insurtechs to introduce to our clients.

“One of our local insurtech partners is Cover Genius, a fast-growing Australian company offering integrated insurance solutions for online booking platforms.”

Ms Dossetor says Cover Genius is just one of many insurtechs Munich Re supports globally through its Digital Partners business, “which combines Munich Re’s financial depth and experience with a comprehensive, go-to-market partnership for digital disruptors”.

And she sees Australia as a potential global insurtech leader, thanks to its vibrant industry ecosystem and “healthy level of collaboration”.

“When you compare the industry to fintech, owing to its nature, we are more reliant on each other

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“As with all industries, the global pandemic has rapidly accelerated digitalisation and the openness to it.”

for shared expertise and resources to manage risk and build financial strength,” she says.

“While in some areas we compete, in many more we are partners and collaborators.

“With continued support from the industry and government, I believe Australia can develop as a leading insurtech hub for the Asia Pacific region.”

Incumbent insurers are working well with insurtechs, she says, with some spearheading initiatives such as innovation labs and venture funds.

On the other side, insurtechs need to understand that they are unlikely to succeed alone.

“Insurtechs must have a clear plan for growth and to achieve scale quickly at the outset. While many have great ideas, they quickly realise they need a depth of industry knowledge, data, expertise, and the right partnerships to grow and scale.

“Given the importance of partnerships to achieve scale, it is vital to consider these carefully and have a global mindset early on.

“Generally, [incumbents] are looking for start-ups at an early stage where they can shape and further the business through their expertise while also injecting capital. I believe we will continue to see more of these kinds of initiatives and further in-house innovation by insurers themselves.”

Ms Dossetor says the COVID pandemic has opened up opportunities for insurtechs, thanks to the shift to remote working arrangements and an increasing focus on virtual claims assessment and processing.

“Many insurers have struggled to bring manual-based systems up to date fast enough, which has created an opportunity for insurtechs to play a role.

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“As with all industries, the global pandemic has rapidly accelerated digitalisation and the openness to it. Most companies have been forced to adopt new technologies and ways of working to maintain their operations and meet customers’ needs.

“This has also sparked an awakening of the fundamental importance and value of data to businesses and the need for more sophisticated strategies to manage and leverage it.”

Another area of opportunity, but also challenge, is the increased focus on regulation and compliance.

“While presenting an opportunity for innovation and positive change, it has also somewhat distracted from and slowed progress in insurtech innovation, particularly in distribution.”

And climate risk is always a focus for the sector – and Munich Re. “This is of increasing importance for financial services companies across the board, and insurers have a decisive role to play in recognising and developing solutions to respond,” Ms Dossetor says.

“There is more opportunity for insurtech innovation in this space, which remains a key priority for Munich Re.” Advances in technology will continue to bring significant change and disruption to the industry, with insurtechs playing an important role in challenging the status quo.

“As insurers we have typically been very good at looking backwards, analysing the past to plan the future. But the pandemic has taught us the importance of looking forward, building to be nimble, and 0 continuing to innovate.”

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Between a rock and the Dark Web Do ransom payments only add fuel to cyber crime and should they be banned? We polled experts in the field

By Miranda Maxwell

I

f I pay one penny now, I’ll have 14 kidnapped grandchildren.” That was the reaction of multi-billionaire oil tycoon J. Paul Getty in 1973 when kidnappers demanded $US17 million in exchange for one of his grandsons.

Almost 50 years on, cyber crime ensures the debate over whether to concede to ransom demands rages on, and the Getty family case still perfectly encapsulates the conundrum these payments present – an issue that has never dominated the minds of executives and insurers more than in 2021.

Global broker Aon describes ransomware as now “truly weaponised” and calculates a 500% increase in average insured losses since the start of 2017 and a 350% increase in Australian cyber incidents. Cyber premium increases of up to 40% are on the cards this year, Aon says, with the global cyber insurance market set to reach $US14 billion in 2022.

Capacity has commenced a “slow but steady retraction globally and locally,” and in the Australian market, where gross written premium in cyber cover sits near $US110 million, capacity has been withdrawn “for those organisations that cannot convince markets that their security programs adequately address ransomware risks”.

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“Underwriting practices are adapting to the velocity and impact,” Aon notes. “Markets are increasingly empowered to walk away from an organisation that cannot adequately explain their security investment strategy.”

For Kieran Doyle, the Cyber Leader at law firm Wotton + Kearney, all organisations, particularly those that are data-rich, “have to assume they are a target”.

“Ransomware brings even the largest organisation to its knees,” he says.

True. An Insurance News article in March warning of the exposure of critical infrastructure to ransomware attacks proved to be prophetic, with US company Colonial Pipeline suffering a ransomware attack in May that cost it the equivalent of $US4.4 million in bitcoin.

The company was forced to close down its pipeline operations between Houston and the southeastern United States after its computer system was compromised. The payment was made within hours, with the hackers then supplying a software application to restore the system.

The chaos created by that single cyber attack has woken even the most complacent business to the very real dangers of cyber criminals “It is now visible in the community beyond just

headlines,” Clyde & Co Partner John Moran tells Insurance News. “It really impacts individuals.”

Ransomware is defined as malicious software designed to block access to data or a computer system until specified conditions are met.

Typically, threat actors compromise a system and exfiltrate confidential information. They then encrypt it and extort a ransom. Once paid, a decryption code is provided to recover access.

If no ransom is paid, they auction the data on Dark Web marketplaces.

Cybercrime is unusually problematic because the perpetrators can “case the joint” virtually, unhindered by geographic boundaries.

“You’d be an absolute mug to walk into a bank with a balaclava these days,” Mr Doyle says. “Now you only hear about someone sitting in front of their computer on the other side of the world holding a poor little SME in this country to ransom for their business.”

The official advice of The Australian Cyber Security Centre is that companies should never pay a ransom as there is no guarantee cyber criminals will decrypt files once it is paid.

However, research suggests one in three Australian victims do cave in to the hackers, with ransomware

costing the nation $1.4 billion last year, according to security firm Emsisoft.

Cyber crime is now reported to be the fastest growing form of crime in the US and globally. Research firm Cybersecurity Ventures predicts cybercrime costs will reach $US10.5 trillion by 2025 in what some describe as the greatest transfer of economic wealth in history.

Such big numbers are impacting insurance capacity and igniting regulators, with Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres dubbing cyber “arguably the most difficult prudential threat”.

“Given the nature of the issue, we all need to move with speed,” Mr Byres says.

But how? Home Affairs Secretary Mike Pezzullo has confirmed the Federal Government is planning a mandatory reporting regime for ransoms paid to cyber criminals, while the UK is exploring making ransom payment illegal.

But this will merely funnel ransomware activity elsewhere, critics say.

“You have to remember these gangs are businesses, they are corporates, so they will look to diversify their model,” Mr Moran says. “The financial harm that arises will pop up in some other form.”

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“What we should be doing is helping them to follow the money trail and catch the perpetrators.”

Ransoms currently average in the hundreds of thousands of dollars, though increasingly there are much larger demands. For example a $US50 million demand against PC manufacturer Acer was ordered in cryptocurrency.

The 2021 question on everyone’s lips: should businesses give in, or even be allowed to give in, to these faceless cyber ransoms?

Five decades ago an ear and lock of hair from his grandson did eventually persuade J. Paul Getty to cough up a couple of million dollars to retrieve his grandson; it was the maximum amount that could be tax-deducted.

Today it is not body parts but livelihood and reputation that is used to motivate harried executive victims to pay up.

Attackers are now likely to be operated by organised crime or even state-sponsored rather than sole operators. They engage in professional correspondence with victims, negotiating deals and spelling out the business risks.

“You are not just dealing with people that are operating out of their garage,” Insurance House Group Managing Director Jay Fereday says. “This now is officially something every business owner needs to factor into their planning and their consideration.”

Two years ago Insurance House refused to negotiate with cyber attackers in an incident which Mr Fereday estimates cost the business millions of dollars in just days despite the company being well prepared.

Its specialist IT security and consulting advisers recommended locking down systems and deploying backup strategies.

“If we hadn’t done the work that we had done prior,

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our only option might have been to have paid,” Mr Fereday tells Insurance News.

“I am sympathetic for anyone that is in the position of having to deal with it. Your only option might be to in fact pay, but then you are negotiating and at the whim of criminals and you don’t know what you are exposed to at that point.

“You do not know who you are dealing with. It is its own issue and it offers a unique problem for everyone to be constantly aware of.”

Former UK National Cyber Security Centre Chief Executive Ciaran Martin is one who recommends banning ransomware payments. He says attacks are being fuelled because insurance “emboldens” ransomware attacks – a problem that will “only get worse”.

But London-based CFC Underwriting Chief Information Officer Graeme Newman tells Insurance News that blaming insurers for a rise in cyber crime is “lazy thinking” and “misguided”.

“That is far, far too simplistic,” says Mr Newman, who has two decades of experience in cyber insurance.

“The problem is more nuanced and more complex than that.”

Less than 15% of global businesses purchase cyber insurance, so targeting ransom cover policies would be to “ignore the other 85% of businesses who face the same problem without insurance”.

“What we should be doing is helping them to follow the money trail and catch the perpetrators,” he says, recommending more be done to clamp down on cryptocurrency exchanges and a licensing system to regulate any payments.

“Otherwise you just drive this underground and

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“Customers and boards of businesses need to start taking this seriously and start making sure adequate protection is in place.”

take it totally out of the purview of law enforcement.”

Mr Fereday supports the trend noted by Aon to differentiate risks and not reward “those who have decided to put their head in the sand, stay on the old systems they always had, not update those appropriate modern controls”.

“That’s where I think the industry probably needs to go,” Mr Fereday says. “If you really have done nothing to support and secure environment, you probably should expect to pay a higher premium if you want the cover.”

Accenture estimates cyber insurance and risk-mitigation services will generate $770 million in new insurance sales by 2025.

“It’s a different skillset from your classic underwriting,” Accenture Insurance Managing Director Gareth Shaw tells Insurance News. “It is this model to move toward prevention – and what skills and capabilities insurers need to offer that service – rather than just underwriting and claims as and when it happens.”

At cyber specialist underwriting agency Emergence, Founder and Chief Executive Troy Filipcevic says cyber is now the number one risk that businesses face.

“We’re definitely seeing an increase in ransomware; they’re coming thick and fast,” Mr Filipcevic tells Insurance News. “We’re helping lots of clients respond to a lot of incidents and claims so we know that people are getting impacted and we know what the ramifications are.”

Emergence says businesses should deploy multi-factorial authentication, have strong back-ups in place and

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frequent “air gaps” – back-ups disconnected from the network.

A manufacturing client of Emergence was recently attacked and ordered to pay three bitcoins, worth around $180,000, but managed to bargain the ransom down to two coins. In another attack, $US1 million was paid.

Both these ransoms were covered by cyber insurance.

“If an insurer came out and said we are not going to pay them anymore it would be suicide because everyone will move their cyber business to people that are paying ransoms,” Mr Filipcevic says, adding that market education needs to achieve “bigger cut-through”.

This is particularly important for Australia’s 2.6 million SMEs, which are at once the most vulnerable and the most unprepared.

“Uptake is a major issue,” he says. “A fraction of the market is buying cyber insurance. It’s a very under-utilised cover. Customers and boards of businesses need to start taking this seriously and start making sure adequate protection is in place.”

Insurers play an important role in illuminating ransomware risks for insureds, and Wotton + Kearney’s Mr Doyle recommends the industry should concentrate more on mitigation and education to reduce insured losses.

“There is more of a space there for insurers in that pre-loss consulting and risk engineering and mitigation. In theory it should reduce losses and create 0 better risks.”

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Earning its stripes: Blue Zebra positions for future growth Insurtech underwriting agency Blue Zebra is migrating to a “next level” systems platform to support the growth of its fast-expanding business.

Managing Director Colin Fagen tells Insurance News the agency has “basically rebuilt” its Blue Leopard insurance platform so that it can take on more clients and products easily.

Mr Fagen says the migration to the rebuilt platform, first announced in April to Insurance News, will probably take about nine months to complete.

He says the business will likely write $500 million of business with 40 people under the rebuilt system while products can now be built in four to six weeks.

“This basically underlines how fast Blue Zebra has grown since its launch in 2018 and its adaptability and ability to change quickly,” Mr Fagen tells Insurance News.

Mr Fagen says the business continues to outperform

expectations despite the difficult economic environment. It announced on its LinkedIn page that it is now insuring commercial property owners.

“We’ve grown more than we were anticipating and all the underlying financial results for the portfolio are very strong,” Mr Fagen said.

“We’re seeing a lot of interest from brokers throughout the country and we’re seeing a very strong renewal retention as well as new business take-up rates.”

Mr Fagen says other underwriters are increasingly attracted to using the Blue Zebra system and insurers are showing interest too.

“We’re pretty excited about this and we’re starting to look at offshore opportunities,” he said.

Blue Zebra was launched in 2018 with the aim of bringing personal lines back to brokers, but has increasingly expanded into other areas including SME, com0 mercial motor, cyber and accident and sickness.

Build to Rent: CHU moves to plug market gap Strata specialist CHU has introduced a new offering called Build to Rent in response to a growing number of developers and builders who are opting to retain full ownership of completed dwellings instead of selling them.

The Steadfast-owned underwriting agency says the product is a first in Australia that is dedicated to this segment of the property market.

CHU says many developers and builders in major cities in the UK, the US, Japan and Europe are already preferring to manage their property projects by remaining as owners.

The units are leased directly to tenants and cannot be sold individually. The property is not registered as a strata title either.

CHU says in Australia, the built-to-rent trend is gaining momentum.

“There is a gap in the insurance market for these non-registered strata style units,” Chief Executive Kimberley Jonsson said.

“The risks seem to fall between the cracks for insurance, as they are neither a registered strata plan nor a residential home building.

“CHU’s new product will give the owners of these properties peace of mind.”

The agency says its product is designed for a built-torent residential property in which all units are retained by a developer, owner(s), a managed investment trust or another entity that then leases individual units directly to tenants.

The product insures the property, provides liability insurance, covers machinery breakdown and also 0 includes catastrophe insurance.

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Connecting with Australia: Bobby in action at North Curl Curl Rock Pool.

Credit Chris Chen

Reflective moment: Bobby, right, with brother Adrian, middle, and friend Rick Warr at Austinmer Ocean Pools

Bobby rocks 100 pools The former CHU chief has raised $90,000 for Lifeline through his epic swimming adventure

W

hen Bobby Lehane left CHU Underwriting Agencies in December after six years as its chief executive, he had a plan in mind to do something completely different – something that would also benefit others.

The plan: to swim in every one of the 100 rock pools that stretch along the New South Wales coast from Yamba in the north to Eden in the south, and to complete the task in 100 days.

His “RockThePool” 2021 swimathon would be supported by sponsorships from friends and his many industry colleagues. It ended up raising around $90,000 for Lifeline.

The challenge also included the Mooloolaba Triathalon in Queensland and the Port to Pub swim from Fremantle to Rottnest in Western Australia, as well as the Malabar Magic and Coogee Island Challenge swims in NSW. That’s a lot of water for an Irishman who left his native country at the age of 23 and only took up swimming six years ago.

Jumping in at the Freshwater rock pool in Sydney on New Year’s Day, he completed the 100 swims spanning 250km in 100 days, finishing at Coogee Beach in April.

Mr Lehane has 13 siblings and is married to a Lifeline financial counsellor. He spent seven years at Zurich in Australia prior to joining CHU. He says the initiative promoted physical exercise as a valuable asset in improving mental health.

Lifeline has experienced a large increase in counselling demand since the onset of COVID-19, with call volumes up by more than a quarter. Mr Lehane’s epic adventure brought him what so many Lifeline clients are seeking – “peace, happiness and perspective”.

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“My sense of connection to Australia has been accentuated through the RockThePool 2021 adventures of the past three months,” he tells Insurance News. “It took in the beauty of the NSW coast, swimming in some of the most spectacular pools on earth and experiencing many welcomes along the way.

“We have raised much-needed funds for Lifeline, exceeding the original target of $50,000 at a time when demand for their services has seen a significant spike,” Mr Lehane says.

“Along the way we’ve been joined by swimmers new and old with varying degrees of comfort and confidence in the water. All rose to the challenge, with many surprising themselves.”

Mr Lehane is now making a “RockThePool2021” keynote presentation available, which showcases spectacular footage and stories from the swimathon. It will debut at the Strata Community Association national conference in Adelaide on June 23. All proceeds from 0 the presentation will go to Lifeline.

Strong backing: Bobby, bottom right, with former colleagues and supporters from CHU

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Leap of faith: from left, Damien Coates, Stefan Feldmann, David Kearney, and James Baum

CEOs take to the skies A quartet of insurance bosses raised more than $80,000 to help mental health support programs when they took up a skydiving challenge organised by the Black Dog Institute.

Mental Health in April.

Dual Asia Pacific’s Chief Executive Damien Coates raised $29,248 while supporters of Aon’s James Baum chipped in with more than $22,000.

“It’s great to see the insurance industry getting behind mental health,” he told Insurance News.

HDI Global Managing Director Stefan Feldmann drew in $14,066 from his supporters and David Kearney, Chief Executive of insurance law firm Wotton + Kearney, raised $19,369.

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Mr Coates is “petrified” of heights but decided to take the challenge to support the work of the Black Dog Institute.

Mr Baum says he is “proud” to take part in the event as it offers an important opportunity to keep the conversation around mental health going year-round.

And Mr Feldmann says developing a culture where employees feel comfortable to talk openly about their mental health is a top priority 0 for HDI Global.

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Resilium hosts cocktail soirées in five cities Resilium Authorised Representatives and staff across Australia were treated to cocktails and canapes at spectacular venues across Australia last month at functions hosted by the network’s leadership team.

Managing Director Adrian Kitchin said the events, held in Adelaide, Perth, Melbourne, Sydney and Brisbane, were a great success and a wonderful way to meet face-toface with Resilium ARs from all over the country.

Resilium is Australia’s largest independently owned, intermediary network, connecting more than 150 Corporate Authorised Representatives nationally with over 100 insurers across the globe, providing insurance solutions to 0 clients across Australia.

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ANZIIF lunch raises funds for Camp Quality The Australian and New Zealand Institute of Insurance and Finance (ANZIIF) hosted its South Australian Charity Luncheon on the second Friday in May, presenting a $3000 cheque to Camp Quality to support its work helping children impacted by cancer.

The Adelaide luncheon and presentations, which were followed by an afternoon of networking drinks, have gained a reputation as one of the key charity events on the South Australian calendar, offering the opportunity to meet like-minded industry professionals while supporting the local community.

Fundraising activities included a silent auction, a wine wall and a raffle and attendees wore a touch of yellow in a show of support for Camp Quality.

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The event’s master of ceremony was former Port Adelaide team captain Tim Ginever, who had a 314-game league career. ANZIIF GM Industry Engagement Damian Falkingham and Camp Quality CEO Deborah Thomas (former editor-in-chief at The Australian Women’s Weekly) also addressed the gathering, as did volunteer Shaun Li. Camp Quality’s iconic Kylie, Dean and Mel puppets and “Laughter is the best medicine” t-shirts were bright features among the crowd and a reminder of the charity’s innovative programs and services which strengthen the wellbeing of children growing up with cancer and their families.

ANZIIF thanked the event content committee: ANZIIF’s Rod Winders, MIGA’s Meredyth Stewart and 360 0 Underwriting’s Blaise Silva.

AUSTRALIA

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QBE’s annual AFL event raises $20,000 QBE hosted the volunteers and families of its charity partners at a clash between the Sydney Swans and GWS Giants in April, raising $20,000 for its Goals for Good initiative.

QBE employees who support the work of its Foundation were in attendance, and volunteers from Orange Sky and The Kids’ Cancer Project were given the opportunity to do the coin toss and ball run out.

“We were thrilled to invite our charity partners to the clubroom to enjoy the game and an afternoon of entertainment as a small thank-you for the incredible work they do,” QBE Foundation CoChair Jason Clarke said.

A late surge in a gripping final quarter saw GWS come back from 21 points down to win in front of a bumper crowd of more than 33,500 at what was the first Swans match in the harbour city for 20 months.

QBE donated $1000 for each of the Swans’ 10 goals and then doubled the result, taking its contributions to charity partners and community causes to almost $300,000 so far this year.

QBE has a 35-year long relationship with the Sydney Swans and the latest windfall will go towards the Australian Red Cross, Orange Sky, Foodbank Australia and R U OK?, as well as the Sydney Swans Foundation.

Sydney Swans CEO Tom Harley says the initiative is an important opportunity to come together and celebrate the work of the charities involved.

“QBE Goals for Good is an outstanding initiative that highlights our shared commitment to our communities. On behalf of the club and the Sydney Swans Foundation, I would like to extend my gratitude to QBE for their ongoing 0 support and generosity.”

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Perfect day for Autumn Luncheon The Association for Women in Insurance NSW has celebrated a return to the events calendar with a sold-out Autumn Luncheon.

Nearly 500 people attended the event, enjoying lunch, entertainment and networking drinks on the balcony at Dockside Cockle Bay amid stunning autumn weather.

Comedian and mathematician Adam Spencer was the guest speaker, delivering an entertaining commentary around statistics and mathematics relating to all things COVID, bitcoin, artificial intelligence and insurance.

Advanced Buildings, a supporter of the Autumn Luncheon for more than a decade was the major sponsor for the event, attended by industry professionals including underwriters, brokers, lawyers, service providers, builders, adjusters and other stakeholders.

The lunch was the group’s first event on the schedule for this year and the first time the industry has come together through the association since December 2019, with the pandemic causing the cancellation of last year’s program. 0

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Get your applications in before 30 July 2021 As part of our Long Live The Broker campaign and in association with Steadfast, HCi is delighted to be supporting our female brokers and offer a curated program of relevant and topical courses that will benefit both the individual and industry as a whole.

Our Aspire Women Leaders Program is a year-long development program specifically tailored to Steadfast female insurance intermediaries who are looking to become future business leaders.

Valued at around $25,000 per participant, the program is fully subsidised by Steadfast and HCi* Participants will be eligible to receive a Certificate in Executive Management and Development from the Australian School of Graduate Management (AGSM). visit www.hollardcommercial.com.au/aspire/ I email aspire@hollardcommercial.com.au Hollard Commercial Insurance Pty Ltd (ABN 86 603 039 023, AFSL 474540) (HCi) acting under a binder as agent for The Hollard Insurance Company Pty Ltd (ABN 78 090 584 473, AFSL 241436) (Hollard) * Exclusions - The following are NOT covered and will need to be met by your business: Participant travel costs and any extra accommodation required for participants arriving before the morning of day 1 and leaving after the afternoon session of day 3 of each on site module.

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Golfers compete at inaugural 360 classic A select group of 360 Underwriting Solutions broking partners gathered at the Bonville International Golf Club in Coffs Harbour in the last week of April for the inaugural 360 classic.

The competition, held across two days of perfect playing weather, was tight until Aviso CEO Craig Robson ultimately took the win.

360 Founding Directors Denis Morrissey and Chris Lynch say they’re grateful so many attendees were able to travel and meet on location amid continuous COVID disruptions.

“It was great to be able to have so many in-person conversations with our broking partners,” Mr Morrissey said. 0

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Zurich holds broker events at North Sydney office Zurich invited more than 90 brokers to its new office in North Sydney, where they were hosted by Chief Executive Tim Plant and his team.

The insurer moved late last year to Zurich Tower, which offers views of the city’s iconic Sydney Harbour.

The insurer says the two events, on April 20 and 28, aimed to reinvigorate the partnership with its top tier brokers and convey the message of progression and optimism for the year.

Joining Mr Plant at the events were Chief Distribution and Deal Management Officer Giles Crowley, Chief Underwriting Officer Sean Walker, Southern Regional Manager South Australia, Victoria and Tasmania Hamish MacLean and Regional Manager NSW David Foote.

Mr Plant and his team shared with the brokers their market insights and discussed ways to support 0 them.

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A

s Treasury officers begin working out the details of a reinsurance pool to deal with the affordability and availability issues surrounding property insurance in northern Australia, it’s worth taking a look at some of the schemes operating elsewhere in the world.

Let’s start with the French nat cat reinsurance scheme, the Caisse Centrale de Réassurance (CCR), which is a partnership between insurers and the state.

France is one of the very few countries with a system that guarantees all its citizens, its businesses and its territorial municipalities adequate compensation at affordable rates.

CCR was formed in 1982 after the French Government recognised the economic consequences of low insurance levels against natural disasters.

It provides insurers with unlimited state-guaranteed reinsurance coverage against a wide range of natural catastrophes arising in France and its overseas territories.

AM Best says CCR “improves the consistent resilience” of French insurers by providing an unlimited state guarantee, while at the same time protecting the insurance market from the sort of performance and balance sheet volatility inherent in peak exposures.

So how does the French nat cat scheme work? It’s quite simple. It takes a compulsory 12% of property insurance premiums and 6% of fire and theft premiums for vehicles from a total of about 90 million policies, giving it last year a gross premium income of around €1 billion and a profit of €90 million.

For insurers, the CCR deal provides a 50% quota share after any listed natural disaster. CCR says it can support a €4.5 billion event without triggering the state guarantee.

Meanwhile, the United Kingdom has Flood Re, which was launched in 2016 to provide cover for the 2% of British homes

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By Terry McMullan

most exposed to flood risks. That’s about 250,000 homes, although critics say a more accurate figure would be 370,000.

In 2000 serious floods affected 10,000 British properties and caused £1 billion in damage. As a result the UK Government and the Association of British Insurers drew up a “statement of principles” under which the Government agreed to keep investing in mitigation projects and the insurers agreed to keep insuring at-risk properties at existing rates. This was financed by a levy on all home insurance premiums.

But then new entrants to the home insurance market, who weren’t bound by the agreement, undercut the prices of the insurers who were.

After much debate and various changes to the statement of principles – and a call for a government-underwritten reinsurance scheme for high-risk homes – the insurers bit the bullet and launched Flood Re in 2016.

It’s a non-profit organisation which caps domestic flood insurance premiums and is managed and paid for by the insurers. All home insurers have to belong to the scheme, with the levy raising about £180 million a year.

To avoid Flood Re encouraging people to build in flood-prone areas, houses built since 2009 are not covered by the scheme.

The Government has committed to providing any necessary relief resources if the UK is hit by a 1-in-200 year flood.

Flood Re is expected to be in place for 25 years before transitioning back to the free market, which gives the Government and local councils time to build sufficient flood control measures and reduce high-risk properties’ exposures to flood.

Critics say the scheme was drawn up without consideration for the consequences of climate change, which is expected to increase the number of flood risks over the years. Only time will tell.

We turn now to the United States, where

The National Flood Insurance Program (NFIP) – a program that eats money – was created in 1968 to make it possible for people living and working in flood-prone areas to buy flood insurance.

The NFIP’s availability is limited to communities that adopt “adequate land use and control measures with effective enforcement provisions to reduce flood damage by restricting development in areas exposed to flooding”.

While it was intended to provide an insurance alternative to disaster assistance, it hasn’t really worked out that way.

The NFIP insures some 5.5 million homes, mostly in hurricane-prone Texas and Florida. Its costs were fully covered by its premiums until 2004.

But then came major hurricanes like Katrina, which hit New Orleans in 2005, killing 1800 people and causing $US125 billion in damage, and Hurricane Sandy in 2012 (estimated damage cost: $US25 billion). The resulting floods saw the NFIP slip to $US25 billion in debt, and it hasn’t recovered since.

While the US Congress cancelled $US16 billion of the debt in 2017, today it owes the US Treasury $US20.525 billion.

Critics say the NFIP is compromised, because owners of property in floodplains frequently receive disaster aid as well as payment for their insured losses.

And a group called Taxpayers For Common Sense has pointed out that “properties which flooded 17 or 18 times are still covered under the federal insurance program” without premiums going up.

The Federal Emergency Management Agency, which administers the NFIP, also outsources many policies to private insurers, paying claims directly to them with “little oversight and few rules”.

This is one model you have to hope won’t get any traction in Canberra. For the French and UK models, there are some attractive features that deserve consideration.

0

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